Georgia launches giant private equity fund

By bne IntelliNews October 1, 2013

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Georgia launched a $6bn private equity fund on September 30, in a bid to boost economic growth. The giant fund is more than six-times larger than the entire volume of foreign direct investment (FDI) made into the country last year, and among the 50 largest private equity funds ever raised.

The Georgian Co-Investment Fund (GEF) has attracted investment from the Middle East, China, Kazakhstan, Turkey and Azerbaijan, according to officials. Georgia's billionaire prime minister, Bidzina Ivanishvili - also reported to be among the base investors - officially launched the fund at a press conference, saying it is intended to attract FDI and encourage growth.

Some press reports suggest the PM has put as much as $1bn into the fund. Meanwhile, others note that Ivanishvili has been planning a Georgian private equity fund for several months, and that the launch of the super-sized GEF comes just ahead of the October 27 presidential election. Although Ivanishvili has pledged to leave politics following the vote, that won't entirely alleviate worries over the apparently close connection between the fund and the ruling Georgian Dream coalition.

The appointment of Giorgi Bachiashvili as head of GEF doesn't help either. Previously deputy CEO of Georgia's Partnership Fund, which holds stakes in major state companies, he also worked as chief financial officer at Unicor, which managed Ivanishvili's Russian assets until they were sold off in 2012.

The PM, however, told officials and journalists at the launch ceremony that business should be independent, and that although the fund should encourage investment into the country, more needs to be done. "It isn't enough," Ivanishvili said, according to the government's website. "Economic stability is important in order to ensure independence of business. I am going to meet businessmen. Business must be inviolable in Georgia."

Yet concern remains amongst some investors. The International Monetary Fund (IMF) has attributed the recent slowdown in inward investment and GDP growth in Georgia at least partly to political uncertainty in the country. In August, the IMF reported that the economy has "slowed down markedly" since 2011-12 when GDP growth averaged 6.5%. Growth of just 4% is expected in 2013, rising to around 6% in 2014.

Such worries appears to leave it to Georgia's friends in the neighbourhood and beyond to seed the super fund. Initial investors include two Middle Eastern investors - Dhabi Group and the Ras Al Khaimah Investment Authority (RAKIA). Others from the country's main trading partners include Turkey's Ahmad Chalik Holding, China's Milestone International Holdings, and the State Oil Fund of Azerbaijan. Kazakh capital comes from KazTransOil subsidiary Batumi Industrial Holdings and billionaire Alexander Mashkevich, co-founder of mining giant ENRC. The family of Georgian oligarch Badri Patarkatsishvili - who died in 2008 - is also on the list.

Bachiashvili told the press that GEF already has ten project investments - with a combined value of $500m - in the pipeline, Civil Georgia reports. Investments from the fund will be made into a range of sectors within Georgia, he claimed, although around half is set for the energy sector, another $1.5bn will be invested into manufacturing, and $1bn will head into tourism. "The fund will not limit itself only with these sectors and it is ready to accept proposals in other possible sectors of the economy as well," Bachiashvili added. "Our strategy is not to enter into crowded segments of the market." The fund is also expected to help attract investments for a planned deep sea port in Anaklia near the breakaway republic of Abkhazia, according to Ivanishvili.

GEF will take equity stakes of between 25% and 75% in investment projects for up to seven years, investing only into projects worth $5m or more. In special cases it may hold stakes for up to nine years, before the fund either sells the project or floats it on a stock exchange.

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