Clare Nuttall in Almaty -

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."

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