On December 23, IFC, a member of the World Bank Group, issued a 2 billion dram (approximately $5 million) bond in Armenia. It is the first placement by a non-resident issuer and the first foreign corporate bond issued in Armenia’s capital markets. In an exclusive interview with the ARKA news agency, Thomas Lubeck, IFC Regional Manager for the South Caucasus, talks about activities the bond profits will support and discusses future issuances.
ARKA – Mr. Lubeck, how do you evaluate the first bond issued by IFC in Armenia and what purpose will it serve?
T. Lubeck – On Monday, December 23, IFC issued the first 2 billion dram (approximately $5 million) Sevan bond in Armenia, which is the first tranche of an 8 billion dram bond series. It is the first local currency bond and the first bond in Armenian drams issued by a non-resident in Armenia. The IFC Sevan bond offers a high-quality investment alternative for institutional investors and makes available funds that can be put to work in the local economy.
Usually, the first foreign issuer in the domestic capital market has the privilege of naming the bond. We had a lot of discussions with some key players, as well as internally, and we like the name Sevan. Lake Sevan is very deep and liquid, which is how we would like to see in the Armenian capital market in the future.
ARKA – Does IFC plan to issue new bonds next year and if yes, what will be the purpose and volume?
T. Lubeck – This is the first 2 billion tranche of an 8 billion dram series, so there is another 6 billion in issuances that we expect to make over the next 12 to 24 months. The funds are going to be used by IFC to invest in Armenia. As you know, IFC has investment products that we have given to local banks and other companies. Until now these have been largely US-dollar-denominated products and loans. For the first time, we will be able to offer fully-funded Armenian dram products. These can be used, for example, by microfinance institutions to offset currency risks for small and medium enterprises. Those businesses create lots of employment opportunities. But we could consider lending the money to other sources as well, including companies in the real sector.
ARKA- How will the issuance of bonds affect the Armenian stock and financial markets, and the economy as a whole?
T. Lubeck – I think it is really important that IFC is the first foreign issuer to offer bonds. We are covering new territory here. This is important for a couple of different reasons. Firstly, you are probably aware that the government has just finalized pension reforms and as of January 1, there will be private asset management companies that will need long-term investments with which to place pension money. These asset managers will be eligible to buy IFC bonds. Also, we are hoping that others are going to follow us in issuing bonds in the domestic market so that the savings that are being managed by the asset management companies can be invested for activities in Armenia. The deepening of the capital market is good for asset management companies. It is also ultimately good for small and enterprises and real sector companies, because up to now much of the lending in the banking sector has been done in dollars. The more that can be done in the local currency, in Armenian dram, the less risk there is from a currency perspective.
I would like to mention that this is the 14th currency globally in which IFC issued local bonds. We have done it in other countries like Brazil, Malaysia, China, Russia, Nigeria, and Zambia. In Eastern Europe and Central Asia, IFC has only issued local currency bonds in Russia and Armenia.