Clare Nuttall in Almaty -

Georgia's stock market is still tiny, but it's now appearing on international investors' radar because the potential growth of valuations on it is so huge. Significant events during 2007 included the year's only IPO, that of winemaker Teliani Valley, and the country's first international bond offer from Bank of Georgia.

In 2007, the main Galt & Taggart Index (GTI) gained 31.8% in local currency terms, ending the year at 1,041. The financial sector was the largest by market capitalization, followed by the energy sector. In terms of trading volume among the GTI shares, Bank of Georgia was the leader with 60% of volume, followed by UGB (24%) and Teliani Valley (10%), which replaced Bagrationi-1882 on the index following its IPO on May 23.

The exchange's market capitalization grew from GEL1.3bn ($823m) in 2006 to GEL1.7bn in 2007, a 28.8% increase. This was mainly driven by the performance of Georgian blue-chip stocks in 2007, which shot up by 32%. Bank of Georgia is by far the largest company by market capitalization, accounting for 70.7% of the total GSE market cap. Bank of Georgia was also the exchange's most liquid stock, accounting for 57.7% of market trading and volume and 27.6% of the total number of trades executed.

In terms of performance, there were three clear winners. People's Bank of Georgia increased by 275%, Tbilisis Universaluri Savachro Bank by 250% and Teliani Valley by 233%. There was a substantial gap between these stocks and the four next most successful performers - Kazbegi, Saktransproekti, Tbilabreshumi-Tsisartkela and Centraluri Supermarketi.

The 6,908 trades executed on the main market of the Georgian stock exchange in 2007 were the largest number ever recorded, and represented a 24.7% increase on the previous year, Galt & Taggart said in its report, "Annual Review of Equity & Fixed Income Markets 2008." At the same time, trading volume fell by 37.8% to GEL38m, and average trading volume per session dropped from GEL632,653 in 2006 to GEL282,162 in 2007. The number of stocks traded also decreased, with 58 stocks traded on the GSE in 2007 compared with 90 in 2006 and 75 in 2005.

"In general the liquidity of Georgian stocks still remains low in comparison with larger and more developed CIS markets, such as Ukraine and Kazakhstan," Galt & Taggart says. "Of 243 stocks admitted to trading on the GSE, only 58 stocks were traded in 2007, and only four of them were relatively liquid." In addition to Bank of Georgia and VTB Bank of Georgia, Teliani Valley and Galt & Taggart Capital were also liquid.

Over-the-counter trading volumes were also somewhat lower in 2007 than in 2006. The total trading volume on the OTC market - which is widely used to execute large block trades with known counterparties and trade details - was GEL58.6m in 2007, almost 50% more than on the main market, and 75m shares traded, four times more then the number of securities traded on the main market. Laguna Vere accounted for 26% of total OTC trading volume in 2007.

In September 2006, the National Bank of Georgia introduced its Certificates of Deposit (CDs). The face value of the CDs, which are denominated in local currency, is GEL1,000 and they are sold at a discount to face value. The CDs are issued in electronic form and effectively represent quasi-sovereign paper guaranteed by the National Bank of Georgia. The bank announces the date of the auction, the term, the issue size and the maximum yield for each CD issue. Only Georgian commercial banks are eligible to participate in the auctions.

In 2006 and 2007, the National Bank of Georgia sold longer-term governments bonds with a 13% coupon, as part of a wider Ministry of Finance plan to issue bonds for the securitization of government debt. "We believe that despite their relatively small issue size and low liquidity, the presence of government bonds is a positive sign and creates further incentives for the development of Georgia's fixed income markets. From the investors' point of view, bonds can be used as an alternative to savings accounts and time deposits and serve to diversify assets," said Galt & Taggart.

Bank of Georgia successfully placed its $200m debut 5-year senior unsecured Eurobond in February 2007. The placement was Georgia's first international bond offering. The Eurobond was issued at par and carries a 9% coupon rate semi-annually. The issuing vehicle, BG Finance B.V., has issued to bonds for the sole purpose of financing a loan to JSC Bank of Georgia. The issue was rated 'B+ by S&P, 'Ba2' by Moody's and 'B' by Fitch.

Send comments to The Editor