Capital Market Development in

George Paresishvili CEO Georgian Stock Exchange

GEORGIA AT A GLANCE

General Facts • Area: 69,700 sq. km • Population (2017): 3.7 Mn • Life expectancy: 77 years • Official Language: Georgian • Literacy: 100% • Capital:

Currency Economy Currency: (GEL) GDP (FY 2017): USD 15.2 bln* Exchange rates(18 Apr, 2018): GDP per capita** (FY 2017): USD 10.6k USD/GEL: 2.43; EUR/GEL: 3.00 Average real GDP growth (2011-2016): 4.6% Managed float; Fully convertible 2017 Real GDP Growth (YoY): 5.0%* Annual inflation (e-o-p) 2017: 6.7% Recent achievements Public external debt to GDP 2017: 34.9%* #7 in Enforcing Contracts**** Ratings #2 in Protecting Minority Investors**** #13 in Index of Economic Freedom***** Fitch : BB-/Positive From #8 to #4 on Starting a Business**** Standard & Poor's: BB-/Stable Among the friendliest Tax Regime globally*** Moody's: Ba2/Stable From #16 to #9 globally on Ease of Doing Business****

Source: Geostat; NBG; Rating Agencies (*) Geostat, (**) at PPP, IMF (***) 22th globally on Paying Taxes, WB, doing business report 2018; (****) Doing Business Report 2018; (*****) The Heritage Foundation and The Wall Street Journal;

www.gse.ge 2 GEORGIA AT A GLANCE, CONT`D

GDP development GDP composition (2017) 16.5 18 14% 15.8 16.1 15.2 Wholesale, retail trade (18%) 11.2% 14.4 14.4 16 14 Manufacturing (16%) 11% 12.8 14 11.6 Transport and Comm. (10%) 10.8 7.2% 6,7% 12 8% 6.4% Construction (9%) 5.5% 4.6% 4.9% 10 Agriculture (8%) 5% 3.4% 2.8% 5,0% 8 Public administration (8%) 2.3% 6.2% 3.0% 2.0% 6 Health and social work (6%) 2% 2.9% 2.4% 2.0% 1.8% 4 Real estate (7%) -1% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2 Other sectors (5%) -1.4% -4% 0 Financial intermediation (4%) -3.8% Education (5%) Nominal GDP (USD bln) Real GDP growth rate (%) Inflation as of period end (YoY) Hotels and restaurants (3%)

Source: Geostat Source: Geostat

4.4% GDP per capita Real GDP growth projection, 2018 4.2% 10.644 3.9% 10.043 3.7% 3.7% 9.602 3.5% 3.5% 9.211 3.3% 8.526 3.2% 8.002 2.9% 7.287 2.6% 6.568 6.125 6.026

4.428 4.131 4.267 4.078 1.6% 3.711 3.762 3.865 3.159 2.694 2.951

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Russia Czech Armenia Ukraine Poland Lithuania Turkey Moldova Estonia Latvia Georgia Romania Republic Nominal GDP per capita, US$ GDP per capita, PPP, US$

Source: IMF, Geostat Source: IMF, October 2017

www.gse.ge 3 GEORGIA AT A GLANCE, CONT`D

FDI and capital goods import Tourism 7,556 1,818 1,862 6,361 19% 1,653 1,570 1,603 5,901 5,392 5,516 16% 4,428 1,130 12.2% 12,3% 6.70% 6.80% 6.90% 1,023 1,021 11.3% 13% 10.7% 11.0% 6.20% 6.30% 6.30% 845 6.10% 6.10% 5.90% 5.80% 2,822 2,751 664 10% 7.7% 2,032 2,166 7.0% 1,720 1,787 1,936 6.1% 8.4% 7.0% 9.1% 1,500 1,411 8.5% 1,290 7% 7.9% 5.8% 955 7.6% 7.7% 659 5.9% 6,7% 447 476 5.9% 6.0% 4% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

FDI, US$ mln FDI to GDP, % Capital goods imports to GDP, % Foreign visitors (K persons) Revenues from incoming tourism, US$ mln Share of tourism in GDP (%) Source: GeoStat Source: Georgian National Tourism Agency

Government Bonds Current account balance (% of nominal GDP) 27.8% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 196 161 -5.8% 42 36 -8.7% -10.3% 2,381 -10.6% -10.7% -11.7% -12.0% 2,020 -12.8% -12.8% 27 1,745 7.4% 7.6% 28 197 1,422 4.2% 837 632 512 3.1% 2.4% 2.3%

2011 2012 2013 2014 2015 2016 2017* -22.0%

Government bonds owned by residents Government bonds owned non-by residents CA deficit Share in total portfolio, % Source: NBG Source: NBG

www.gse.ge 4 STRUCTURAL REFORMS & REGULATORY CHANGES

Structural reforms Pension Reform: Pillar II System

Pension reform design (current proposal): • No capital gain or interest income tax on listed securities

• Mandatory for every formally employed person under age of 40 Tax Reform • Corporate income tax deferral (Estonian Model)

• Employees contribute 2% from their monthly salary to their individual pension account • Enhancing easiness of tax compliance

• Employers match this contribution by another 2% • Development strategy approved by the government

• Developing of local bond market: Rating agencies, REPO, • Government matches with additional 2% contribution Capital Market Reform New Issues, Clearstream Thus total monthly contribution will be 6% of employee’s gross salary • MiFID adoption; Market infrastructure upgrade Source: Ministry of Economy and Sustainable Development of Georgia

Estimated accumulation of pension fund assets, GEL mln 29,702 • New accounting & audit supervisory body established 26,034

