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SHEN-CONCERN STARTS DIFFICULT WAY OF INNOVATOR
Emmanuil Mkrtchian
ArmInfo
2007-06-14 01:29:00
Armenian "Shen Concern" CJSC, leader in the production of building
materials in Armenia, issued nominal, non-documentary and discount
bonds in December of 2006. It is the first industrial enterprise
in Armenia to enter the open market of debentures with corporate
bonds. The total nominal cost of the bonds is 160 million. The
bonds will be placed by four equal tranches worth 40 million drams
each. 4,000 bonds with 10,000 drams face value will be issued on each
tranche. The underwriter is Ecapital Asset Management CJSC.
ArmInfo's correspondent interviews Director General of Ecapital Asset
Management Alexander Sahakyan on the topic of the first experience of
"Shen-Concern" in the market and the prospects of its development.
Would you tell about the mission of your company in the placement of
the Concern's bonds in the market?
European Bank for Reconstruction and Development has become a
shareholder of "Shen-Concern" acquiring a 36pct stake in it. Let's
agree that a 36pct stake is not the very package for influencing the
activity of an enterprise in Armenia. So, EBRD has become a shareholder
of "Shen-Concern" through making private equity investments only
subject to introducing corporate management principles to protect
its interests. A year ago we started considering the Concern's entry
into the stock market. We appreciated the necessity that there is
money in the market but the places where this money can be earned are
limited. These are construction and real estate markets, as well as
the finance and banking sphere. However, the financial market lacked
the instruments able to absorb the money. "Shen-Concern" has serious
business ambitions. That is, the company has strong projects requiring
resources. A question arises - what alternatives did the Concern have
for attraction of these resources except bank credits and shareholders
like EBRD? There is one alternative.
The company should attract funds from the capital market through
issue of corporate bonds. Such was the ideology of the bond issue.
Why just "Shen-Concern" was chosen as an innovator?
The point is that "Shen-Concern" has high standards of management
procedures that are automated, high cash inflows and transparent
activity.
Being a CJSC, the concern has neither "shadow" nor double-entry
bookkeeping. The new shareholder EBRD has perfected these
procedures. The most important in the concern's work is the exactly
differentiated functions of the management and the owners. Only the
administrative body is engaged in management. Thus, a classical culture
of corporate management has been established at the company. All
this allowed drawing a conclusion that "Shen-Concern" is ready to
issue its own securities. Without fulfilling the above conditions,
the entry into the open market would be unreal as the market has its
own laws and even own psychology.
Is the concern holding down its competitive position in the market
of building materials known for the high level of monopolization?
This issue has been repeatedly discussed. The market positions of
"Shen-Concern" are rather strong. Once we conducted a marketing
research and arrived at a conclusion that the concern is really strong
in production of staple goods. Of course, price policy may have a
definite impact on the situation, but the quality of the products is
competitive even in the region (Turkey, Georgia and UAE). The concern
is fully competitive in the Russian market and even in Eastern Europe.
160 million drams is not a big sum for bond issue.
"Shen-Concern" Council was concerned over the expediency of borrowing
some 160 million drams from the market because that would not increase
the financial flows of the company. But there were two tasks; the
first was a "mercantile" one, if I may say so.
"Shen-Concern" had a credit under 13% annual interests. So, the company
intended to reduce the debt replacing the credit with corporate bonds
for the same 160 million drams. The second task was strategic i.e. to
enter the market to study it and to introduce itself. That is why the
programme of the first bond issue became pilot and the second task
really proved to be more important than the first one. After all,
it is no secret that all the industrial enterprises and even open
joint stock companies avoid entering the open market unlike the
CJSC "Shen-Concern" that decided to become an accountable emitter
well-aware of the burden it would have to assume. I am sure that
the programme will be successfully implemented. Moreover, given the
healthy ambitions of the Concern leadership, I think the next serious
step will be an entry to IPO market.
Would you comment on CB's project of bank access to the investment
market and on the other steps aiming promotion of the country's stock
exchange market?
The Armenian CB has made several very important steps to stimulate
this process and "Shen-Concern" is in the lead of it. First, it
started rating industrial enterprises though it was not among the
functions of the regulator. But, in the short-term outlook it is a
very important element of market stimulation.
Why?
