Georgia, the small South Caucasus country of 3.9mn, has been the beneficiary of not one, but two lari-denominated bonds issued by the EBRD in the last year. On April 25, the bank issued the first lari-denominated Eurobond, worth GEL120mn (€46.7mn), on the London Stock Exchange. The move came after a GEL107mn public bond issuance on the Georgian Stock Exchange (GSE) in June.

Part of the bank's drive to develop local capital markets, the bond issuances are bound to spur investor confidence in the Georgian economy, George Paresishvili, GSE's CEO, told bne IntelliNews in a telephone interview. The privately-owned Georgian bourse has seen activity on it dwindle in the aftermath of the Russian invasion of 2008 and the economic crisis of 2009. While before 2008, the volume of trading on the stock exchange exceeded $100mn per year, it almost came to a halt in 2009 and has never fully recovered.

As such, the EBRD's bond issuances are particularly timely and necessary. Firstly, the domestic market issuance boosted trading on the bourse, which stood at a mere GEL50mn in 2016, by offering local investors the opportunity to buy bonds issued by a trustworthy, AAA-rated, entity. Secondly, the Eurobond issuance provides a solution to investors with an appetite for lari-denominated securities, but reservations about buying local bonds, Paresishvili believes.

"The EBRD's presence has been very important for the local capital market and private sector in general. The bank acts as a benchmark for the local market. Furthermore, the revenues from the Eurobond will be used to reinvest in the local market through loans to local companies that normally have long maturity periods; so the Eurobond will likely increase the liquidity in the domestic private sector as well as peaking the interest of foreign investors," he explains. 

That said, the EBRD's bond issuances are no silver bullet, for barriers remain to the development of capital markets in Georgia. By and large, Georgians do not yet have the culture to invest in stocks, preferring instead material investments like real estate or large consumer goods. The Georgian middle class, while growing, does not have the sufficient investment capital yet to become a sizeable financier of the private sector.

Furthermore, the Georgian currency has had a chequered performance since 2014. Between 2014 and 2015, it depreciated by 40% against the dollar. Although it has somewhat recovered since, more recent but short-lived waves of depreciation have continued to concern investors.

As a result, GSE does not yet offer sufficient financing potential to incentivise large Georgian corporations, such as TBC Bank or Bank of Georgia, to issue equity on it; the two lenders have chosen to go public in London instead. 

At the same time, Georgia has become an attractive investor destination. Thanks to sustained growth rates of some 3% per year in 2015-2016 (which are expected to increase to more than 5% in 2018), investor-friendly policies, numerous free trade agreements, and close relations with the EU, but also with Iran, Turkey and Central Asian countries, Georgia is on a growth wave that could very well be reflected in its capital market soon.  

One recent development that could speed up the process is, according to Paresishvili, the fact that the GSE and the Central Securities Depository are working on a major upgrade of the trading platform, with the help of the central bank. "Once the upgrade is complete, it will provide much better access to non-resident investors to the local market. The upgrade will result in GSE using a state-of-the-art platform that will allow investors not only to trade stock, but also to lend, borrow and do all the operations that can be performed on developed stock exchanges," he explains.

As for the EBRD, Paresishvili hopes that the bank will continue to support the development of Georgia's capital market by moving into buying corporate bonds directly and thus acting like an anchor investor for the local market. "We have seen more issuances of local corporate bonds recently. In 2016, they represented 40% of the securities traded on GSE," he says.