Tuesday, December 4 2012 13:38
Karen Turyan: Taking out a loan is no longer economically viable
ArmInfoDollar bonds that have come to replace bonds in terms national currency are becoming more and more popular among Armenian businessmen. Some of them have already registered offering memorandums. Some other companies have announced an intention to place bonded loans. A new wave of issues of dollar bonds involved also the pioneer of the Armenian IPO market – Artsakh HEK (HPP) Company. Karen Turyan, Director of ArmSwissbank's Investment Department (ArmSwissbank, the underwriter of the company's bonds) tells about the issue of the company’s corporate bonds in an interview with ArmInfo.
Mr. Turyan, what are the basic parameters of the company’s bonded loan? What category of investors is it for?
The bonded loan of Artsakh HPP with its parameters little differs from the issues announced in the equity market. Artsakh HPP OJSC issued foreign exchange bonds in the amount of 6 million USD in total, with 10% yield (coupon payment once in 6 months) and a 3-year maturity. Unlike other issues, the corporate bonded loan of the company is not for mass-market customers. The nominal value of a bond is $10,000. So, the issue is for the investors that have already invested in the given company, i.e. the owners. For them investment in Artsakh HPP’s bonds is the most profitable one at present.
Does it mean that high yield recompenses the risks?
Sure, there are risks. But the owners of the company that are mainly the potential holders of USD bonds had already risked when deciding to buy a certain amount of shares in the company. Now, the given offer is the best way for them to increase the expected yield of their investments assets. Hardly any local bank would ensure a 10% yield for such big (millions worth) dollar deposits. In Europe such yield is simply impossible.
How will company spend the funds raised from the market?
The company has a big portfolio of bank loans. The annual interest on the given loans is 12%-14%. Issue of USD bonds with a 10% yield will settle the company's problem with refinancing of the bank loans. It is one of the most efficient methods of debt management. So, everything that eases the debt burden of the company and contributes to its development is in favor of its investors-owners, first of all.
The company plans to invest the raised funds in refinancing of bank loans and construction of a new small HPP with a capacity of 4.2 MW. In addition, the company will continue expansion of the industrial assets.
Issue of foreign exchange bonds is a good alternative to a bank loan. Experts say that it enables a company to save funds. How much will Artsakh HPP save using the new instrument?
The company will save 120,000 dollars annually. In addition, the company will not face any restrictions by banks when it comes to an issue of bonds.
There is opinion that the decision on issue of foreign exchange bonds will lead emitters (not banks) to serious foreign exchange risks. In this light, experts believe that the number of the companies issuing foreign exchange bonds should be restricted. Do you share their views?
I think the list of the companies should not be restricted. It is a market and the companies are free to choose the instruments to use and the risks to undertake. In addition, many companies in Armenia make their calculations in dollars, so they will hardly face serious risks.
The company has a certain long-term behavior strategy in the equity market. Will the issue of foreign exchange bonds become part of the given strategy?
The company is likely to organize a second issue of foreign exchange bonds to refinance the first one in three years upon maturity of the first issue. If the company’s projects are a success and the instrument, specifically, the bond, is flexible enough, the company may make also other issues to refinance new projects.
Although it is not easy to make forecasts, would you try to forecast the interests on bonds for that time anyway? I think, the expediency of a repeated issue depends on that?
Sure, it is not easy to foresee the interest rates with a three-year outlook especially when it comes to the bonds in US dollars.
Are there any prerequisites that may lead to reduction of the yield of corporate bonds?
The interests may reduce after the pension reform when demand for government bonds and then for corporate bonds grows high.
Developing markets are said to be attractive for investors. Our country is also considered as such. Will we gain anything after such displacement of the world investment currents?
Armenia is a very small country with almost no equity market. Unfortunately, we have to repeat this more than we would like to. We have no investment instruments guaranteeing reliability and high yield for foreign investors. Neither we have any good and promising infrastructure projects that would be interesting to foreign investors.
Besides, there is no real economic growth…
That is why the country needs powerful infrastructure projects, both state and private ones, as they can be equally interesting to investors. Construction of NPP can be among such attractive projects. Electric power is a product demand for which will be constantly growing. So, the future incomes from the sale of the given product are predictable. This is what makes such products attractive to investors.
Does an export-oriented economy have a future? Our authorities pins hopes only with this….
It will have a future only if the Abkhazian railway is reopened. Now, the given dimension cannot be developed due to high transport costs.
Thank you for interview!
Elita Babayan
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