Georgian libertarian champions frontier banks

By bne IntelliNews June 14, 2011

Molly Corso in Tbilisi -

Georgian banker Lado Gurgenidze is building a reputation for turning bad banks around and tells bne that he hopes to be involved in his third publicly owned bank later this year - in Rwanda of all places. He claims that as long you provide enough liquidity in the shares, investors are willing to venture back into frontier markets such as those in the former Soviet Union and Africa.

Strong investor confidence in his latest venture in Georgia is one more sign that Gurgenidze is a bankable commodity in frontier markets. In May, investors bought 470m shares of Liberty Bank for over GEL11.7m (€4.83m). An additional 150m shares, notes Gurgenidze, will be available later this year. "In general we are committed to increasing the free float of the bank even beyond that immediate block of shares," Gurgenidze says. "It makes them more liquid. The bigger the portion of the pie that is in the hands of the many, the greater likelihood that a buyer will be able to find a willing seller and vice versa."

The offer was the latest chapter in a story of success since Gurgenidze, along with Romanian partner Dinu Patriciu, bought the bank in September 2009. In that time, Liberty Bank claims its market capitalisation has catapulted from GEL27.7m to GEL99m – a rise of 257%.

Gurgenidze, a former Georgian prime minister, has a history of turning around troubled banks. In 2004, he left a successful career as a London-based investment banker to take over as CEO of Bank of Georgia. Within two years he had reorganised the bank and engineered an IPO on the London Stock Exchange, making it the first Georgian company to be traded internationally. It also became the first Georgian company to seek funding through a Eurobond and achieve a credit rating from the international agencies.

A rose by any other name

Today, Gurgenidze is clearly proud to be building on that legacy with Liberty Bank. Awards, certificates and tributes to his tenure at Bank of Georgia crowd one wall of his office at Liberty Bank's headquarters in Tbilisi, competing for space with framed newspaper articles on his achievements, as well as sporting equipment and Georgian stock and bond certificates from the turn of the 1900s.

The office also serves as a tribute to his muse - the libertarian philosophy that has coloured Georgia's return to solvency after nearly a decade as a failed state prior to the "Rose Revolution" in 2003. To that end, meeting rooms at the bank are named for libertarian economists, and feature a portrait of Barry Goldwater, the former US senator and presidential hopeful closely associated with liberalism (and also known as a hawk on the Soviet Union). Unfashionable as it may be in some quarters nowadays, keeping government out to allow the market to regulate itself is a cornerstone of Gurgenidze's polices, both in government and in his business deals.

As prime minister from November 2007 to November 2008, he leveraged the first Eurobond for the country, initiated a wide-ranging economic reform programme known as the "Liberty Act" and helped keep the economy afloat in the aftermath of the August 2008 war with Russia and the global financial crisis that arrived the same year. "Georgia is an established borrower now. Hundreds of institutional investors worldwide have invested in Georgian securities since 2004," Gurgenidze says. "People discovered Georgia through Bank of Georgia equity, than the Bank of Georgia Eurobond - it all goes from there, and is now an established destination."

The profile of his previous bank - "100% liquid" - he insists should be the goal for any public company. However, he says there is no target for Liberty Bank, at least not yet. "All we know is that we need to increase the free float, and thus enhance liquidity. We need to keep on doing this as we grow to continue to support the growth of the balance sheet and the loan book, and in general that is what public companies are all about," he states. "Is it going to stay on as an independent, publicly traded bank or will it be sold to a strategic investor? Both are equally valid and legitimate eventual scenarios. So long as it creates value for the shareholders, it doesn't matter."

Meanwhile, Gurgenidze is already onto his third financial project - Rwanda's Bank of Kigali - where serves as chairman of the supervisory board, and is hoping to oversee an IPO this year.

However, the Georgian banker can come across as surprisingly modest, refusing to attribute Liberty Bank's success to his track record, and commenting only that, "it's easier the second time around."

Frontier markets, he points out, are "flavour of the year," as investors have turned to higher risk, higher yield opportunities. "Part of that has to do with [the US' second round of quantatitive easing] and the liquidity in the market. Yet a lot is driven by the fundamentals - there are a lot of small, exotic economies that are in surprisingly good shape and have been surprisingly resilient. Now that the money has returned, as long as there are enough investable instruments in these markets, it's all kind of coming together," he says.

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