Armen Melikyan: in the field of telecommunications, Armenia may get   in a situation of the late 90s

ArmInfo. The communications market of Armenia ceases to be part of the world telecom and is locked within its small borders. The news published in the media that MTS following VEON is going to leave Armenia is depressing.

On the one hand, the country is literally left without the attention of  transnational corporations and this is a serious <application> for  international investment isolation.

On the other hand, market experts believe that the departure of such companies is understandable, as from the point of view of business it is completely justified. From the point of view of telecommunication services, the Armenian market  is oversaturated, company revenue is falling, profitability is  falling, and, as you know, you can't jump above the ceiling. About  what is happening on the market today, ArmInfo economic analyst asked  to share with the ex-director of the Armenian stock exchange  of  Nasdaq Armenia, investment adviser Armen Melikyan.

- Before you talk about the current topic of VEON Armenia purchase,  please comment on the information on preparations for the public sale  of VIVA Cell - MTC. And in general, what kind of line was lined up  for leaving Armenia? Let me remind you that six months ago, the  possibility of leaving our market was announced in Rostelecom.

The announcement of VIVA Cell - MTC through the press on the public  sale of shares suggests that the deal will be open, public and  against the background of what is happening with the deal with VEON  Armenia, where we do not know who is buying the country's largest  telecommunications company, it looks more I would say decent. And  this is more acceptable from the point of view of foreign investors  evaluating both the country and the company itself, which sells its  shares. I constantly communicate with investors and I can say that  today they are very concerned about what type of transaction will be  carried out by VEON Amsterdam, since there is concern that this  multi-stage transaction with hidden beneficiaries may create tomorrow  for a listed on international stock There are certain problems in the  company's markets, such as when facts of the existence of closed  agreements with certain authorities in Uzbekistan were revealed when  the company left this market.

- That is, do you think that such transnational  companies quoted on  Western  stock exchanges as VEON should be careful in choosing the  so-called counterparties for transactions?

Of course, and this concern I read today in investment blogs. There  are different points of view regarding the deal to sell VEON its  shares to TEAM, which is unknown to anyone, primarily because it is  unclear who is behind the Yesayan brothers, the founders of this  company, which was created only a month ago, and whether certain  <corruption traces> will be revealed tomorrow in Uzbekistan, and,  secondly, concern over the Yesayans themselves, who over 10 years ran  the company owned by the most corrupt official in Armenia and led it  exclusively at a loss. This is more than strange, since other telecom  operators worked, maybe not with superprofits, but nonetheless, they  profitably paid the state profit tax. If you study the financial  statements of  UCOM well, it becomes clear that the company's  loss-making was achieved, apparently, intentionally. It is possible,  because I am not a judge and I can't say anything, but probably this  could not have happened without the knowledge of the UCOM top  management, that is, the same Yesayanov brothers. Moreover, there is  unverified information so far, and it revolves around investment  blogs that they are currently investigating the money laundering  case, and if this information is confirmed tomorrow during the  investigation, then foreign investors will be seriously disappointed.

- By the way the antimonopoly authority conceals information about  the final beneficiaries of the transaction, about its so-called  multi-layer mechanism for purchasing VEON Armenia, it actually does  not become very comfortable. After all, this is not just about the  largest mobile operator, but about the operator who owns the entire  communications infrastructure in the country, the infrastructure that  was built and put in place to please the state and its security back  in Soviet times. This is a huge asset directly related to state  security. I remember the same dark story with the sale of this  infrastructure to some obscure, suitcase company in the early 90s and  how millions later made it into it, reselling it to the Greeks. And  how much then the country lost from this Greek monopoly and mediocre  and thieving management. Where are the guarantees that the story will  not be repeated?

There are no guarantees, since in this case we are also dealing with  an unknown real buyer. Yes, it is possible that some Armenian bank  will issue money for the purchase of VEON Armenia and become the  guarantor of the transaction, having received from the foreign  partner bank and the real buyer as collateral the entire  infrastructure of the company, but where is the guarantee that the  company will be profitable and work will be without gray circuits?  VEON Armenia had such guarantees, if only because it is the daughter  of a large international company with a high level of capitalization,  whose shares are listed on European exchanges, and which works by all  international standards and is very worried about its reputation. Now  there is a risk of being, as they say, in the paws of the <gray  mouse>, about which nothing is known. This, after all, is a strategic  area of importance, not a casino, and, figuratively speaking, not a  candle factory, which you can take and sell to someone without  getting into it. Look, literally the day before there was a voltage  drop and a third of the country was virtually left without UCOM  services. This is unacceptable, in principle, because any such  company should have several levels of protection against various  force majeure cases, not to mention the usual power supply. Perhaps  this happened because the Yesayans, having left UCOM, "persuaded"  almost the entire technical staff to leave the company with them,  promising them shares in VEON Armenia or because this entire security  system was simply not properly built during their management and did  not work. Are there any guarantees that, by heading VEON Armenia  tomorrow, all this will work clearly? But what if the story with UCOM  repeats itself here in a few years? And the state will calmly look at  it from the side?

