The FINANCIAL — Despite the Russian economic ban on Georgia over the last two years and an obvious out-loud declaration of a non-hidden cold war against the small neighbour announced by the mighty Soviet rooted empire, the Georgian Government remains loyal to the Russian investors even during the recent Russian-Georgian conflict aimed at undermining the country’s developing economy and the massacre of the ancient nation.
Russian capital including the banking sector, energy, oil, mobile communications, plants, air companies – have all felt at comfort in Georgia up till now.
“VTB Bank Georgia is continuing its activities in a regular way as are other commercial banks in Georgia. No special restrictions have been set on the bank,” Financial Monitoring Service of Georgia, told The FINANCIAL.
According to VTB Georgia’s PR Department, the bank is keeping up regular activities in Georgia and, the only exception being the restrictions set by the National Bank of Georgia. VTB Bank Georgia’s Gori branch has closed temporarily just because of security measures.
“The situation at the bank at this point is stable. In 2005 VTB Bank Georgia became a member of VTB Group and since then we’ve been a stable developed institution,” declared the bank.
“Currently it’s not right to speak about the losses the bank might have suffered because of the Russian-Georgian conflict. Indeed, the situation will affect the country’s financial system, but the primary concern now is to establish peace and avoid economic crisis.”
Russian Vneshtorgbank holds a controlling interest in VTB Bank.
“We doubt the bomb explosions or the plunderers were choosing whether their targets should be Georgian or Russian banks. According to our information VTB Bank Georgia’s branch in Gori has been partially damaged. The bottom line is that no casualties are apparent there though.” claimed the bank’s PR official.
As VTB Bank Georgia’s RR department informed The FINANCIAL, the bank’s Russian citizen staff as well as Ievgeni Nemerinski, the General Director himself, remain in Georgia and the bank is running as usual.
“There’s no pretext that VTB Georgia might be forced to set up some new policy. The bank as well as all the members of VTB Group has its own development strategy, which envisions universal banking services. Financial institutions stay away from politics and VTB Bank Georgia is not planning to make any corrections in regards to its policy in Georgia.” said the bank.
Presently, the Government of the Russian Federation is the major shareholder of VTB, with its share accounting for 77.5%. In May 2007 during the IPO newly issued shares, representing 22.5% of VTB’s enlarged share capital, were allocated among Russian and international investors. The aggregate amount of funds raised approximated USD 8 billion, making the VTB’s IPO the world’s largest public offering in 2007. It also proved to be the most public in the history of the Russian stock market, since more than 120 thousand Russians have become VTB shareholders during the IPO.
As of March 31, 2008 according to IFRS (consolidated), its shareholders equity totalled USD 17.3 billion, enabling VTB to meet the Basle capital adequacy requirements with a safe margin. The assets of the bank as of March 31, 2008 amounted to USD 99.3 billion.
According to the Financial Times, Georgia, the former Soviet republic, will not attempt to re-nationalize assets owned by Russian companies such as UES, Vimpelcom or VTB following its conflict with Russia, the Georgian Deputy Prime Minister Giorgi Baramidze told mergermarket.
Speaking with this news service at the sidelines of German Chancellor Angela Merkel and Georgian President Mikheil Saakashvilli’s news conference in Tbilisi, Georgia, Baramidze said that the government has no intention of seizing Russian owned assets in the country and that it remains open to Russian private sector investment in all areas, including hydroelectric power.
There had been speculation on the ground in Georgia that the government could look at seizing Russian assets such as Georgian power distributor Telasi owned by listed Russian utility Inter Rao, Beeline Georgia owned by NYSE-listed Russian company Vimpelcom, and VTB Georgia owned by listed Russian bank VTB.
During the conflict, which is widely expected to be resolved, VTB, Beeline, Telasi and Lukoil worked normally and did not come under attack by the local population.
He said that Georgia will continue to aggressively sell all state-owned assets, and that it is more interested in attracting foreign companies to the country rather than generating privatization proceeds.
“Since the explosion of the Beeline Gori station 25 basis spots have shut down and our signal is unavailable in Borjomi, Kaspi, Bakuriani, Akhaltsikhe, Akhalkalaki, Khashuri and indeed Gori,” Tata Sakvarelidze, Beeline PR Manager, told The FINANCIAL.
In her words, due to the rough calculations the company has suffered GEL 200,000 losses so far.
“The fact that Beeline is a Russian brand has not caused us any problems and the company continues operations as usual,” claimed Sakvarelidze.
Mobitel Ltd. is a Georgian cellular communication operator. The company has the license for providing cellular communications services.
Mobitel was founded in November, 2003, and at that time was not engaged in commercial activity. Company Mobitel, the subsidiary of the United Joint-Stock Company VimpelCom (Russia), obtained the license to use the radio-frequency spectrum under GSM-1800 standards on 16 December, 2005. The company passed the authorization procedure on 26 August, 2005. Mobitel Ltd. started providing cellular communications services under the brand mark Beeline on 15 March, 2007.
JSC VimpelСom has a 51% share in Mobitel Ltd. The VimpelCom Group includes cellular communication operators, rendering their services in Russia, Kazakhstan, Ukraine, Tajikistan, Uzbekistan and Georgia. The cellular communications services of VimpelCom Group cover territory with 240 million inhabitants.
VimpelCom became the first Russian company, which was included in the New-York stock exchange listing (NYSE). The company shares are quoted on NYSE under the symbol “VIP”.
