How to best attract investors
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Foreign investments play a huge role in the development of modern economies. But, why is it so difficult for Armenian companies to attract foreign investors? How do companies begin to raise the investment appeal of Armenia. Is there any hope for development of capital markets in our country? All these questions were discussed by Arno Mosikyan, Investment Banking Director at Ameriabank, in his interview.

Mr. Mosikyan, to what extent does the investment climate in Armenia help attract foreign investments?

This question is rather broad and manifold, and impossible to answer in one short interview. Firstly, the most appropriate approach to this question would be to divide it into two categories: are we discussing portfolio investments in capital markets, or foreign direct investments in the real sector? For the benefit of this discussion we better leave macroeconomic policy and stability, government strategy, state agency transparency issues, and etc. for the time being.
From the viewpoint of foreign direct investments, well, to be honest, it has never been easy for the private sector to lure and harbor foreign capital, and one should note that this “weak gravitational force” is not because of business capacity, but rather foreign investor sentiment towards the country. Ever since the day of its establishment, Ameriabank has been actively working with foreign investors who invest their money not just in financial sector, but in other sectors as well. We understand their requirements well enough and know what difficulties they face throughout the lifecycle of their investment process.
Before “selling” their equity stories or pitching an investment project to foreign investors, companies from Armenia spend considerable time and resources explaining why investors should go for a particular investment in Armenia and in a company, in what jurisdictions they will work, what sort of country Armenia is, what strategic benchmarks it has, range of comparative competitive advantages it offers, whether it is a rule of law “playground” in terms of protection of foreign investor rights work, and etc. In other words, it becomes obvious that country’s PR/IR agent (the Government of Armenia) still has much to do to promote the country on international arena.
The best way to understand and assess country’s investment attractiveness is to conduct a perception study among foreign investors who have made investments at least in the region (South Caucasus, CIS, or South-Eastern Europe). What do they associate Armenia with, how is the country positioned, how do they perceive it? If you ask me, apart from Mount Ararat, Noah’s Ark, perhaps Armenian brandy, and of course Kim Kardashian, nothing pro-business is a matter of first recall or association among those investors, while it won’t be a major revelation if I say that in order to magnet foreign investments substantial business related features are required, and yet please mind that I am not claiming here that those factors/features are not there, what I am trying to say is that the country has been left in the backstage of foreign investment “beauty contest” simply because the abovementioned agent has not been sufficiently qualified.
Speaking of portfolio investments, there are other factors that we should pay attention to, such as what investment products are offered to investors, the scale and liquidity, whether or not critical trading platforms, including biggest market segment (Treasury bonds), are connected to global clearing and settlement, and custodial infrastructures, and etc.
Strangely, the line of conduct of some state agencies in this context is sometimes difficult to comprehend. Just imagine a real situation where some officials representing the Government – the issuer of sovereign Eurobonds of Armenia – refuse to meet major foreign institutional investors (something unheard-of) who have invested in those Eurobonds, and who once a year visit our country to assess the investment climate, fiscal policy and macroeconomic situation in order to decide whether or not to continue holding these bonds in their respective portfolios. From the viewpoint of raising attractiveness and nurturing interest, this is a step in quite the opposite direction.
Note that this October, the Government of Armenia and the Armenia Development Fund (funded by the Asian Development Bank) will hold an investment forum in New York. Among many guests and attendees are investors from various countries, including the Armenian Diaspora. The forum will be held with the support of an international consortium headed by Ameria Advisory, and the other participant of the consortium is US-based Pragma consulting firm. The aim of the forum is to present to the investors the potentially promising economic sectors of Armenia with a detailed analysis of investment opportunities.
The matter is interesting enough and can be discussed over and over again, but I think we can draw a line under your question with the following conclusion: there are definitely ways to make the country more competitive and thus attractive for foreign investors. In this regard, we must evaluate all developments in the region, be ready to get into relevant processes and not lose the momentum. Whether Armenia can become a avant-garde platform for foreign portfolio investments in Iran (which, let us hope, will open in the nearest future) or in Russia (due to de-offshorization processes) and substitute the jurisdiction of Cyprus for Russian private capital, whether Armenia’s agricultural and manufacturing industry can gain a substantial share in certain market niches in EEU and EU…. These are questions, which still await their “heroes” both in the Government and private sector.

