ARMENIAN EUROBONDS PAVE THE WAY FOR FURTHER FINANCIAL DEVELOPMENT
Monday, December 9th, 2013
Investment Banking Director of Ameriabank Arno Mosikyan
YEREVAN (Arka)-On September 19, Armenia completed its first
issuing of Eurobonds. The volume of the issue was $700 million,
with a maturity period of 7 years, and yield of 6 percent. The
main underwriters of the issue were Deutsche Bank, London Branch,
HSBC Bank and J.P.Morgan Securities. According to the Ministry of
Finance of the Republic of Armenia, the demand for Armenia’s first
US dollar-denominated Eurobonds crossed $3 billion during the very
first days of their issuing. In his interview with Arka News Agency,
Investment Banking Director at Ameriabank Arno Mosikyan talked about
the Armenia’s pioneering Eurobonds.
ARKA: What is your evaluation of Armenia’s first issue of Eurobonds?
ARNO MOSIKYAN: The decision to enter the Euro-market was a right one
and we do hope that the market terms of the attracted funds will help
manage public finance and debt more effectively.
Both teams, the team of underwriters and our country’s team at road
shows in New York, Los Angeles and London, were quite representative.
Overall, the executive part of the project was very well planned.
Ameriabank kept a finger on the pulse from preparation stages until
the closing of the transaction. Our friends and colleagues from JP
Morgan and other investment banks, as well as investors attending
the road show, were quite impressed by our team. According to one of
our partners, a famous institutional asset manager who had attended
the road show in New York, the team of our Ministry of Finance and
Central Bank was able to adequately answer even the most scrutinizing
questions from investors.
However, in our opinion there were two major factors adversely
affecting the yield of bonds: certain geopolitical developments
which were information-wise not well planned. We believe we could
have saved dozens of basis points if we had done the media planning
more efficiently and organized the underwriter/lead manager selection
process more transparently.
As for maturity and volume, they depend on the yield. Note that the
volume of subscription to these first Eurobonds of Armenia shows
that investors are interested in our debt papers and we can attract
another 2-3 billion from international debt capital market.
ARKA: How will the issue of Eurobonds influence Armenian stock and
financial markets and the economy as a whole?
A.M.: The impact on Armenia’s stock market cannot be efficiently
assessed since the market itself is in a nascent stage and there is no
apparent correlation between the issuing of Eurobonds and our stock
market. But there are certain indirect factors which can influence
our market. Just the fact of the issuing of Eurobonds and appearance
of the name “Armenia” in the international debt capital market can
increase investors’ awareness of our country and there is a chance
that they will more frequently than before consider Armenia for other
potential investments.
The influence on the financial sector will be more tangible. By
issuing Eurobonds, the government set a minimum threshold for those
corporate issuers, including banks and credit organizations, which
attract debt from international markets. This means that the limit
of attracted IFI loans for banks is now closely connected with the
current and future yield of sovereign Eurobonds: the lower the yield,
the lower the interest rates for attracted loans and hence the lower
the rate for funds on-lent to economy.
As regards overall impact on economy, all our hope is that government
will use the attracted funds efficiently and pursuant to the same
reasonable logic which has been helping developed countries for well
over 300 years: credit funds should only be invested in those projects,
the return of which is higher than the interest rate of the credit. If
the attracted funds are “locked” in inefficient projects such as
asphalting the streets in Yerevan, we will drive ourselves into a debt
pit whence there is only one way out – default and loss of sovereignty.
Note that 2014-2017 will be rather hard years for Armenia in terms
that the peak of external public debt payments falls upon these years.
Therefore if we use the attracted funds correctly we will be able
to mitigate this huge outflow of funds, achieve multiplier effect of
added value in economy and stimulate GDP growth.
ARKA: In your opinion, will Armenia’s Eurobonds be attractive and
competitive on international markets?
A.M.: This maiden issue of Eurobonds was an important step towards
the development of practice and public debt management systems. Until
now, Armenia was working with IFIs which had mandates for assisting
sovereign member states in achieving economic development and gave
loans under subsidized non-market terms.
Now we have to deal with investors from Wall Street and City, who have
purely commercial interests and who are emotionally more neutral. Key
criteria for them are stable credit risk (not worsening at least
until maturity) and the credit rating of the issuer, efficient public
finance management systems, transparent budget policy, and liquid,
deep and wide secondary market of bonds.
Our government has done a huge job, but there is much to be done yet
to improve this and further issues with respect to quality, in order
to make them more attractive for investors.
We expect, among other things, for subsequent issuings to build the
yield curve at least for a 10-year period and cooperation with rating
agencies to develop and obtain sovereign credit ratings from S&P. We
also expect road shows and meetings with investors to be conducted
regularly during key events in international debt capital markets.
In addition, we must strive to have our bonds included in top indexes
oriented to developing countries, such as J.P. Morgan Emerging
Markets Bond Index Global (EMBI Global), create liquid, deep and wide
secondary market of bonds, and try and rid ourselves of the nickname
“Kardashian Bonds.”