By Atom Markarian
Minority shareholders of Armenian firms continue to be routinely cheated of profits and squeezed out of business by their wealthy partners, the head of a government body regulating the country’s fledgling stock market admitted on Wednesday. Eduard Muradian of the State Commission on Securities said it is effectively powerless to stop many wealthy individuals controlling joint-stock companies from refusing to pay dividends to smaller shareholders. He said the latter are often forced to sell their stakes at knockdown prices.
“Violations of shareholder rights are widespread. It is terribly difficult, almost impossible, to tackle such violations,” Muradian told a news conference.
According to official figures released by the regulatory body, only 200 of about 1,300 joint-stock firms operating in Armenia reported earnings for 2003 and only 15 of them paid any dividends in the first half of this year. The information highlights the widespread underreporting of revenues by small and large Armenian companies. The practice led the government late last year to impose a 1 percent turnover tax on all businesses that claim to operate at a loss.
The rampant tax evasion thus seriously hinders the development of corporate culture in Armenia where most lucrative firms are owned by individual tycoons, their relatives and cronies. Not surprisingly, the total amount of deals on the local stock market was a meager 1 billion drams ($2 million) during the first half of 2004. By comparison, trading in government bonds and treasury bills totaled 67 billion drams.
Hrachya Alikhanian is one 35 individuals that have modest shares in a Yerevan-based car service firm, Interautoservice. He said the company has cut many lucrative deals in the last eight years but has never shared its profits with the minority shareholders. He said he would like to sell his stake to the company’s dominant owners but they would pay only a fraction of its face value set almost a decade ago.
Muradian acknowledged that the practice is commonplace. “Shareholders that control joint-stock companies continue to increase the percentage of their shares, apparently trying to turn those public companies into closed ones,” he said.