Arno Mosikyan: Clients choose reliability and reputation

YEREVAN, MARCH 29, ARMENPRESS. The investment banking market of Armenia is quite developed and dynamic, but not everyone is aware of it. Investment bankingactivity, as a segment of financial market, remains out of the attention of mass media. Details of major transactions taking place in Armenia, their sides and motivations are not sufficiently illustrated, but here rather interesting developments take place. Arno Mosikyan, Investment Banking Director at Ameriabank CJSCtold about this in an interview with “Armenpress” presenting the details of the sphere.

-Mr. Mosikyan, how has the situation in the investment banking market changed over the recent years?

-There were no material transformations. The only aspect I would like to highlight is that clients have become more interested in local advisory firms. A couple of years ago shareholders preferred to hire foreign consultants for management of large-scale projects, while now they choose from local advisory firms.

As to the specifics of investment banking services in terms of prices, the main competition here is in the high-price segment. Our competitors are the Armenian “daughters” of the Big Four (four biggest audit and advisory companies in the world), but the number of executed deals, the volume of investment banking and advisory services provided to clients by Ameriabank and Ameria Group surpass the volume of services rendered by all our competitors combined. There is no remarkable competition in the mid-price segment the main players of which are members of the Big Ten (top ten international audit firms). Unfortunately the economy segment of the investment banking market in Armenia is still underdeveloped; the demand for these services among small and medium enterprises is rather low and has episodic character. I must say that the premium segment of this market is deadlocked for objective reasons. This segment was mainly made up of privatization tenders and infrastructural projects of the Government. Here the main players were prominent global investment banks providing advice to the Republic of Armenia Government, and such advice is very expensive, so projects themselves should be worth at least USD 100 mln. Since all major assets in Armenia have been privatized, this segment, as I said, has entered a stagnation phase, except, of course, the arrangement for two sovereign Eurobonds issues by a global underwriters syndicate.

As to the product line, we feel rather comfortable in the market. For instance, the share of Ameriabank in bonds underwriting segment exceeds 40% according to CBonds rating (international financial information agency). We have placed more securities than the rest of underwriter banks combined. In 2015 we arranged placement of the three issues of AMD bonds of the European Bank for Reconstruction and Development (EBRD), provided a liquid secondary market on NASDAQ OMX Armenia for bonds of International Finance Corporation (IFC), EBRD, local corporate issuers. Our plans for this year are rather ambitious too. Most likely Ameriabank will issue its own bonds for the first time. We are also negotiating with potential issuers on the subject of further placement of bonds.

In 2015 we raised long-term resources in the amount of USD 120 mln for our corporate clients and are now attracting another USD 50 mln. 2015 was a successful year for agribusiness due to new opportunities on Eurasian Economic Unit markets (first of all on Russian market), growth of the demand for fruits and vegetables, so already at the beginning of the year the local manufacturers felt acute shortage of long-term capital for increasing production capacities. We are now helping them to address this problem.

2015 was a remarkable year also in terms of M&A deals (purchase and sale of companies, attraction of strategic shareholders). We participated and provided consultation to clients almost in all major deals executed in Armenia last year, mainly in ore-mining, energy and telecommunication industries of economy.

The demand for business valuation services (preparation of reports on capital/business/share valuation) is high too. Foreign investors, international financial institutions, investors from Diaspora and local corporate clients have been using our services of estimating fair market value of business or share in business for many years. Our valuation reports stand scrutiny of experts, international banks and consultants in terms of feasibility. With our asset valuation report in hand clients confidently negotiate and successfully close business (share) purchase and sale deals.

In summary, I would like to say that the leading positions of Ameriabank on investment banking market were acknowledged by Global Finance Magazine which has recently published the list of top investment banks (https://www.gfmag.com/media/press-releases/global-finance-names-worlds-best-investment-banks-2016).

-What are the specifics of the competition environment in this market segment?

-The first and most critical benchmark for choosing a consultant is the quality of services always and everywhere. In this regard Armenia is not an exception either. Our clients choose companies with well-developed project management processes and technologies, high level of confidentiality, reliability and reputation. Yet financial potential of the consultant is important too. In this regard Ameriabank is unique in terms that it is a symbiosis of the largest commercial bank of Armenia and investment banking practice. We have the financial base which is often necessary for successful closing of M&A deals, issuance of bonds, etc. All other consultants operating in Armenia have limited or mediated access to financial resources. Our clients have a possibility to receive a fully-fledged package of services (financial, tax and commercial compliance check, legal expertise, preparation of contracts, financing of deals) by “one window” principle. Good contacts with major players of economy and knowledge of the needs of corporate clients are another competitive advantage of Ameriabank.

I would like to say that the investment banking market is developed and dynamic enough but only a few are aware of it. Unfortunately mass media do not pay due attention to investment banking as a segment of financial market. Participants, details and motives of major deals in Armenia are not properly covered by mass media. Yet, the processes here are worth attention.

-Mr. Mosikyan, how do you assess the possibilities of Armenian companies in terms of entering the bond market? To what extent are foreign investors interested in the debt instruments of Armenian companies?

-I think there are no obstacles for entering the local bond market. You simply have to want it and offer an acceptable level of credit risk for investors. As to Eurobonds market, the issuer’s wish and readiness to pay for underwriting services is not enough. First of all, the volume of bonds to be issued should be minimum USD 75 mln, or more preferable, USD 150 mln. As we see this is a serious barrier for local companies and thus only big companies can afford becoming potential issuers. Besides, they should have a credit rating granted by international rating agencies (preferably two of them) and a good credit history.

Working with foreign investors is a different level of transparency of financial reports, corporate governance quality and professionalism of the management staff. All this imply considerable costs for the services of reputable audit firms and rating agencies.

-What possibilities of growth does the acquisition of Ameriabank’s equity share by EBRD create?

-It’s evident that cooperation between EBRD and Ameriabank has a synergic effect on various aspects of our activity. As you know EBRD conducts various direct investment projects in Armenia, Georgia and CIS countries. Ameriabank in its turn has access to a network of potential investors interested in direct investments in the region and has got the required resources for co-financing of LBO/MBO deals. Therefore a successful deal for one party would mean that the other party is leaving the project with profit.

I should note that we have had wide access to knowledge, database and professional contacts in the sphere of corporate finance and investment banking services. Ameriabank’s Board of Directors is made up of experienced financial officers, investment bankers and managers of venture funds and financial assets of international level. After the deal with EBRD a new independent director joined the top management. He represents EBRD and has a wide experience in the sphere of financial, commercial and investment banking services. So our team gets one more high-end professional who will put his experience and knowledge into development of our services and improvement of their quality.