ARMENIA’S FIRST IPO
Clare Nuttall in Almaty
Business News Europe
ias_first_IPO
June 18 2009
In a landmark deal for the local market, Artsakh Hydro Power Plant
completed Armenia’s first IPO at the end of May, raising AMD905.2m
($2.4m).
Response to the offering was slightly weaker than expected due to the
crisis, which has had a relatively severe impact on Armenia’s economy
in recent months. "We had expected a little bit more response to the
IPO and had made some arrangements with various investors, and some
either did not invest or reduced their level of investment," says Aram
Kayfajyan, director of Armenbrok, advisor and chief underwriter for the
placement. "Armenia’s currency, the dram, depreciated by 25% in March
and since has been seen as a less reliable currency. However, Artsakh’s
shareholders had already approved the IPO when that happened."
Kayfajyan, nonetheless, regards the IPO as an important milestone
for Armenia. A total of 1,111 companies and individuals took part
in the placement, with foreign entities accounting for around 50%
of the placement by volume. The largest foreign commitments came from
Austria, France, Iran, Russia, Slovakia, Switzerland, the United Arab
Emirates and the US. It was also significant in that it represented
a large foreign investment into a company active in the disputed
Nagorno Karabakh region; Atrsakh plans to use proceeds from the IPO
to build small hydro plants in the territory that Armenia fought a
war over with Azerbaijan.
All in the mind
According to Kayfajyan, the lack of IPOs in Armenia to date is
mainly due to management mentalities. Few company heads have been
ready to take the necessary steps to prepare their companies for
IPO, in particular in making them open and transparent. Armenbrok
worked with Artsakh for a year before the IPO, helping to increase
the company’s understanding of the IPO process, and helping them
to prepare financial reports, draw up a prospectus, improve their
management structure and take other necessary steps.
While the Artsakh IPO sets a precedent for the Armenian market,
Kayfajyan doesn’t reckon any companies will follow its example for
this year at least. He explains that while Armenbrok had started
to arrange IPOs for a handful of Armenian banks, "after the crisis
started, we decided not to go ahead with the IPOs in the banking
sector. It was impossible. Artsakh was a different case because the
energy sector has not been greatly affected by the crisis."
In the longer term, however, he points out that Armenia has some very
good companies that could be influenced by the success of this first
IPO. "I believe our banking sector is healthy, and hope to see some
IPOs from this sector as soon as the market starts to recover."