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Capital Market Trends in Georgia

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Capital Market Trends in Georgia Georgian Capital Market Development, Concepts and Opportunities CENTRAL BANK OF ARMENIA February 7, 2014 Page 1 About BG Capital JSC BG Capital - leader investment bank operating on the Georgian market since 2000 year, has been a member 2010 - The best Frontier of the Bank of Georgia Group since 2005. Market Investment Bank in Central & Eastern Europe BG Capital’s key services include: 2006 & 2007 - The best • Brokerage services in the securities sales & trading process brokerage Company in Georgia • Asset management and nominal ownership • IPOs and Private Placements • Mergers & Acquisitions (M&A) Global Access to Securities • Market analysis, business valuation ICSD (Through BOG Custody) BG Capital’s access to the major stock exchanges, international brokers, and custodians allows us to provide: • Favorable prices on all securities to our clients • Expanding access to international markets • High professional standards and principles Through Trading Lines • Corporate Market-making www.bankofgeorgia.ge/ir BG Capital also has an extensive experience in participating in debt securities primary and secondary market placements and transactions. February 7, 2014 Page 2 About Georgian Stock Exchange As of December 31, 20143 129 companies were admitted on GSE (3 of which V GSE ys are on A and B listing at GSE). In 2013 OTC trades of 38 securities were fixed 0.9% 0.2% 2.5% at GSE, total volume amounted USD 30mn. In the GSE system only 5 securities were traded during 2013 - total trade volume USD 305K. 53.7% - Bank of Georgia Number Trade Volume Ticker Securities 44.7% - Liberty Bank of trades (USD) 53.7% 2.5% - Caucasus Energy & GEB Bank of Georgia 40 160,777 44.7% BANK Liberty Bank 225 133,160 Infrastructure NRGY Caucasus Energy & Infrastructure 8 7,730 0.9% - Teliani Valley WINE 7 2,649 Teliani Valley 0.2% - Liberty Consumer GTC Liberty Consumer 3 565 Total 283 304,881 Total volume of trades (mn USD) Market capitalization of listed companies (mn USD) 60 1200 900 40 600 20 300 www.bankofgeorgia.ge/ir 0 0 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 *GSE Capitalization is calculated including those companies which have GSE Trade volume (mn USD) OTC Trade volume (mn USD) not been traded for years February 7, 2014 Page 3 Bond market Local Corporate bonds: Georgian Eurobonds: (sovereign and corporate) • 2005 – GEL 1,7mn Bank of Georgia 11% 09/07 • 2010 – US$ 250mn Georgian Railway 9.875 % 07/15 GRAIL • 2006 – GEL 5mn Procredit Bank 15% 12/07 • 2011 – US$ 500mn Georgian Sovereign 6.875 % 04/21 GEORG • 2009 – GEL 25mn Georgian Railway 13.5% 12/11 • 2012 – US$ 400mn Bank of Georgia 7.75% 07/17 GEBGG *At the moment, there are no corporate bonds offered • 2012 – US$ 250mn Georgian Oil and Gas Corporation 6.875% 05/17 GEOROG • 2012 – US$ 500mn Georgian Railway 7.75% 07/22 GRAIL Last Auction results: Ministry of Finance of Georgia Treasury Bonds (1-year, 2-year, 5-year, 10-year) are issued in national currency, in Auction Date Period of Validity Average Yield % Issue Volume (GEL) immaterial form. The nominal value of a single security is 22/01/14 1 -Year 5.756 40,000,000 GEL1,000. The securities are sold via auctions, which are 15/01/14 2 -Year 6.188 25,000,000 organized by the National Bank of Georgia. 18/12/13 5 -Year 7.511 8,000,000 20/11/13 10 -Year 10.04 10,000,000 1-Year T-bills Government Securities Portfolio GEL 110,000,000 9.000 900,000,000 100,000,000 8.000 800,000,000 90,000,000 7.000 80,000,000 700,000,000 6.000 70,000,000 600,000,000 60,000,000 5.000 500,000,000 50,000,000 4.000 400,000,000 40,000,000 3.000 300,000,000 30,000,000 2.000 200,000,000 20,000,000 1.000 100,000,000 10,000,000 www.bankofgeorgia.ge/ir - 0.000 0 Issue Amount Excess Demand T-bill, Weighted Average Yield G-Bonds T-Notes 10Y T-Notes 5Y T-Notes 2Y T-Bills February 7, 2014 P 4 Objectives of Concept • To develop long-term vision of development of Georgian capital Establishment of the long- market, by involvement and sharing ideas of financial institutions, term conceptual vision professional staff, experts and individuals who are interested in improvement of Georgian investment environment. Support preparation of long- • To facilitate preparation of long-term strategic development plan and term capital market schedule of relevant activities, which would undertaken by Georgian development strategy and government’s economic group/team, legislative bodies and market action plan regulators Assure the involvement of • To establish practice for implementation of all legislative changes public and industry according to the pre-determined plan and provide involvement of participants in the process of market participants, investors, issuers and all interested parties in the market