The Warsaw Stock Exchange wants to acquire majority stake in Armenia's Securities Exchange
BY ARA KHANJIAN
The Central Bank of Armenia, which controls 90.05 percent of the Armenian Securities Exchange on Tuesday agreed to sell a 65.05 percent stake to the Warsaw Stock Exchange (GPW).
The AMX is the only securities—mainly bonds—market in Armenia. After the proposed acquisition by the GPW, the CBA will control only 25.02 percent of AMX shares, while the remaining 9.95 percent will continue to be controlled by the AMX.
The CBA said that the partial sale of the AMX to the GPW will contribute to the development of bond and stock markets in Armenia because GPW’s proposed development program intends to improve the infrastructure of these markets, such as development of the trading system and the introduction of the most recent technological mechanisms.
The CBA also said that the investment of GPW in AMX will contribute to the integration of the Polish and Armenian capital markets, which could create new opportunities for both Armenian and Polish investors and companies.
Most of AMX transactions involve bonds, which are issued mostly by the government and the banking sector. A relatively small fraction of the bonds that are traded on the AMX are issued by companies. This implies that at this stage the Armenian Securities Exchange, functions more as a bond market than as a bond and stock market. In other words, the AMX raises capital for corporations and governments mainly through the trade of bonds. A bond is a financial instrument that a corporation or a government sells to individuals and institutions.
When Corporations and governments issue new bonds and sell them, basically, they are borrowing money from individuals or institutions with the promise of paying back in the future, for example in six months, two years, or 10 years, plus interest. Through stock and bond markets, corporations and governments generate funding directly from individuals and institutions for their investments, growth and expenditures. This implies that for the economy of a country to grow, it is essential to generate a developed stock and bond markets, besides a well-developed banking sector.
For example, if an entrepreneur starts a successful business or if a group of individuals create a successful cooperative and if they need additional funding to build a new factory and buy new machines, they will need large amount of new funds. If in that country there is a developed bond market, then they could sell new bonds there and borrow money for their investment, contributing to the economic development of the country.
According to the CEO of the Armenian Stock Exchange, Hayk Yeganyan, one reason that the stock market in Armenia is not developed is lack of trust. The prospective stock buyer in Armenia has doubts about whether investment will be safe and profitable. For this reason, most of them buy government-issued bonds, because there is a lower probability that Armenia’s government will go bankrupt than a private Armenian company. Also, in general, stocks are riskier than bonds because when a company goes bankrupt, first bond holders are paid and then stock owners. According to Yeganyan, for the development of the stock market it is essential for the country to adopt the necessary laws and to create the necessary regulations and a regulatory agency, which could increase transparency and could invest boost confidence to buy stocks, indirectly contributing to the development of a stock market.