22,694 Accounting Reform • Companies are required to publish annual reports according to IFRS and Management Reports 19,661 16,916 • Corporate Governance standards are improving 14,443 12,225 10,244 Law on Entrepreneurs and Securities Market Law 8,487 6,938 amended: 5,583 4,407 3,395 2,531 • 1,200 1,804 Independent board members and audit committee 313 707

Legislative Reform • Disclosure requirements for related party transactions

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 and management compensation 2018 Source: Ministry of Finance of Georgia, Ministry of Economy and Sustainable Development

• Protection of minority investors Significant funding source for domestic economy through debt and equity issuances (long-term GEL funding, dedollarization)

www.gse.ge 5 BOND MARKET USD Denominated bonds GEL Denominated bonds

12% 12% 11% 11% 10% 10% Nikora 9.0% 9% Silknet 8.5% 9% 8% 8% GLC 6.5% GEOCAP 6.7% 7% 7% M2 5.5% BGEO 5.7% 6% GOGC 5.2% GRAIL 5.2% 6% 5% Georgia 3.9% 5% 4% 4% 3% 3% 2% 2% 0 1 2 3 4 5 6 0 1 2 3 4 5 6 Remaining maturity Remaining maturity GEL Sovereign Yield Curve Source: G&T, GSE Source: NBG, GSE

Eurobonds Corporate IFI issues m2 Real Finca MFO GoG GOGC GRAIL BGEO BOG EBRD III GLC GEOCAP Nikora Silknet GWP Silknet EBRD II EBRD I ADB BSTDB III IFC BSTDB I BSTDB II Estate Bank Crystal

Issue Size 500 mln 250 mln 500 mln 350 mln 500 mln 120 mln 10 mln 300 mln 25 mln 10mln 10 mln 30 mln 34 mln 20 mln 10 mln 135 mln 107 mln 64 mln 25 mln 108.3 mln 48 mln 60 mln

Currency USD USD USD USD GEL GEL USD USD USD USD USD GEL GEL GEL GEL GEL GEL GEL GEL GEL GEL GEL

Issue Date Apr-11 Apr-16 Jul-12 Jul-16 Jun-17 Apr-17 Aug-17 Mar-18 Oct-16 Jun-17 Mar-18 Dec-16 Aug-17 Jun-15 Dec-17 Dec-17 Jun-16 Jul-16 Mar-18 Jun-17 Nov-15 Aug-16

Tenor 10 Y 5 Y 10 Y 7 Y 3 Y 5 Y 3 Y 6 Y 3 Y 2 Y 3 Y 5 Y 5 Y 3 Y 2 Y 5 Y 5 Y 3 Y 3 Y 3 Y 3 Y 5 Y Coupon Fixed Fixed Fixed Fixed Fixed Floating Fixed Fixed Fixed Fixed Fixed Floating Floating Fixed Floating Floating Floating Floating Floating Fixed Floating Floating

Issuer rating BB-/BB- Fitch/S&P/ BB-/B+/- B+/B+/- BB-/-/B1 BB-/-/Ba3 AAA - B2/B+ - BB - BB- B+ - B AAA AAA AAA A2/A- AAA A2/A- A2/A- /Ba3 Moody’s/Scope

3 m 3 m NBG Ref NBG Ref NBG Ref 3 m 3 m 3 m 3 m 3 m GEL/CD/ Coupon Rate 6.88% 6.75% 7.75% 6.0% 11.0% GEL/CD/ 7.0% 6.375% 7.5% 9.0% 8.5% Rate + Rate + 10.1% Rate + GEL/CD/ GEL/CD/ GEL/CD/ 7.99% GEL/CD/ GEL/CD/ NBG + 20 NBG 3.5% 3.5% 4.5% NBG NBG NBG NBG NBG bps Listed on LSE LSE LSE LSE LSE LSE GSE - GSE GSE - - GSE - - - GSE - GSE - - -

www.gse.ge 6 NEW CLEARING AND SETTLEMENT SYSTEM

New system advantages

Advantage Impact

Clearing and settlement in Central Bank’s money Higher speed, lower operational risks and costs

Better access to secondary market by institutional investors Institutional investors will be able to trade and hold government (including pension and mutual funds) securities through GSE and GCSD, thus increasing liquidity of government bond market; DMA

NBG and commercial banks will be able to electronically conduct Corporate bonds will be accepted as collateral electronically, REPO operations using rated corporate bonds; Securities lending directly from market participants (banks, brokers, pension and borrowing becomes available funds) in semi-automated manner

Reduced counterparty risk for OTC trades as settlements will Reduced counterparty risk take place in DVP (Delivery vs Payment) mode

Foreign investors will be able to hold Georgian corporate securities Access to foreign investors through Clearstream. This will increase demand for Georgian securities and improve market liquidity

www.gse.ge 7 EQUITY LISTINGS AND THE PIPELINE

Share price Currency MCap, mln 1 Y Return P/B P/E

BGEO 34,4 GBP 1 356 3,29% 1,83 10,73

International TBC 18,0 GBP 965 20,84% 1,77 9,27

GHG 3,1 GBP 401 -15,28% 2,8 47,04

Liberty Bank 0,035 GEL 193 118,75% 0,75 3,05 Local Teliani Valley 0,240 GEL 125 39,50% 6,90 -8,76

Source: Bloomberg, GSE

Stock Expected listings Year International Local Exchange Wind farm 2018 x GSE

Supermarket chain/FMCG 2018 x GSE

Real Estate/Hospitality 2018 x GSE Large utility 2020 NA NA NA

Source: GSE

www.gse.ge 8 Thank you