Only two companies benefit from securities issuance assistance programme in Armenia

ArmInfo. So far, two companies have become beneficiaries of the state program to promote the issue of equity (shares) and debt (bonds) securities, as well as passing credit ratings. By the end of 2024, 2-3 more participants may join them. Hasmik Zakaryan, Head of the Department for the Development of Financial Infrastructures of the RA Ministry of Economy, spoke with an ArmInfo about the terms of the state program to promote the development of the capital market, as well as its prospects.

According to her, large and medium-sized companies operating in Armenia are currently forced, for lack of an alternative, to attract project financing mainly from banking structures, which require complex systems of security and guarantees, and is also quite expensive. Banking requirements complicate the process of effective resource raising. Meanwhile, entering the stock and bond market provides companies with the opportunity to attract financing without collateral and surety and diversify business funding sources. After all, when issuing bonds, financial resources are in some cases attracted at a lower interest rate than the bank rate, and when issuing shares, replenishing the share capital provides broad development opportunities. In the latter case, entering the stock exchange and going through the listing procedure forms acceptable corporate governance systems, increases transparency, awareness of the company and its ability to constantly attract additional capital.  , - emphasizes the representative of the Ministry of Economy.

That is why the state has undertaken to help companies ready to reorganize into public ones or those intending to raise money from the bond market, reduce their costs. The implementation of the initiative promises benefits for the state as well - the issue of shares and bonds by companies significantly contributes to the development of the capital market. , - notes Hasmik Zakaryan. The Ministry of Economy initiated, and the RA government approved on July 6, 2023, a program of state assistance to the issue of shares and bonds, as well as the rating of companies. As noted in the draft decision, 10.65 billion drams will be required in the first three years to implement the activities envisaged by the project. As a result, according to experts, in the next three years, the volume of new issues of securities may amount to 97.5 billion drams.

In the 2024 financial year, the state budget allocated the first 300 million drams for the implementation of the program. Within the framework of the medium-term expenditure program for the next three years, the program expenses are planned in the amount of about 1 billion drams annually. , - explains Zakaryan. According to her, within the framework of the first component of the program, beneficiaries are provided with assistance in issuing, placing and going through the listing procedure of bonds issued after the entry into force of this decision, once for each beneficiary, in the following amounts:

1) after the completion of the process of issuing, placing and listing the bonds on the stock exchange, the beneficiary is provided with a one-time assistance in the amount of 2% of the nominal value of the placement, but not more than 30 million drams;

2) for the circulation of bonds, the assistance will be 3% of the nominal volume of the placement for the first three years, but not more than 45 million drams for every 12 months of circulation.

Thus, the maximum amount of state assistance under the first component will be 165 million drams. The subsidy will be provided for the issue of bonds in Armenian drams, with a maturity of at least 36 months at the time of issue, which were placed through a public offering, and after listing these bonds have a market maker.

The second component of the program concerns assistance in the issue (through a public offering / IPO) and listing of shares. The state will reimburse up to 80% of the actual expenses incurred and confirmed by relevant documents, but not more than 50 million drams (external audit services, banking and stock exchange services). The third form of support involves 50% reimbursement of expenses (during the first year) for obtaining and maintaining a rating from the American rating agencies Fitch, Standard and Poor's, Moody's or the European Scope Ratings. In this case, the rating is subject to compensation for at least two scales below the sovereign rating of the state, and in the case of a public placement of bonds or shares and listing on the Armenian Stock Exchange, within 18 months from the date of receiving the rating - the beneficiary will also be compensated for up to 80% of the costs for the first year (30% in addition to the previous 50%).

All three support components can be used only once. This also applies to affiliated companies.

The authors of the program also set a number of restrictions. Thus, subsoil users and natural monopoly entities cannot be beneficiaries of the support program within the first and third components. And financial organizations that have a license from the Central Bank of the Republic of Armenia are completely deprived of the opportunity to use the program.

Despite all the seemingly attractiveness of the program, only two companies have used it to date - Euroterm and Luyser. There were exactly the same number of applications. Therefore, out of the approved 300 million drams, only 40 million have been allocated to date.

Thus, Euroterm CJSC, founded in 1998, which produces juices, nectars, drinks in Tetra Pak packaging, fruit and vegetable products in Armenia, as well as provides services for the sale of heating, water supply and sewerage systems to individual and corporate clients, issued bonds for the first time with a nominal volume of 500 million drams, a nominal value of 10 thousand drams and an annual coupon interest rate of 12.5%. The company received assistance from the state in the amount of 10 million drams. Upon fulfillment of the program conditions, it will be able to apply for another 40 million drams. Luyser CJSC, whose participants have more than 15 years of experience in the field of construction, investment, design and finance, issued, placed and listed 1,500 bonds with a nominal volume of 1.5 billion drams, a nominal value of 1 million drams, an annual coupon rate of 12%. The amount of assistance has already amounted to 30 million drams, and over the next 3 years the development company may receive another 135 million drams.

According to the Head of the Department, such a low demand for state assistance is due to the fact that many are not aware of both the program itself and its obvious advantages. There is also a problem of lack of long-term business planning and a general misunderstanding of the mechanisms of the capital market.

Meanwhile, according to independent experts, this first experience already shows that if there is at least some demand for debt financing in the market, then the owners of companies are still very far from reorganizing their business models into joint-stock public companies. Neither people nor the market are simply ready for this!  Nevertheless, the department hopes that increasing interest of local businesses in stock market instruments, as well as the development of the capital market as a whole, is just a matter of time. For its part, the Ministry of Economy is ready to provide all possible assistance to the development of the environment itself, and, if necessary, to improve the program itself. For example, by excluding renewable energy enterprises from the list of restrictions on participation in the program.