The FINANCIAL — “Large international names will be coming to Georgia in the next 2-3 years to invest in the stock market here”, Nick Piazza, CEO of BG Capital Ukraine. “Georgia has quite large space for development and resembles the Ukrainian stock market 4-5 years ago.”
“Now the Ukrainian stock market is booming, we have 300 brokerage companies, hundreds of analysts, with volume of 10-20 million stocks traded per day, which is quite large,” added Piazza.
As Piazza declares, the development of the Ukrainian stock market was governed by a lot of growth in Russia, people bought things in Russia and brought them to Ukraine. Then there was a movement from Ukraine to Georgia which itself increased the Georgian stock market.
“For further development of the Georgian stock market we need to work with the Government. There are some discrepancies and some confusion in the legislation that we have. To make the Georgian stock exchange and market attractive for investors we need to get a few things worked out,” Piazza added.
Piazza says there are Georgian enthusiasts – entities which are mainly portfolio investors in Georgian companies. Funds like Firebird Investment, which is New York based. They are big shareholders of Bank of Georgia and Teliani Valley. The CEO of Firebird also owns a cement company in Georgia, according to Piazza.
“Moreover, there is a huge American fund called DBS, worth about 20 billion USD, they are very actively trying to get into the Georgian market, buying treasury bills and other things. We are working with them and with the Government of Georgia with legislation to allow them to enter the market. Moreover, you will see that Ukrainian companies continue to target Georgia as an export market,” Piazza added.
“Interest in Georgia from international investors is very high and constantly growing. BG Capital has around 300 funds and 500 high net worth individuals who are looking at the region,” said Giorgi Shengelia, BG Capital Georgia.
”In July 2010, the Georgian Railway issued 250 million USD Eurobonds – that’s on top of 200 million USD Bank of Georgia and 500 million USD Georgian Sovereign Eurobonds outstanding. Bank of Georgia’s IPO on the London Stock Exchange in 2006 was one of the success stories of CIS countries as the stock price rocketed from the IPO price of 17 USD to 44 USD in June 2007. Even though the financial crises weighed heavily on the stock price, the shares have had a solid performance since March 2009, increasing 600%,” added Shengelia.
“The Orange Revolution was the main driver for Ukraine. It brought the country to the world and it thereafter became a European country. The Czech Republic became a European country, Ukraine must be next, and I would like to get there early and say that Georgia is in a similar position. However people were scared by the war in 2008 and the political situation with Russia. However, as we see current stability in global economies, people are looking for places to invest and if you take Georgia against CIS where will you put money? You will put money where the Government is actually trying to bring in investors so I think that’s where we are,” declared Piazza.
As Piazza declares the case of the stock market is quite different in Belarus and is further behind. However, still potential is seen there as the Government of Belarus begins privatization, begins to open up outside markets and BG Capital wants to be first there.
The majority of Georgian companies are not listed on the stock exchange. From around 150 companies listed on the Georgian Stock Exchange only 4-5 of them are more or less liquid. The only stock that is listed on an international stock exchange is the shares of Bank of Georgia.
Georgian companies still fail to use stock issuing as additional capital for their businesses to develop.
“When you watch a business grow you start from the bank debt and when the company gets to a certain size it gets difficult to attract the financing you need just from bank loans. There is already a group of companies that have reached certain growth of their business in Georgia and for them to grow further it is necessary to go to capital markets. It’s a matter of time and development for the companies to reach such a stage,” declared Piazza.
“Public ownership is very low in Georgia. Nearly all large companies are privately held – that’s mainly because company owners in Georgia fail to see and appreciate the benefits of diversifying their funding sources,” said Shengelia.
If a Georgian company decides to go public, moreover in the international market, it should have clear vision, legal structure and audit conducted. It takes around 6 to 18 months to prepare for an IPO on European stock exchanges. Moreover, it is crucial to select the right stock exchange.
As Piazza declares they have seen billion dollar companies from Ukraine go to London and not been actively traded.
“We are talking to the companies about going to the right stock market and developing the right jurisdiction which is the key thing. We really like the Warsaw stock exchange, we think that’s the right size for Georgian companies and we have experience with BG Capital taking companies there,” added Piazza.
Shengelia declares that a company must have a clear legal structure and high reporting standards to be listed on a stock exchange.
“The requirements and the duration of the listing process depend on the Stock Exchange the company plans to float on. It takes around 6 to 18 months to prepare for an IPO on European Stock Exchanges. BG Capital services are designed to assist business owners at every step of the IPO process. At this moment we are advising several local companies in the preparation process,” added Shengelia.
According to BG Capital Bank of Georgia is by far the largest traded name in Georgia, followed by Liberty bank and hydropower plant company Caucasus Energy and Infrastructure. Teliani Valley is also traded in smaller volumes offering investors exposure to the Georgian agricultural sector.
“Bank of Georgia is a great success story, the initial IPO increased from 17 to 44 USD, after the war it went from 3 USD up to 12.20 USD. International investors are actively watching Bank of Georgia’s stocks. The Bank will continue to generate operational products which will drive the Bank to grow,” said Piazza.
“Bank of Georgia shares still remain undervalued compared to its peers in the region. The absolute majority of investment banks which cover Bank of Georgia have a buy recommendation on the stock with an average target price at around 15 USD (20% upside from the current price of 12.50 USD),” declared Shengelia.
Piazza says the fall of Bank of Georgia stock price was governed by the mistakes of investors.
“If you look at any bank in the region take VTB, take Sberbank, all the Kazakh banks, they all experience in the same way. This was a global crisis and I think the war also made some people panic and created a great buy opportunity.
There were many problems in the banking sector in Ukraine as well as in Kazakhstan, western investors said Georgia is in the same region which harmed Bank of Georgia too, it was a mistake by investors and by the market,” Piazza added.
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