FUNDS: Georgian investment funds act as 'magnets' for foreign investors

FUNDS: Georgian investment funds act as 'magnets' for foreign investors
Hotel Royal Batoni.
By Carmen Valache in Istanbul May 9, 2016

Investment funds might be a fairly new phenomenon in Georgia, but the country’s leading such funds – the state-owned Partnership Fund (PF) and the private Georgian Co-Investment Fund (GCF) – have channelled an impressive $3.5bn into the economy over the last five years. In addition to investing their own funds, PF and GCIF have also acted as foreign investment magnets for projects that serve the government’s development policy, in sectors like hospitality and energy.

That might explain why in April representatives from PF, which has over $1bn invested in a variety of projects in Georgia, accompanied Prime Minister Giorgi Kvarikashvili on a trip to Washington DC, where they signed a series of agreements with the US government-owned development Overseas Private Investment Corporation (OPIC) to jointly finance start-ups in Georgia. OPIC and PF are already working on joint healthcare and hotel projects, and on financing small and medium-sized enterprises (SMEs) in the country.

The $6bn GCF, founded in 2013 by former premier Bidzina Ivanishvili, was also set up to attract foreign direct investment (FDI) into the country “We were the first large private investment fund in the country. Only PF existed before us, and its mandate and resources are limited,” CEO George Bachiashvili explains to bne Intellinews. “Investors normally look for a strong local partner before deciding to enter a market, and we wanted to become that partner… It takes time and effort to educate potential investors in Georgia about investment opportunities, advances in the economy in the last decade, and practical aspects like taxation.”

Having identified energy, manufacturing, agriculture, real estate and hospitality as priority sectors, GCF has underwritten projects worth over $1bn, or half of its total investment in 2013-2015, in building eight hydropower plants that range in size from medium-sized projects of some 40 megawatts (MW) in installed capacity to a 347MW cascade on the Tskhenishstskali river. The latter alone has an estimated cost of $750mn, and Bachiashvili declares that work is on schedule. “Only 25% of the country’s hydropower resources are currently being utilised, and we still need to import electricity in winter. Our goal is to export electricity during the summer, and for those exports to exceed the imports during winter,” he explains.

The remainder of GCF’s investments are concentrated in several real estate projects: five hotels, a large shopping mall set to open in central Tbilisi in 2017, and two twin towers that will include residential, retail and office space, also located in Tbilisi. At 41 storeys each, the towers will become the highest skyscrapers in Tbilisi once completed, and will feature a 25-metre indoor swimming pool and an interior garden. Bachiashvili is certain there is demand for upscale developments like the Axis Towers in the Georgian capital. “Based on our market research, there is high demand for such spaces. The sales [at the towers] are greater than we had anticipated,” he says.

In line with government policy of ensuring food security in the country, GCF has also invested in greenhouses that focus primarily on produce that is in high demand, like tomatoes and cucumbers. Bachiashvili says that Georgia has historically been an agrarian country, but that, after the fall of the Soviet Union, the sector fell behind because of a lack of investment and antiquated technology. “GCIF invested in the first-of-its-kind, high-tech greenhouse in Georgia, where we currently produce 3,000 tonnes of tomatoes and cucumbers per year, but are looking to expand. The country imports 70 to 80% of its tomatoes and cucumbers from Turkey, and we are seeking to increase our production to cover the demands of the domestic market and to export more to Russia,” he explains.

GCF is ostensibly private, but as an institution funded by the country’s wealthiest citizen whose influence over the governing Georgian Dream Party is well known, it chooses its projects strategically to also support the government’s development agenda. Ivanishvili’s partners in the fund are local and foreign funds and investors, including sovereign wealth funds from Azerbaijan and the United Arab Emirates of Abu Dhabi and Ras Al-Khaimah, the Turkish company Calik Holding and Kazakhstan’s KazTransOil. Bachiashvili assures that despite the decline in oil prices since 2014, these partners continue to be liquid enough to maintain their initial investment pledges.

“None of our backers have approached us to express their intention to pull out. In most of our projects, we have a significant amount of equity. Right now, we are working more with debt providers, and we do not see any problems there,” Bachiashvili says, adding that the Georgian economy’s attractiveness thanks to its sustained economic growth has maintained investors’ interest even in times of volatile commodity prices. 

New visitors

Looking ahead, Bachiashvili is confident in the prospects of the Georgian economy. “Our tourism is experiencing a boom this year as a result of the fact that Russian tourists that used to travel to Turkey and Egypt are now coming to Georgia. Besides, the opening up of Iran presents a great opportunity for us. The number of Iranians visiting Georgia has increased by 20% year on year in the first quarter,” he says.

Together with hospitality, agriculture, real estate and hydropower development will remain the drivers of growth in Georgia, Bachiashvili believes, and they will remain the centrepieces of GCIF’s investment strategy for the foreseeable future.

GCIF’s trust in the prospects of the tourism sector perhaps explains why the fund announced on May 6 that it had launched eight new hotel and real estate projects on Georgia’s Black Sea coast and in the capital of Tbilisi, and that it was looking for investors to take over “at any point in their development”. Altogether, the projects will cost some €500mn, a fifth of which has already been financed by GCIF, and they would become a new “business card” for Tbilisi, the fund said in a statement.

However, some segments of Georgian society are critical of GCIF’s real estate developments. Echoing protests in past years, a group of environmentalists attempted to break through a police cordon around the upscale Panorama Tbilisi development on May 7, prompting six arrests. “No matter how many times they arrest me, we will anyway force this man [Ivanishvili] to return this land, which belongs to the people, to Tbilisi,” Tbilisi City Councilor and protester Aleko Elisashvili said, according to

In other areas, the fund is preparing a manufacturing project that Bachiashvili cannot expand on, but that he promises will be “very big – an investment of $170mn. We will have more information in a month or two,” he concludes.