Molly Corso in Tbilisi -
Tired of waiting on greenfield investments struggling to find their own financing, the Georgian government has created its own equity fund to provide some capital for large investors in the hopes of creating more jobs and local production.
The new source of financing should help "pull" large investors to Georgia, according to the Partnership Fund's first deputy CEO, Giorgi Tchiladze. "Our mandate is very straight forward, very simple: to support the private sector investment in certain sectors of the economy which the government thinks have great potential for further development, and would have much more impact for supporting GDP growth down the road," he said. "The biggest comfort we can provide is we are their active partners, we share the downside, we probably share a limited upside and then we are looking for the exit... We have limited investment horizons and if the investment is successful we would like to leave."
Tchiladze said the focus is on renewable energy - the fund is already working with an investor on a hydro project work an estimated $600m - as well as tourism, hotels, and agriculture processing/manufacturing. The goal, he said, is to support Greenfield investments that can generate "export revenue, some import substitution, increase productivity, and contribute to GDP growth."
Increasing employment and local production are high priorities for the government as the country gears up for parliamentary elections in October and presidential elections in 2013. In June, President Mikheil Saakashvili created a state agency to help citizens find jobs, and the Georgian National Investment Agency has been pushing a variety of benefit plans to attract industry to the country from neighbouring Turkey and further afield.
The Partnership Fund, Tchiladze said, is designed to give investors one more reason to come. Created by former Prime Minister Nika Gilauri (recently named the fund's CEO) in 2011, the fund is set up to be a partner - not a substitute - for the banks, he said, stressing that local banks will be involved at a senior level. "We are not 100% funding providers for the projects that we do. We provide minority stakes, often times we are less than 50% of the project funding," he said, noting that the amount of financing for any given investment depends on the project.
"We are providing the additional funding piece which is missing, which is equity funding, which makes these projects bankable because otherwise banks would not lend."
The fund is in discussions on several projects, with plans to implement "a few" projects in every sector within a year. Tchiladze said they are planning to partner with a development company to build a new Radisson in Kakheti, Georgia's wine region. Other potential projects include hotels in other regions of the country, and a large storage facility for agriculture products.
"We are set up [to attract investors]. I think an investor can have enough money but still it is a foreign country, it is a frontier market and thee are some risks from their point of view," Tchiladze said. "We are here to tell them we can share those downsides with you, we can partner here and hopefully that will pull their decisions toward more investments."
In May, it appeared that the fund had hit its first stumbling block, however, when plans to IPO the Georgian Railways were shelved due to poor market conditions.
As a minority shareholder in the railways, the listing on the London Stock Exchange could have meant a boost in financing for the fund, which owns 25% of the state-owned company. But Tchiladze said the decision not to list the railways does not hinder the fund's ability to finance projects this year. The railway will likely be listed next year, depending on the market conditions.
With close to €25m in funding from the state budget, and dividends from its 25% shares in the national railway and the Georgian Oil and Gas Corporation (GOGC), the fund has enough finances to ease investors' efforts to raise capital, he stressed.
"We are looking at the other projects, this is our mandate, this is what will define whether this fund is successful or not...not by the railway or the GOGC that would be IPO'd without us," Tchiladze said. "It is a bad investment climate but if you look at the Georgian economy there is a lot of potential, there is a lot of upside so I am optimistic. We would like to have a few projects in each sector within a year time... the major milestone for us will be when we exit a project."
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