Bank of Georgia at a premium on LSE

By bne IntelliNews March 2, 2012

Molly Corso in Tbilisi -

Bank of Georgia's recent successful listing as a premium stock on the London Stock Exchange could provide a boost for investment in the region and help strengthen the country's competitive banking sector, say experts.

The move, which made Bank of Georgia only the second foreign bank to take such premium listing on the London Stock Exchange, increased the bank's value by 19%, according to media reports. Irakli Gilauri, the bank's president, told journalists that Bank of Georgia is planning build on its success by listing on the FTSE 250 later this year. The bank is currently valued at around €450m.

The bank, Gilauri told Bloomberg on February 28 when the stock began trading on the main market of the LSE, has proved itself by its success riding out the financial crisis without "taking a penny" from the government. "We are rated as the lowest risk bank by some of the analysts because our leverage is 1 to 5 - it is a very low leveraged bank," Gilauri said. "More than a quarter of our balance sheet is in liquid funds."

Ian Hague, co-founder of Firebird Management and a shareholder in the bank, tells bne the successful listing will bring benefits to investors, the bank and its customers. "The Board and shareholders I think should be delighted with the first day's performance. I can't say that it was much of a surprise to me, though, as I had been thinking the banks shares were seriously undervalued for some time," he says.

"Following Bank of Georgia's successful Premium Listing, I think there are excellent prospects now to raise the profile of Georgia as an investment destination. My experience over the years has been that, once a new investor has a good experience as a shareholder in one company in a new market like Georgia, she is drawn to visit the country and to look for further opportunities," he says.

Foreign investment is crucial to Georgia, which depends on investment as a crucial part of its budget. In 2011, foreign direct investment was $643.1m, up 7.1% in the first three quarters compared with the same period in 2010.

Bank of Georgia was the first Georgian company to list on an international stock exchange when it started trading global depository receipts in 2006 and its success, Hague notes, could inspire other banks in the country to take the plunge. "For the rest of the banking sector, I think the success of Bank of Georgia in obtaining a premium listing will create a powerful competitive rationale to improve internal governance and achieve listings in blue-chip jurisdictions like London," he says, noting that Bank of Georgia's new position on LSE means it is subject to a higher standard of corporate governance and transparency.

The Georgian banking sector is one of the most competitive areas of the economy. There are currently eight international banks operating in Georgia, including France's Société Générale.

Gilauri noted that banks' low penetration in the country - roughly half of the regional average, according to him - means "there is plenty" of potential to grow. Bank of Georgia currently holds 36.2% of the local market. "It is very simple: the Georgian economy is growing very rapidly... The inflation what the emerging market open economy like Georgia, we have around 6% that gives you a nominal growth rate for loan book," he said, noting loan growth is around 13%. "If you look at the regional average, we are half what our neighbouring countries' penetration is so there is plenty of [room] for growth and it is good we have a strong retail franchise in the country to capture the growth and ride on the back of Georgia's success."

Equally important, the listing could lower borrowing costs for the bank's Georgian clients, Hague notes. Current bank interest rates are high, ranging from 14.9% for foreign currency to 22.6% for national currency. "For the bank's customers it means, down the road, the potential for lower borrowing costs as Bank of Georgia is now able to raise capital at the same rates as any other financial institution operating in Western Europe," he said.

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