According to Reuters, Vimpelcom, Russia’s second-largest mobile phone operator, is in talks with banks about securing a USD 1 billion syndicated loan, a banking source said.
Proceeds will be used for general corporate purposes. The source said lenders have been invited to bid for the mandate to arrange the loan, but that the bid deadline may be extended until the consequences of the war in Georgia have been factored in by the market.
To bring further light to the situation the Russian owned Telasi commented that the company is working full-scale and no lack of electricity is evident in the capital.
“Tbilisi is fully provided with electricity and Telasi has had no significant problems because of the Russian-Georgian conflict. Although it’s owned by a Russian company we’ve felt no discomfort in Georgia and moreover Telasi’s actively involved in helping refugees,” Telasi informational centre, told The FINANCIAL.
Georgia still supplies the Russian city Sochi with electricity.
On August 4, VTB Bank extended a USD 14 million long-term loan to Telasi, a Tbilisi electricity distribution company, at an annual interest rate of 12%.
In 1998, the company was privatized to AES Corporation, whose efforts to repair and modernize the electrical grid of Tbilisi was documented in the film “Power Trip”, by Paul Devlin. In 2003, AES sold Telasi to Russian company Inter RAO UES, a joint subsidiary of RAO UES and Rosenergoatom. The Russian company paid USD 26 million to AES for Telasi and in return AES paid off USD 60 million of Telasi debt, in effect paying Inter RAO UES USD 34 million to take Telasi off their hands. In the end, AES lost more than USD 300 million on the Telasi episode.
As of July, 2008, Inter RAO stock has been owned by state-owned Rosatom (60%) and Rosenergoatom (40%), however, the company statute allows divestment of non-controlling shares to private investors.
As for fuel perspectives, according to Levan Gogichadze, Lukoil Head of Marketing and PR Department, Lukoil is an international oil company which is absolutely apolitical.
“I’d like to stress the fact that the majority of the filling stations operating in Georgia under the Lukoil brand are Georgian companies,” claimed Gogichadze.
As Gogichadze noted, if the situation becomes further strained, the first issue the company will have to think of is the safety of its employees. “I hope the situation will stabilize soon and no radical measures will have to be referred to.”
The company says they have sufficient storage at this point and the demand has also been reduced these days.
While Russian military aviation bombed all of Georgia, Russian civil aviation did not have the slightest problems in its activities in Georgia till Russian Transport Ministry forbade Russian air carrier Aeroflot carrying out Tbilisi flights.
In March 2008, the Russian air carrier Aeroflot resumed flights to Tbilisi. Though due to the current Russian-Georgian conflict the flights have stopped again.
According to Lev Koshlyakov, Aeroflot Deputy Director of Moscow Office, the decision to close flights to Tbilisi was made by the Russian Ministry of Transportation and Aeroflot.
“Since August 9 we have had no flights to Tbilisi, though our office there is not closed. We had 70% traffic on our Tbilisi daily flights, which was quite a beneficial business for the company. Yes, we’ve faced financial losses because of the cancelled flights but I can’t name any concrete or approximate figures,” Koshlyakov told The FINANCIAL.
“We have no problems in this respect; we did renew flights in March and will do the same as soon as we we’re allowed to.”
Tbilisi-Moscow flights cost GEL 370 for a one way ticket and GEL 580-600 for a two-way ticket. According to Koshlyakov, daily traffic was about 120 passengers.
The value of average daily traffic of the Aeroflot Tbilisi office would be GEL 58,200 and GEL 6,984,000 per month.
From September 22, 2008, the Aeroflot flights, route Moscow – Tbilisi – Moscow was planned to be carried out by A320 airplanes.
JSC “Aeroflot – Russian Airlines” (AFLT) is the leader of the Russian civil aviation, actually the national carrier. Being the largest airline, the company transports over 8 million people a year, and together with its subsidiaries – about 10 million, which is approximately one fourth of the total amount of passengers of the Russian air transportation.
As Forbes stated, Russian billionaire Alexander Lebedev, a major shareholder in Russia’s flagship carrier Aeroflot, who is seeking to buy tour operator Oeger Tours, has warned Germany against investments by Russian sovereign wealth funds because of corruption he says exists in the country’s bureaucracy.
In an interview with Welt am Sonntag, Lebedev also expressed sympathy with the German government’s aim to control investments by sovereign wealth funds in industries that affect its national security.
The only non-functioning body with Russian capital is Azoti plant, though the reason has nothing to do with war as the plant is going under renovation works.
Energy Invest, which owns fertilizer company JSC Azoti, located in Rustavi, 35 km from Tbilisi, told The FINANCIAL the only reason why the Azoti plant has stopped now is the renovation works carried out there.
“It’s a kind of seasonal renovation work that we carry out at the plant and the period coincided with the Russian-Georgian conflict,” declared Nino Mdivani, Energy Invest PR Office. “Our Russian partners are concerned with the strained situation in the country though. As for the losses no comments could be delivered in the short term, but if the conflict lasts further no good news is anticipated for the country’s economy.”
In her words, the company is doing its best to help the refuges accommodated in Rustavi on a temporary basis.
JSC Azot doubled production in 2007 after securing USD 20 million in investments. Chemical fertilizers are one of Georgia’s top exports.
Georgian-Russian company Energy Invest acquired JSC Azot in 2005 for USD 20 million.
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