On September 19 the Armenian government raised $700 million from its first-ever sale of Eurobonds on international markets. The 7-year bonds were sold through Deutsche Bank, HSBC and J.P. Morgan at a yield of 6 percent. An Armenian finance ministry statement said that investors were ready to buy as much as $3 billion worth of Armenian external bonds. ARKA news agency asked Ameriabank investment and banking director Arno Mosikyan to comment on the first sale of Armenian Eurobonds.
ARKA – Mr. Mosikyan, what do you think about the first sale of Armenian government’s foreign currency bonds ?
Arno Mosikyan – The government’s decision to issue Eurobond was right. The bonds were sold through Deutsche Bank, HSBC and J.P. Morgan. The team representing Armenia during the roadshows in New York, Los Angeles and London worked quite effective. In general, the executive part of the project was organized at a good level. Ameriabank monitored this project from the first stage to conclusion of the transaction. Our friends and colleagues at JP Morgan, other investment banks and investors participating in the roadshows, commended the team for good work. According to one of our partners, who participated in the New York roadshow, the team made of of the ministry of finance and the Central Bank employees gave full answers to all questions of the investors. However, the yield of the bonds was affected by the two main factors – geopolitical developments, which in terms of information were not well planned. We think we could have saved more than a dozen basis points with a more efficient media planning and more transparent process of selecting underwriters / lead managers. As for the amount and timing, they are derivatives of return rate. It should be added that the amount raised from the first sale of Eurobond showed that investors are interested in our debt securities, and the country can raise another $2-$3 billion from sale of external bonds.
ARKA – How will the first sale of Eurobonds affect the local stock and financial markets and the economy as a whole?
A Mosikyan – Its impact on Armenia’s stock market is difficult to estimate, because the market itself is still in its infancy, and we do not see a strong relation between the first sale of f sovereign bonds and the stock market. But there are indirect factors that may affect the stock market. The fact of the sale and the appearance of the word “Armenia” in the international debt capital market’s vocabulary can increase the awareness of the international financial community of Armenia, and investors are likely either frequently or sometimes ‘to drop in’ for other possible investments.
As for the impact on the financial sector, it will be quite noticeable. By issuing the Eurobonds, the government “marked” the lowest threshold limit for those corporate issuers, including banks and credit organizations, which attract debt resources from international debt markets. Consequently, the minimum level of new resources to be attracted in future will depend on the level of current and future profitability. The lower the yield of sovereign bonds, the lower interest rates will be for the banks to borrow money and, therefore, lend to the economy at lower interest rates.
As for the impact on the economy as a whole, all our hope is that the raised money will be invested or used effectively and according to the logic that helped developed countries for more than 300 years. This means the loans must be invested only in projects with high return and higher yield than the interest. If this money is used for paving the streets of the capital, we will drive ourselves into a debt trap from which there is only one way out – default and loss of sovereignty.
It must be remembered that 2014-2017 will be quite difficult for Armenia, as the biggest foreign debt payments fall on these years. So, a clever use of the raised proceeds will help us alleviate the negative impact of that huge outflow of financial resources, to secure multiplicative effect of added value in the economy and the growth of real GDP.
ARKA – Will the Armenian Eurobonds, in your view, be attractive and competitive in the international markets?
A. Mosikyan –the debut sale was an important practical step towards the development of the entire system of public financial management. Until today, Armenia dealt with international financial institutions which have a mandate for the development of their sovereign member states provided loans at subsidized and non-market conditions.
Now we are dealing with investors from the Wall Street and the City, who are pursuing purely commercial interests, and who are less emotional with issuers. Their basic guidelines are not worsening of the bonds credit risk (and therefore credit rating ) of the issuer, an effective system of public financial management, clear fiscal policy , as well as liquid , deep and wide secondary bond market .
In spite of the tremendous work that has been done by our government, a lot still should be done towards improving the quality and performance of the subsequent sovereign issues, which will increase the attractiveness of these instruments among investors.
In particular, we expect other issues to follow to build a complete yield curve, at least to the point of the 10 – year period, we also expect relationships with the rating agencies to develop for obtaining the sovereign credit rating of “Standard&Poor’s ” we should conduct periodic roadshows and investor meetings during important and major events in the international debt capital markets.
In addition, we should try to include our bonds into well-known bond indexes, aimed at developing countries, such as JPMorgan Emerging Markets Bond Index Global (EMBI Global) and to create a liquid, deep and wide secondary bond market. -0-
