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ACTIVITY INCREASED ON THE ARMENIAN STOCK EXCHANGE- PENSION REFORMS IN DOUBT
Balkans.com Business News
Feb 12 2014
bne - 12.02.2014
Activity has already increased on the Armenian stock exchange in
anticipation of an inflow of money after the launch of the country's
controversial compulsory pension scheme. Parts of the reforms have
been suspended pending a constitutional court ruling, but the Armenian
government is determined to push through the changes despite intense
public opposition.
Many Armenians have been angered by the requirement, which came
into force on January 1, 2014, for all employees born after 1974
to contribute a steep 5% of their gross salaries to private pension
funds. While this deadline has already passed, the opposition shows
no sign of dropping its campaign to have the plans overturned.
Around 6,000 people turned out in freezing temperatures to join
a rally against the reforms on January 18, and more protests are
expected. Opposition MP Hrant Bagratyan told the Armenian parliament
on February 4 that insistence on the reforms would lead to "a Maidan",
referring to the turmoil in nearby Ukraine, ArmInfo reported.
The size of the contribution required is one of the key objections
raised - taking into account taxes already deducted, for some high
earners the mandatory contribution works out as high as 12% of their
net salary. Opponents also believe they should be able to make their
own decisions on how to save for the future. While a voluntary version
of the scheme was introduced back in 2011, there have been virtually
no takers, with most Armenians preferring to keep their money in the
bank or invest in real estate.
There is also mistrust about how pensions contributions will be
managed, with memories of the loss of savings in state-owned Sberbank
after the collapse of the Soviet Union still strong.
The Armenian government has sought to prevent mismanagement by
selecting two European fund managers through an international tender
process. Amundi, which was set up by French banks Credit Agricole
and Societe Generale, and Cologne-based Talanx Asset Management,
a subsidiary of German insurance firm Talanx were selected in 2013.
However, the two fund managers suffer from a relatively low profile in
Armenia, which has not helped the situation, points out Aram Kayfajyan,
CEO of Yerevan-based investment house Armenbrok. "The government is
determined to carry through the reforms, but there is a high level
of public dissatisfaction. The problem is that the population does
not know how to choose their fund, how it will be managed, or what
to expect in five or ten years time, and as a result of this lack of
awareness a lot of fears are being raised," Kayfajyan tells bne.
"The Armenian authorities have been explaining how the system will
work, but it's not enough. People want to hear from the fund managers,
and they have not paid enough attention to Armenia so far. We know
that the asset managers are very big and the Armenian market is small,
but people want to see active participation by the pension funds in
our society," he says.
Legal challenge
Government officials do, however, appear confident they can win
a challenge against the reforms in the Armenian constitutional
court brought by four opposition parties: the Heritage Party,
Armenian National Congress, Armenian Revolutionary Federation and the
Prosperous Armenia Party. On January 24, the Armenian Constitutional
Court suspended some provisions of the new pensions law - including
Article 76 which stipulates that penalties may be imposed for failure
to make mandatory pension payments - pending a hearing due to be
completed by March 28.
At a meeting with labour and social affairs ministry officials on
January 24, President Serzh Sargsyan said the reforms "will be called
historical, years will pass and your work today will be only granted
respect and gratitude," according to a statement on the president's
website .
The government argues that the existing pensions system
is unsustainable given Armenia's aging population. According to
the United Nations Population Fund (UNFPA), the proportion of the
population aged over 60 is expected to increase from 14.6% in 2010
to 20% by 2020. Longer life expectancy, a falling birthrate and a
high level of emigration are all contributing factors.
With the first payments not expected to reach the pension funds
until February 20, there has already been an increase in activity
on the Nasdaq OMX Armenia stock exchange in Yerevan. This follows a
combination of stock market reforms, the launch of Armenia's first
sovereign Eurobond, and the expected influx of money from the pension
funds.
In September, Armenia raised $700m with its first ever sovereign
Eurobond, dubbed the "Kardashian bond" by international bankers. The
finance ministry reported that the issue was substantially
over-subscribed, with investors ready to buy up to $3bn. Although -
unlike in neighbouring Georgia - this issue has not yet been followed
by corporate offerings, it has helped to stimulate the local exchange.
The bonds started trading on Armenia's stock exchange on January 31.
Although the two pension fund managers have not yet said how much
they will invest in the Armenian market, at least some investments
through the stock exchange are expected. The expected influx of money
has already brought down the yields on government bonds. According to
Kayfajyan, this has made it possible for corporates to take advantage
of the margin that has opened up to issue their own bonds. "The stock
exchange is working to introduce new instruments and make technical
improvements. We expect this will bring new investors to the market.
The equity market is very inactive but we hope the development of the
fixed income market will push companies to become more active in the
equity market as well - though this is unlikely to happen in the next
two to three years," he says.
In addition to government bonds and bank deposits, the new pension
funds will be able to invest in dram-denominated bonds issued by the
European Bank for Reconstruction and Development (EBRD) , which on
January 31 issued its first Armenian dram-denominated bonds through an
auction on the Nasdaq OMX Armenia. According to the EBRD, the issue
was the first publicly auctioned issue by either a foreign borrower
or an international financial institution on the exchange.
bne-Clare Nuttall
http://www.balkans.com/open-news.php?uniquenumber=188836
Balkans.com Business News
Feb 12 2014
bne - 12.02.2014
Activity has already increased on the Armenian stock exchange in
anticipation of an inflow of money after the launch of the country's
controversial compulsory pension scheme. Parts of the reforms have
been suspended pending a constitutional court ruling, but the Armenian
government is determined to push through the changes despite intense
public opposition.