development process of discussion of initiatives. Facilitate introduction of www.bankofgeorgia.ge/ir• The best international practice and modern trends of development of financial markets must be analyzed and reflected in the concept , by international best practices taking into account economical scale and potential of the country. February 7, 2014 Page 5 Main Issues/Problems • Economic development of Georgia and expansion of business activities in the country • Attracting foreign direct investments requires increasing effort because Georgian financial market is not developed • According to the Global Competitiveness Report for improving the competitiveness of Georgia and development of business activities most problematic area is accessibility to financial resources/capital • Securities market must be well-developed together with banking sector/industry for assuringwww.bankofgeorgia.ge/ir access to financial resources/capital February 7, 2014 Page 6 Main Issues/Problems SOLUTION • In order to raise capital at the Georgian market, the necessary appropriate and relevant environment should be developed, which may be defined as transparent and reliable investment environment, where market entry/exit mechanisms are ensured. • Its necessary to ensure transition from stakeholder to market model of holding. MAIN PRINCIPLES • Establishment of the mechanism for motivation of private sector participants to the securities market • Formation of competitive, transparent, fair and credible environment at the capital market • Development of culture forwww.bankofgeorgia.ge/ir investing in securities, motivating ownership dispersion and to easy investing process February 7, 2014 Page 7 Diversity of Investment Instruments Transparency and protection Diversity of investment Developed environment of of information instruments capital market operations It ensures the reduction of It provides an alternative capital It ensures easy enter-exit to information asymmetry raising mechanism and turnover financial markets Reporting Support and Promotion of public Organized stock exchange availability/accessibility companies market with ensured liquidity Legally enforced information Development of Debt securities confidentiality and protection of Developed Central Depository segment private property rights Developed institutional Fair pricing Availability of Local risk-hedging mechanisms infrastructure Integrated mechanisms of www.bankofgeorgia.ge/irEnsuring Transparent Process of Developed OTC market information dissemination Privatization February 7, 2014 Page 8 Diversity of Investment Instruments DEBT SECURITIES LOCAL RISK- • Secondary market of state HEDGING securities MECHANISMS • Corporate debt securities • Legislation of security • Other types of debt market for derivatives securities (e.g. municipal • Derivatives market bonds, options) PUBLIC COMPANIES TRANSPARENT • Status of public companies PROCESS OF and legislative support PRIVATIZATION • Status of listing/listed • Privatization of state company and legislative enterprises through the support DIVERSITY OF stock exchange market • Legislative support to initial FINANCIAL public offerings INSTRUMENTS www.bankofgeorgia.ge/ir February 7, 2014 Page 9 Structured Investment and Financial Markets with Ensured Liquidity ORGANIZED LIQUID STOCK EXCHANGE THE CENTRAL DEPOSITORY MARKET • Increase the status of the Central Depository •Development of existed Stock Exchange • Development of ownership structure •Development of listing/listed companies (quantitatively and • Integration with other financial institutions qualitatively) • International Integration •Liquid financial instruments • Development of Trade rules, procedures, software •Development of market makers and development of electronic communication •Ensure secondary trading of State-issued securities means. •Development of Corporate and other debt securities •Development of Trade rules, procedures, software and development of electronic communication means. DEVELOPED DEVELOPED OTC MARKET INSTITUTIONAL • The development of non-public INFRASTRUCTURE companies, an increase in the quality of financial reporting • Support development of Brokerage companies • Standardization of information about • The development of non-public Treasury securities, (certain EASY ENTRY standards of transparency) collective investment schemes www.bankofgeorgia.ge/ir AND EXIT February 7, 2014 Page 10 Action Plan Ensuring information transparency and protection by relevant regulation mechanisms • Changes in legislation, creating unified regulation of non-bank financial markets • Close cooperation and coordination with other field and anti-monopolistic regulators Encouraging creation of various investment and financial instruments by information transparency and protection • Executing transparent process of privatization
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