And still the main thing for the world investment community, I  repeat, these are not problems within Armenia, but the problem of a  clean deal. Until I see this. And investors are worried about this.

- Good, but do not you think that in the case of VEON Armenia, the  state could ensure the purity of the sale. For example, to buy out a  blocking block of shares of 25% + one share and sell the rest on the  open market. This is a profitable company and I have no doubt that  the deal would have passed with a bang.

You are absolutely right. And many blog investors are asking this  question - why sell a profitable and strategically important company  to someone, if you can ensure a clean transaction through an IPO in  the domestic market, while limiting the possibility of acquiring a  controlling stake in one or two investors. In the end, such a deal  could give a very powerful impetus to the development of an organized  stock exchange market in the country, which we all are talking about,  and not only us, but also foreign institutional investors - donors  who have long been talking to the Armenian authorities. And they,  including the new Armenian revolutionary authorities, remain deaf to  such calls, not understanding the full economic and social importance  of such steps. Apparently, someone's interests prevail over state  ones. It cannot be explained otherwise.

As you remember in a previous interview, we discussed this topic, the  topic of public sale of shares of infrastructure companies to the  public. This would greatly spur interest in investing in the economy  of domestic savings, which both the middle layer of the population  and wealthy people who have nowhere to invest available funds except  in residential real estate, the economic effect of which is largely  inferior to the stock market. I expressed the idea that the municipal  economy represented by the same company for sanitary garbage  collection, which is also quite profitable, could be put up for an  exchange auction and started developing not as a department of the  city hall, but as a separate joint-stock company, bringing It has new  technological innovations, including in terms of sorting and  recycling. Unfortunately, the ambitions of the city authorities were  won and officials, in fact, did not want to share these working and  profitable assets with the population.

- Back to the topic of telecommunications. How do you see the further  development of the market in terms of consolidation? Could one  telecom operator remain in Armenia tomorrow?

You know, theoretically this is possible, although practically the  same. This is beneficial to the investor, although not beneficial to  the public. Here we are dealing with a clear conflict of interest  between the owner / s of the company and the public. The fact that we  will have to part with many cheap tariffs for certain cellular and  Internet services that the French Orange left us gave us is clear. As  you can see, many tariffs of the French operator are already in the  past, they continue to be used by those who are really lucky and are  not canceled just because they are afraid of losing their old Orange  clientele. Perhaps after the purchase of VEON Armenia, very bad  processes will begin on the market, to put it mildly, that will force  them to sell their shares of VIVA Cell-MTC or even UCOM. Because in  the conditions of weak state control, TEAM, which had absorbed VEON  Armenia, which by then owned the main market infrastructure, could  gradually force its competitors to backtrack and, to put it mildly,  to sell. It will be enough to work somewhere for dumping, and  somewhere to increase the payment for traffic and the antitrust  authority, even with all the will, as experience in other industries  shows, will not be able to contain the situation.

- Then, it turns out that we can return to the situation with the  Greek "ArmenTel" of the second half of the 90s?

To a similar situation, the world is still developing and today you  won't surprise anyone with the Internet, but the question is how much  you will have to pay for it and how it will interact with the state's  concept of priority development in the country of high technologies.

- And how to avoid this?

There is only one way, and I am convinced of this. To put companies  on the stock exchange, open them, buy out blocking blocks for a time  by the state, nothing more, and place shares among the population.  Until the population participates in the income of good businesses  and does not create the best exchange practices in the country, bona  fide investors will not come to us, neither strategic nor portfolio  ones. Too many risks.  The new government should neutralize them, on  the one hand, and on the other, create conditions for the population  to receive additional opportunities by participating in large and  infrastructural businesses, receive dividends from them and pay taxes  from them. A citizen should have a chance to participate in the  distribution of profits and as a shareholder in the management of  large companies. This is the only way he will join the country's  governance system, as the new government speaks of, poorly visibly  presenting all the tools of this process, and only this way the  foreign investor will believe us not in words but in deeds.

P.S. When the material was already published, VIVA Cell - MTC told  ArmInfo that the information about the sale of the company's shares  was fake and that the company's shareholders did not have such plans.   Unfortunately, ArmInfo fell into fake news of their colleagues. The  problem is that responding to such misinformation would probably be  more broad and quicker. Nevertheless, despite this, the topic of an  interview with an investment specialist, in essence, remains quite  relevant.