Wednesday, September 28 2011 21:32
Will the market give an impulse to rating or the vice versa?
ArmInfo. US Agency for International Development (USAID) presented the opportunities of rating development in Armenia to the financial society and Mass Media representatives, Wednesday. Prior to the event, the Agency surveyed the local equity market, possible emitters, potential for development and the results of the survey were the topic of the discussion.
During the survey, USAID International Consultant Ilona Dmitrieva met with the Armenian Central Bank professionals and analysts of the statistical department engaged in ratings of the native enterprises as well as the leadership and the analytical service of AmRating/GlobalRating Agency specializing in the bank rating. The meetings resulted in certain conclusions on the current situation in the market, the potential for development and the role of the local rating agency in the given process.
Will the market give an impulse to rating or the vice versa? The participants in the event debated around the given issue. On the one hand, the market must rise to a certain stage of development, which will necessitate a rating. On the other hand, rating will create the necessary conditions for market development. USAID's survey has drawn the preliminary model of a local rating agency and the supposed structure of its owners comprising an international rating agency, the Armenian Central Bank as a temporary shareholder and a minority shareholder represented by a local partner. As for the latter, it cannot be a potential emitter to avoid a conflict of interests, but it can be a new agency, audit company, credit bureau or privates cooperating with local corporations. In addition, Ilona Dmitrieva presented the supposed rating scale in a parallel: the Armenian scale and the Fitch scale. The highest local rating grade (AAA.am) is equal to Fitch's "BB-" (country ceiling of Armenia - ed. speculative grade rating that means that there is a possibility of more credit risks affected by the negative economic changes).
I. Dmitrieva informed the participants of the reasons making the Armenian securities market unattractive to emitters and investors. Thus, an emitter prefers alternative sources of financing such as bank loans to the securities market as the yield of government bonds is high enough (9.2% for a 1-year government short- term bonds), 13.1% short-term bonds (up to 5-year), and 13.4% - long-term bonds (over 5 years). Investors are indifferent to the Armenian securities market because of the government bonds that are more profitable and less risky as well as because of the possible repetition of the national currency devaluation like in March 2009 (by 22%). Here are the terms that will bring the local emitters back to the market: 9-10% annual yield of borrowings and 2-3 years maturity.
As for the securities market's potential for development, I. Dmitrieva said that it is possible with new institutional investors: pension funds the assets of the which will reach $80 million or even $100 mln annually by 2014 by some forecasts; insurance companies that accumulated $14 million for the first half of 2011 through MTPL (OSAGO), and similar funds will be accumulated also through compulsory medical insurance. Both the institutional investors will create demand for rating of debt instruments.
At present Moody's and Fitch are the only international rating agencies assigning ratings in Armenia and mostly to the local banks. AmRating/member of GlobalRating group is a national rating agency of the Group in Armenia established in 2005. It is engaged in quarterly ratings of banks. Central Bank started assigning ratings to local enterprises in 2005 (as of Sept 1 it assigned ratings to 35 enterprises). The agency is interested in development of ratings in the country to avoid conflict of interests.
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