The scheme is evident. Banks have always had an opportunity to work
with corporate securities though they have always been restricted with
5% of the capital. It is another matter that the regulator estimated
the transactions on corporate securities as risky and requiring
provisioning. Thus, investment banking was banned from the point of
view of regulation and risk management. Starting rating enterprises,
the CB declared that banks will work on preferential conditions
with debt securities having high rating and the CB will not demand
provisioning. Second, the CB went to even greater lengths and declared
that it is ready to participate in this process as a creditor in the
last resort and admit these securities as instruments for repurchase
agreements. Thus, CB created potential demand for securities in the
market. It is the most important positive step the CB has made.
At what stage is the process of bond introduction into the market?
Four tranches of bonds worth 40 million each will be placed in
the market.
The first tranche was placed last Wednesday. Armswissbank and our
company that is the underwriter and market maker of the process have
acquired by 50% of the tranche. Starting from Tuesday, the bonds will
be sold and purchased at the Armenian Exchange. These would not be
artificial transactions, but a real purchase-and-sale in order to
create demand for the instrument in the market. Anyway, the buyer
of these bonds will gain much profit. The risks are low, while the
instrument is highly liquid. Banks can acquire them and use when
signing repurchase agreements with CB. The profit is high enough -
9%-annual interests. The issued bonds will be totally placed in the
market in May. If everything is a success, the concern may issue
additional bonds.
Would you tell about the tasks and missions of Ecapital Asset
Management?
First, I'd like to speak of the market. Operators in the market are
known to operate with foreign exchange and state bonds. Investment
companies will not be able to work seriously until the enterprises
in Armenia enter IPO market. They must start working like we did
i.e. from the lowest degree.
It is necessary to raise the awareness of companies of the privileges
of this market and to lead them up to the first issue.
We should admit that there are no relevant specialists in the country
and no asset management institution has been formed so far. On
the other hand, asset manager without a stock market is the chief
accountant or the chief financial officer for a tax inspectorate at
best. That is why the major task of our company for the coming two
years is to create our brand i.e. a company providing high quality
services. We have started with underwriting, search for potential
emitters and their introduction into the market. Then, we will start
attracting assets to manage them both in the Armenian and foreign
markets. We are currently negotiating with a number of British
companies for investment in the capital of our company. A foreign
shareholder is necessary for the company's further development,
for an alternative system of pension security will operate in the
country soon.
Investment funds will be created and managers will be required for
them. Our company must be ready for it.
Thank you for interview.
Emmanuil Mkrtchian
ArmInfo
2007-06-14 01:29:00
Armenian "Shen Concern" CJSC, leader in the production of building
materials in Armenia, issued nominal, non-documentary and discount
bonds in December of 2006. It is the first industrial enterprise
in Armenia to enter the open market of debentures with corporate
bonds. The total nominal cost of the bonds is 160 million. The
bonds will be placed by four equal tranches worth 40 million drams
each. 4,000 bonds with 10,000 drams face value will be issued on each
tranche. The underwriter is Ecapital Asset Management CJSC.
ArmInfo's correspondent interviews Director General of Ecapital Asset
Management Alexander Sahakyan on the topic of the first experience of
"Shen-Concern" in the market and the prospects of its development.
Would you tell about the mission of your company in the placement of
the Concern's bonds in the market?
European Bank for Reconstruction and Development has become a
shareholder of "Shen-Concern" acquiring a 36pct stake in it. Let's
agree that a 36pct stake is not the very package for influencing the
activity of an enterprise in Armenia. So, EBRD has become a shareholder
of "Shen-Concern" through making private equity investments only
subject to introducing corporate management principles to protect
its interests. A year ago we started considering the Concern's entry
into the stock market. We appreciated the necessity that there is
money in the market but the places where this money can be earned are
limited. These are construction and real estate markets, as well as
the finance and banking sphere. However, the financial market lacked
the instruments able to absorb the money. "Shen-Concern" has serious
business ambitions. That is, the company has strong projects requiring
resources. A question arises - what alternatives did the Concern have
for attraction of these resources except bank credits and shareholders
like EBRD? There is one alternative.
The company should attract funds from the capital market through
issue of corporate bonds. Such was the ideology of the bond issue.
Why just "Shen-Concern" was chosen as an innovator?
The point is that "Shen-Concern" has high standards of management
procedures that are automated, high cash inflows and transparent
activity.
Being a CJSC, the concern has neither "shadow" nor double-entry
bookkeeping. The new shareholder EBRD has perfected these
procedures. The most important in the concern's work is the exactly
differentiated functions of the management and the owners. Only the
administrative body is engaged in management. Thus, a classical culture
of corporate management has been established at the company. All
this allowed drawing a conclusion that "Shen-Concern" is ready to
issue its own securities. Without fulfilling the above conditions,
the entry into the open market would be unreal as the market has its
own laws and even own psychology.
