Interviews / Articles
Avtandil Gogoli: Capital Locus is offering an alternative to loans
Monday 27 February 2017
Capital Locus Company has recently signed (Armenian) Memorandum of Understanding with Ministry of Economic Development and Investments, which is aimed at supporting Armenian companies to attract foreign investments.
- Mr. Gogoli, what are the services you agreed on with the Ministry and how are you planning to support attraction of foreign investments in Armenia?
- Signing of Memorandum with Ministry of Economic Development and Investments is directly related to major activities of our company.
Capital Locus is a financial advisory company, dealing with attraction of financial resources for Armenian companies from international and foreign organizations such as Investment companies, International Financial Institutions (IFIs), Private investors and Asset managers. The financial resources are attracted in the form of loans as well as capital and mixed type of financial products. Typically, the above-mentioned organizations are providing the financial resources to banks which, in their turn, direct those streams to lending of companies. We support the companies to attract those resources, immediately, from the primary sources.
Until recently, I was heading the ProCredit Bank, which was specialized in corporate lending in Armenia. Aiming at maintenance of long-term relationships established by cooperation with the bank, currently, we are attracting the financial resources also from the International organizations, which were previously lenders or shareholders of the bank. We work also with new organizations, which have certain resources and are interested in investments in Georgia and Armenia.
We attract financing from 11, mainly European, foreign and international organizations not represented in Yerevan and Tbilisi.
Regarding the interest of the Ministry, I should mention that at present, one of the main tasks of the government is the attraction of investments into the economy. Therefore, it is necessary to do the best to ensure the trust among international investors and stimulate the investment process.
Thus, the interests of Capital Locus and the Ministry are coinciding on that issue and we decided to formalize it by signing respective Memorandum. In case of availability of interesting investment projects we are ready to support the Ministry in attraction of investments. On the other hand, we are also ready to ensure direct link to government for different International organizations.
- How would you evaluate the attractiveness of Armenian economy for foreign investors?
- Usually this question is raised with some skepticism. Actually, the countries of our region, including Armenia and Georgia, have gone through many crises, and the situation nowadays is neither the first nor the last one.
There are competitive companies in Armenia, where the international organizations are willing to invest and support their development.
- Capital Locus is a newly established company. Why have you selected Armenia and why specifically SME sector?
- Why Armenia? I have been living in Armenia with my family for 6 years now. My previous experience in ProCredit Bank helped me to get to know the country, its economy, financial sector and private business. It provided also valuable contacts with many businessmen.
While working in the bank very often we were encountering cases, where the loan was not the best solution for a specific company needs, however, we did not have any other option to offer. So, on one hand, we had connections with International financial institutions and local companies and, on the other hand, there was a need for new financial tools and we decided to establish Capital Locus Company.
By the way, we are planning in the nearest future to open an office in Georgia, Tbilisi as well.
Our target segment is the non-financial sector. Specifically, the main priorities by sectors are the energy sector, agriculture, tourism and hotel business. Currently, we are implementing projects also in real estate, construction and banking sectors.
Today we have 8 outstanding projects with USD 38 mln total amount that we plan to finalize by the end of first half of the year. We expect to have new projects in our pipeline as a result of our cooperation with the Ministry of Economic Development and Investments of Armenia.
- It seems that you do not have competitors in the market.
- To say that we do not have competitors is a bit dangerous (smiles-edt.).
As I said, besides capital we attract also loans, so, in this regard, the whole banking sector is our competitor.
As for capital attraction I would say we do not have competitors as such. There are companies doing a little bit of everything like accounting, auditing, tax and other consulting and parallel to that fundraising as well, however, we are the company which is specialized in fundraising.
There are also investment companies licensed by the Central Bank, which are performing mainly functions of brokers by issuing and placement of securities in the local market for banks.
- Are the interest rates in Armenia reasonable? And what would you say about interest rates on funds attracted by Capital Locus?
- The interest rates are very individual and depend on specific case.
Mainly the interest rates on funds we attract are lower compared to bank loans and, for example, in case of new projects and capital financing there are no similar offers in the market at all, therefore, the interest rate is not essential here.
The way we work with business companies is the following: the clients approach us with fundraising request for which they pay commissions. Any company can approach with application, however, the amount of financial resources to be attracted should be at least USD 1.5-2 mln., otherwise it does not make sense to apply to International organizations.
As for reasonability of the interest rate on money, if the company relies purely on commercial banks then it has to pay relatively higher price on loan. It is more rational to diversify the funding sources and not to depend on commercial banks only.
- You are familiar with Georgian financial market. How would you compare the capital markets in both countries?
- I think the capital markets in Armenia and Georgia are at the same level of development. It is just a matter of scale, in Georgia it is bigger depending on higher level of investments.
The brokerage companies in Georgia, just as in Armenia, are engaged in the same business of issuing and placement of securities for commercial banks and, in many cases, those brokerage companies and banks have the same common shareholders.
Besides, the capital market in both countries is not very popular.
Nevertheless, to comply with new requirement on capital set by the Central Bank of Armenia, some banks in Armenia successfully attracted the capital funds from local market by issuing shares. This is a very good precedent.
- You talked about new requirement of CBA on capital. What do you think, to what kind of changes in the market it will lead?
- The purpose of the CBA in this case was the consolidation in the banking sector. They considered 21 banks too many for Armenia. As a result we have now 17 banks.
The capital is considered to be the most expensive type of financing, therefore, it will have additional impact on banks' profitability. At the same time, the quality loan portfolios of the banks are not at the highest level.
The overcapitalization of the banking sector and the high level of non-performing loans (NPL) bring me to the conclusion that the profitability in the banking sector will decrease. In this circumstances, I do not think that the interest rates on bank loans will decrease. During 2015 and 2016 the banks preferred to be very cautious with financing of real sectors of economy. High liquidity and the overcapitalization will force the banks to be more aggressive in 2017.
It should be mentioned that the financing conditions of the banks are not significantly different. All of them require collateral and those requirements are quite similar, while for International organizations the collateral is not an essential topic. If they like the company, management system, shareholders, the project or business plan and the business model then the collateral coverage is only of symbolic meaning for them.
- What are the upcoming plans of Capital Locus?
- Our company is new in the market and we have to approach every company with the offer. We have already good projects, but we are not fully satisfied with the results and will move forward.
Our short-term plan is to finalize current projects in total amount of USD 38 mln., the mid-term plan is to bring the total amount of those transactions to USD 100 mln. In the future, we already plan to become an investment company in Armenia and Georgia, which will be operating in two directions: Private Equity and Assets Management. To achieve our long-term plans we need several years of experience and successful projects.
Siranush Simonyan talked to Avtandil Gogoli
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