Armenian companies, not having credit rating, cannot raise funds from IFIs. Ameriabank already has some IFI fundraising experience for local companies. Will this process become simpler after EBRD’s acquisition of equity stake in Ameriabank?

This is not entirely correct. Certainly, good credit history and high quality credit rating help attracting funds more quickly and at more favorable terms, but absence of a credit rating or credit history does not necessarily mean that non-public debt markets are closed to Armenian companies.
In 2008, when we were starting as a commercial bank practically from scratch, Ameriabank was in a similar situation. Yes, we had to make efforts to establish our cooperation with IFIs, but the result is that so far, we have raised about 500 million US dollars in long-term funding for the economy of Armenia. Fitch affirmed our credit rating equal to that of the sovereign; the Netherlands Development Finance Company (FMO) signed an unprecedented deal for a 20 million USD convertible subordinated debt, the hitherto biggest subordinated loan agreement in Armenia was with IFC (50 million USD), and the biggest single ticket equity investment in the region was by EBRD (30 million USD equity in Ameriabank).
Now with our help it will of course be easier for Armenian companies to benefit from IFI financing. We have been working to this end for 5 years and our clients are big Armenian manufacturers in various economic sectors. I must say, though, that just the desire to attract investments and pay for the services of Ameriabank is not enough to raise debt and equity finance from IFIs. Working with such partners requires different level of transparency, corporate governance, and professionalism of senior management. You should not be affiliated with the Government and you should have a functional environmental and social management system in place. Obviously, all these require substantial costs in order to hire a reputable audit company and professional managers, but there’s much more to gain. Eventually, the client gets long-term and relatively cheap funding (which no local commercial bank can offer on the same terms).
The signing of deals with EBRD and IFC not only facilitates access to financial markets, but fundamentally changes the situation in the banking sector of Armenia. Previously large companies had been raising syndicated loans from international banks without pooling in local banks, for them capital restrictions, credit rating and hence cost of funding were bottlenecks and made them unable to quote competitive terms to match those offered by international banks. As you know, CBA standards impose restrictions on maximum amount of exposure per borrower – a ratio that directly depends on the size of the banks’ regulatory capital. After signing these deals with EBRD and IFC, Ameriabank’s regulatory capital increased almost two-fold, and now we can afford financing bigger and more vital projects for and in the country which in its turn will trigger a chain reaction: local bank resources will be deployed in local investment projects, interest income will not “leave” the country, banks will gain more profit (new jobs), and the state budget will get more taxes.
In addition, Ameriabank and EBRD can co-finance various investment projects which will increase Ameriabank’s lending capacity at least two-fold.

One of EBRD’s strategic goals in Armenia is the development of capital markets. In this regard, what outlook does this partnership open for Ameriabank?
It is beyond any doubt that the new level of cooperation of Armenia’s biggest investment bank with EBRD will be beneficial for the capital market of the country. But we must not expect that we’ll be able to fundamentally speed up the development of the market, for we are a commercial organization and have to earn money for shareholders. Certainly, if we manage to contribute to market development while doing our business we will be only happy.
As you rightly said, for EBRD development of capital markets in Armenia is a key task, and they have long since been working towards enhancing the infrastructure and creating preconditions for development.
EBRD’s priorities for the coming years are set forth in EBRD’s Strategy for Armenia built on three key components: enhancement of competitiveness of the private sector through company capacity strengthening, increasing the transparency of governance and the business environment, development of capital markets and enhancement of access to long-term AMD resources, as well as development of sustainable public utilities.
Ameriabank has everything to offer to both EBRD as a partner in Armenia, and to clients and the State in all these areas, and we are hoping for a win-win partnership.

Updated 19.05.2016, 10:25
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