Is the concern holding down its competitive position in the market
of building materials known for the high level of monopolization?
This issue has been repeatedly discussed. The market positions of
"Shen-Concern" are rather strong. Once we conducted a marketing
research and arrived at a conclusion that the concern is really strong
in production of staple goods. Of course, price policy may have a
definite impact on the situation, but the quality of the products is
competitive even in the region (Turkey, Georgia and UAE). The concern
is fully competitive in the Russian market and even in Eastern Europe.
160 million drams is not a big sum for bond issue.
"Shen-Concern" Council was concerned over the expediency of borrowing
some 160 million drams from the market because that would not increase
the financial flows of the company. But there were two tasks; the
first was a "mercantile" one, if I may say so.
"Shen-Concern" had a credit under 13% annual interests. So, the company
intended to reduce the debt replacing the credit with corporate bonds
for the same 160 million drams. The second task was strategic i.e. to
enter the market to study it and to introduce itself. That is why the
programme of the first bond issue became pilot and the second task
really proved to be more important than the first one. After all,
it is no secret that all the industrial enterprises and even open
joint stock companies avoid entering the open market unlike the
CJSC "Shen-Concern" that decided to become an accountable emitter
well-aware of the burden it would have to assume. I am sure that
the programme will be successfully implemented. Moreover, given the
healthy ambitions of the Concern leadership, I think the next serious
step will be an entry to IPO market.
Would you comment on CB's project of bank access to the investment
market and on the other steps aiming promotion of the country's stock
exchange market?
The Armenian CB has made several very important steps to stimulate
this process and "Shen-Concern" is in the lead of it. First, it
started rating industrial enterprises though it was not among the
functions of the regulator. But, in the short-term outlook it is a
very important element of market stimulation.
Why?
The scheme is evident. Banks have always had an opportunity to work
with corporate securities though they have always been restricted with
5% of the capital. It is another matter that the regulator estimated
the transactions on corporate securities as risky and requiring
provisioning. Thus, investment banking was banned from the point of
view of regulation and risk management. Starting rating enterprises,
the CB declared that banks will work on preferential conditions
with debt securities having high rating and the CB will not demand
provisioning. Second, the CB went to even greater lengths and declared
that it is ready to participate in this process as a creditor in the
last resort and admit these securities as instruments for repurchase
agreements. Thus, CB created potential demand for securities in the
market. It is the most important positive step the CB has made.
At what stage is the process of bond introduction into the market?
Four tranches of bonds worth 40 million each will be placed in
the market.
The first tranche was placed last Wednesday. Armswissbank and our
company that is the underwriter and market maker of the process have
acquired by 50% of the tranche. Starting from Tuesday, the bonds will
be sold and purchased at the Armenian Exchange. These would not be
artificial transactions, but a real purchase-and-sale in order to
create demand for the instrument in the market. Anyway, the buyer
of these bonds will gain much profit. The risks are low, while the
instrument is highly liquid. Banks can acquire them and use when
signing repurchase agreements with CB. The profit is high enough -
9%-annual interests. The issued bonds will be totally placed in the
market in May. If everything is a success, the concern may issue
additional bonds.
Would you tell about the tasks and missions of Ecapital Asset
Management?
First, I'd like to speak of the market. Operators in the market are
known to operate with foreign exchange and state bonds. Investment
companies will not be able to work seriously until the enterprises
in Armenia enter IPO market. They must start working like we did
i.e. from the lowest degree.
It is necessary to raise the awareness of companies of the privileges
of this market and to lead them up to the first issue.
We should admit that there are no relevant specialists in the country
and no asset management institution has been formed so far. On
the other hand, asset manager without a stock market is the chief
accountant or the chief financial officer for a tax inspectorate at
best. That is why the major task of our company for the coming two
years is to create our brand i.e. a company providing high quality
services. We have started with underwriting, search for potential
emitters and their introduction into the market. Then, we will start
attracting assets to manage them both in the Armenian and foreign
markets. We are currently negotiating with a number of British
companies for investment in the capital of our company. A foreign
shareholder is necessary for the company's further development,
for an alternative system of pension security will operate in the
country soon.
Investment funds will be created and managers will be required for
them. Our company must be ready for it.
Thank you for interview.