Bank of Georgia to spin off private healthcare business

By bne IntelliNews April 9, 2015

bne IntelliNews -

 

The Georgian central bank’s decision to tighten regulations and force banks to ditch non-financial assets will force Bank of Georgia to spin off its flourishing healthcare business before the end of this year.

“Our goal [for the IPO] is 2015,” Bank of Georgia’s chief executive, Irakli Gilauri, confirmed to bne IntelliNews.

Bank of Georgia has yet to announce an exact date for the sale of the healthcare business, though in terms of where the subsidiary will be floated Gilauri said the UK, where the bank is listed, is a place where “we know the market and we are known.”

Wherever and whenever the IPO, Bank of Georgia’s healthcare business, which includes healthcare services and health insurance, is likely to prove popular with investors. The business reported a GEL13.2mn ($7.5mn) profit in the first nine months of 2014, up from GEL11.3mn ($6.4mn) during the same period in 2013.

Bank of Georgia’s holding company has been buying up healthcare facilities, mostly in the capital of Tbilisi, and currently owns some 38 hospitals and clinics with over 2,000 beds, which accounts for just under a quarter of the private healthcare business in the country.

Although the healthcare business has proven to be a good investment, the central bank is not keen on commercial banks investing in non-core business irrespective of how profitable they prove to be. In October the National Bank of Georgia (NBG) ordered banks to ditch their ancillary businesses by the end of 2015, creating an attractive opportunity for investors.

“This practice creates a conflict of interests,” the NBG noted, adding that the central bank welcomes shareholders and owners of commercial banks investing in non-banking services, but only if carried out separately from the bank.

The share of non-financial assets as a proportion of banking sector assets remains relatively small, according to analysts, though the NBG decided to nip the potential problem in the bud. During boom times, banks have a tendency to build up exposure to the most profitable sectors (typically real estate investments), which recent history has taught can destabilise the financial sector in the event of an external economic shock or sharp economic downturn.

The NBG has been tolerant of these non-core investments in the last few years as the banking sector struggled to overcome the effects of the 2008 global crisis. But the regulator deems that now the sector is back on its feet, the time for prudence over profits has arrived.

“The recent trend of improvement in the real estate sector and the increasing scale of banks' non-core businesses requires a change in the regulatory approach,” the central bank said.

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