Building faith in Armenia

Armenia is a country where most export credit agencies offer limited cover. Belgium’s ONDD, however, came together with a commercial lender in March to support private corporate risk in the country, which, according to the sole arranger and lender BNP Paribas, is a landmark. ONDD’s cover supported sales of telecoms equipment from Siemens Belgium to local telecoms operator Armentel.

“The size of the transaction at €22mn, for a country like Armenia, as well as the tenor, is absolutely new in terms of risk for a pure Armenian corporate risk,” says Cécile Besse Advani, export finance head of Turkey, Central Asia and Caucasus, at the French bank. “Also, to our knowledge, if you consider transactions above US$5mn maximum, ECAs have not come to this market with such a significant amount on a corporate risk before.”

The deal’s success was also surprising in light of rumours at the time that Armentel’s major shareholder, OTE of Greece, was planning to sell off its holding of 90%. In the event, later in the year, OTE did sell its full participation in the company to the Russian consortium VimpelCom. VimpleCom has companies operating in Russia and Kazakhstan and recently acquired cellular operators in Ukraine, Tajikistan, Uzbekistan and Georgia.

“Furthermore, this move is also partly the end of a monopoly in the telecoms market in Armenia with telecom licences being opened up to additional players,” claims Jean Pierre Autelli, BNP Paribas’s head of territory for Caucasus and Central Asia. “The fact that BNP Paribas and ONDD accepted both the potential change of owner (it was a known fact at the time of signature that OTE was seeking to sell its stake in Armentel) and the new competition was in itself challenging.”

With the telecoms sector restructuring in Armenia through the arrival of a local global player, VimpelCom, combined with the emergence of a direct challenger in the market, this will boost competition and therefore the need to improve technology and services. This is reflected by a recent announcement by VimpelCom of additional technology acquisition in the near future.

BNP Paribas felt comfortable with this deal owing mainly, claims the bank, to the fact that it financed Armentel in 2002 through a €12mn supplier credit backed by the Greek ECA, ECIO. This supported sales of equipment by Alcatel Greece. “The change from a supplier credit to an export credit during 2006 reflects the capacities of motivated ECAs and bankers to accept direct risk on the Armenian economy,” adds Autelli.

Armenia’s economy has grown over 10% per year for the last three years, leading to additional spending on telecoms-related expenditure by the population, claims BNP. Telecoms projects in Armenia are, among other economic factors, very promising, says Advani. The Armenian diaspora, which is both acknowledged to be successful and wealthy (particularly in Russia, France and in the US) is telephoning Armenia or, to a lesser extent, being called by Armenia. As such, the flow of incoming calls represent a very recurrent and reliable source of revenues, she says.

Armenia has chosen to develop its economy through the hi-tech model (like Israel has done) and thanks to the high level of education in Armenia and the help of the diaspora actively involved in California’s Silicon Valley, we believe that the Armenian economy will grow smoothly in the IT sector among others, says Autelli.

He adds: “Despite the ongoing conflict with Azerbaijan related to the Nagorno-Karabakh issue, Armenia is sticking to strong Caucasus economic growth and will very soon converge with the European Union as soon as this issue is settled.”

Deal information

Borrower: Armentel
Amount: €22mn
Sole arranger: BNP Paribas
Tenor: 6 years
Date signed: March 2006