GEL Bonds for Added Confidence in Georgia

GEL Bonds for Added Confidence in Georgia

GEL Bonds for Added Confidence in Georgia

The FINANCIAL -- The European Bank for Reconstruction and Development (EBRD) marked an historic milestone in Georgia with the first-ever bond issue by an international financial institution in Georgian Lari.

This offering will not only help to drive forward the development of the local capital market but is also an additional tool that will enable the EBRD to raise local currency in support of its lending programme in Georgia, according to EBRD.

The two-year bond totalling GEL 50 million (EUR 20.7 million) is jointly lead-managed and underwritten by two leading local financial institutions: JSC BG Capital, the wholly owned brokerage subsidiary of Bank of Georgia, and TBC Bank. The transaction is the first bond placed by the foreign issuer in Georgia and also represents the first floating rate note on the domestic market.

The coupon on the EBRD’s inaugural Lari bond is flat to the three-month rate on certificates of deposit issued by the National Bank of Georgia. The bonds are eligible for sale and repurchase operations carried out by National Bank of Georgia.

To date, the EBRD has invested a total of EUR 1.86 billion for 167 projects in various sectors of the Georgian economy, and has mobilized a further EUR 3 billion for these ventures from other sources of financing.

“The issuance of the bond denominated in Georgian Lari is a very important precedent for reviving the security market. It would help economically active people and businesses to understand how it is possible to invest money in securities,” Aleksi Aleksishvili, former Minister of Finance of Georgia and current Chairman of the Board of Policy and Management Consulting Group (PMCG), told The FINANCIAL. “Because this bond is denominated in Georgian Lari it would help to increase confidence in GEL and of course the number of transactions in Georgian Lari would increase. But the influence wouldn’t be very high with one-time operations or bond issuances,” Aleksishvili added.

“It would have no effect on the exchange rate because GEL 50 million is simply not an amount that would have a significant effect on the market, and on the other hand, the amount of foreign and national currency doesn’t change because EBRD is going to invest that money in the Georgian economy,” he said.

“The response to this issuance from the side of the population would depend on JSC BG Capital and TBC Bank activity. This is not such an amount as to cause a massive sale and purchase boom, but it is a very good precedent,” he said.

“People in Georgia are not informed enough about the security market, and also there is no confidence. In this case we need both. From the side of the companies, the issuance of stocks wouldn’t be related to as much confidence as is in the case of EBRD. And because of this, this transaction would have no instant effect. This is a very good signal to the market for macroeconomic stability and financial market activity,” Alexishvili said.

“I don’t see any risk in issuing this bond,” Bruno Balvanera, EBRD Director for the Caucasus, Moldova and Belarus, told The FINANCIAL. “EBRD is a AAA institution, this is a rating that very few countries, international financial institutions or companies have. So the bond holders of the bond shouldn’t worry about any risk. We have the best rating that any issuer can have.”

“Issuing the bond is a liability for us, this bond is bringing us GEL to place into our lending programme. Our lending programme has basically three key priorities. The first one, which is going to be the most used, is the development of the local private sector. By this, we are referring to hotels, small and medium-sized companies, companies involved in food processes. Our second priority is the development of the energy sector. And third is infrastructure, probably some private sector infrastructure,” he added.

“The main purpose of issuing this bond is a combination of many things. One is to diversify our source of Lari, the second is to create a framework for international financial institutions to issue Laris, and the third one is to make this a showcase for others to issue bonds in Laris,” he said.

“Issuance of the bond in GEL would have several positive effects. First is this would help in paving the way through the development of a corporate bond.” Tako Jugheli, Research Director, PMC Research Center, told The FINANCIAL. “In particular, the legal and technical steps have already been paved and legislation has been tested. Each following corporate bond will pass through the same process more easily as a result. Second is that it increases debt securities in Lari, which helps in the improvement of the Georgian money market. Consequently banks will have more actives for liquidity management. Third is that it means EBRD trusts GEL and Georgia. This is a good sign for investors. Fourth is that EBRD would invest this money in Georgia and there would be less risk, there would be no exchange rate risk, and it would be good for the economy.”

“There would be great interest from the side of legal entities, large companies and investors or commercial banks because there are not many of these types of securities. One of the purposes of the EBRD was to encourage the market, so that companies would start issuing bonds,” she said.