Many Armenians have been angered by the requirement, which came
into force on January 1, 2014, for all employees born after 1974
to contribute a steep 5% of their gross salaries to private pension
funds. While this deadline has already passed, the opposition shows
no sign of dropping its campaign to have the plans overturned.
Around 6,000 people turned out in freezing temperatures to join
a rally against the reforms on January 18, and more protests are
expected. Opposition MP Hrant Bagratyan told the Armenian parliament
on February 4 that insistence on the reforms would lead to "a Maidan",
referring to the turmoil in nearby Ukraine, ArmInfo reported.
The size of the contribution required is one of the key objections
raised - taking into account taxes already deducted, for some high
earners the mandatory contribution works out as high as 12% of their
net salary. Opponents also believe they should be able to make their
own decisions on how to save for the future. While a voluntary version
of the scheme was introduced back in 2011, there have been virtually
no takers, with most Armenians preferring to keep their money in the
bank or invest in real estate.
There is also mistrust about how pensions contributions will be
managed, with memories of the loss of savings in state-owned Sberbank
after the collapse of the Soviet Union still strong.
The Armenian government has sought to prevent mismanagement by
selecting two European fund managers through an international tender
process. Amundi, which was set up by French banks Credit Agricole
and Societe Generale, and Cologne-based Talanx Asset Management,
a subsidiary of German insurance firm Talanx were selected in 2013.
However, the two fund managers suffer from a relatively low profile in
Armenia, which has not helped the situation, points out Aram Kayfajyan,
CEO of Yerevan-based investment house Armenbrok. "The government is
determined to carry through the reforms, but there is a high level
of public dissatisfaction. The problem is that the population does
not know how to choose their fund, how it will be managed, or what
to expect in five or ten years time, and as a result of this lack of
awareness a lot of fears are being raised," Kayfajyan tells bne.
"The Armenian authorities have been explaining how the system will
work, but it's not enough. People want to hear from the fund managers,
and they have not paid enough attention to Armenia so far. We know
that the asset managers are very big and the Armenian market is small,
but people want to see active participation by the pension funds in
our society," he says.
Legal challenge
Government officials do, however, appear confident they can win
a challenge against the reforms in the Armenian constitutional
court brought by four opposition parties: the Heritage Party,
Armenian National Congress, Armenian Revolutionary Federation and the
Prosperous Armenia Party. On January 24, the Armenian Constitutional
Court suspended some provisions of the new pensions law - including
Article 76 which stipulates that penalties may be imposed for failure
to make mandatory pension payments - pending a hearing due to be
completed by March 28.
At a meeting with labour and social affairs ministry officials on
January 24, President Serzh Sargsyan said the reforms "will be called
historical, years will pass and your work today will be only granted
respect and gratitude," according to a statement on the president's
website .
The government argues that the existing pensions system
is unsustainable given Armenia's aging population. According to
the United Nations Population Fund (UNFPA), the proportion of the
population aged over 60 is expected to increase from 14.6% in 2010
to 20% by 2020. Longer life expectancy, a falling birthrate and a
high level of emigration are all contributing factors.
With the first payments not expected to reach the pension funds
until February 20, there has already been an increase in activity
on the Nasdaq OMX Armenia stock exchange in Yerevan. This follows a
combination of stock market reforms, the launch of Armenia's first
sovereign Eurobond, and the expected influx of money from the pension
funds.
In September, Armenia raised $700m with its first ever sovereign
Eurobond, dubbed the "Kardashian bond" by international bankers. The
finance ministry reported that the issue was substantially
over-subscribed, with investors ready to buy up to $3bn. Although -
unlike in neighbouring Georgia - this issue has not yet been followed
by corporate offerings, it has helped to stimulate the local exchange.
The bonds started trading on Armenia's stock exchange on January 31.
Although the two pension fund managers have not yet said how much
they will invest in the Armenian market, at least some investments
through the stock exchange are expected. The expected influx of money
has already brought down the yields on government bonds. According to
Kayfajyan, this has made it possible for corporates to take advantage
of the margin that has opened up to issue their own bonds. "The stock
exchange is working to introduce new instruments and make technical
improvements. We expect this will bring new investors to the market.
The equity market is very inactive but we hope the development of the
fixed income market will push companies to become more active in the
equity market as well - though this is unlikely to happen in the next
two to three years," he says.
In addition to government bonds and bank deposits, the new pension
funds will be able to invest in dram-denominated bonds issued by the
European Bank for Reconstruction and Development (EBRD) , which on
January 31 issued its first Armenian dram-denominated bonds through an
auction on the Nasdaq OMX Armenia. According to the EBRD, the issue
was the first publicly auctioned issue by either a foreign borrower
or an international financial institution on the exchange.
bne-Clare Nuttall
http://www.balkans.com/open-news.php?uniquenumber=188836