INTERVIEW: Georgia's Liberty free to acquire other banks

By bne IntelliNews October 22, 2009

Samantha Shields in Tbilisi -

Lado Gurgenidze, former Georgian prime minister and the architect of a turnaround at Bank of Georgia that pushed profits up 1,500%, plans to buy several banks in emerging markets through his new company, Liberty Investments, before eventually taking it public.

Liberty, established in September by Gurgenidze and Romanian billionaire Dinu Patriciu, has already bought People's Bank of Georgia, and future targets will be financial services companies in regions with similar economic conditions to Georgia, which could include Eastern Europe and Africa. "This is what I really love doing, fixing banks and then either selling or floating them, and I'm reasonably good at it," 38-year-old Gurgenidze tells bne in an interview in his offices in central Tbilisi.

Gurgenidze was Georgia's PM during August 2008's disastrous war with Russia. He stepped down a year ago after overseeing the pledging of $4.5bn from international donors that partly shielded Georgia from the global economic crisis, but said he is still very much part of Georgian President Mikheil Saakashvili's economic team.

His partner Patriciu, who moved Romanian oil company Rompetrol into profit before selling it to Kazakhstan's KazMunaiGas, is worth $1.8bn, according to Forbes magazine. The pair plan to raise between $200m and $300m from third-party investors over the next three years with a view to buying six or seven institutions. "We're going to be looking at small economies with low taxes where there is low corruption and general openness, so very similar to Georgia," Gurgenidze says.

People first

Liberty bought 91.2% of People's Bank of Georgia on September 23 for $15m, $5m above book value. It is Georgia's seventh largest bank with a 3.5% market share and about $160m in total assets. Gurgenidze says he hopes to increase market share to as much as 10%, which would put the bank in Georgia's top five, and increase the free float on the Georgian Stock Exchange to between 20% and 25%. He also plans to sell Global Depositary Receipts and possibly list in London, and says Liberty is firmly committed to investing $10m in the bank over the next six months. Just doubling People's Bank's current market share would triple or quadruple Liberty's investment, he says.

People's Bank was an attractive first target for Liberty because it holds an exclusive franchise in Georgia for distributing pensions, it has half of the country's utility payments market and it is the leading bank in receiving remittances from abroad, handling up to $900m a year from around 20 different money transfer systems. "The basic building blocks in terms of brand awareness, recognition and being in touch with a very large number of clients are there. The balance sheet we need to work on," Gurgenidze says.

People's Bank was heavily loss making last year, but Gurgenidze says that by concentrating on universal banking and good service, and not focusing on any particular niche in the relatively small market, it should be back in profit by the first quarter of next year.

In his three years as chairman of Bank of Georgia, Gurgenidze increased its market share to 34% from 18% and assets from $160m to almost $2bn. He also hosted Georgia's version of the reality television show "The Apprentice." People's Bank, however, probably won't see the same level of growth as Bank of Georgia did, he admits. "This one won't be as spectacular for sure, not with this bank and not with any bank in Georgia, the banking market is far more saturated than it was."

Liberty might buy another Georgian bank, Gurgenidze says, adding that the sector is still under penetrated and that the Georgian government's so-called "Liberty Act," which Saakashvili presented to Parliament on October 6, would give investors a guarantee that current liberal economic policies won't change. The fiscal austerity bill, which still needs to be passed, lays out constitutional amendments to limit state spending to a maximum 30% of GDP, the budget deficit to no more than 3% and foreign debt to no more than 60%. Its aim is to lure back the foreign investors who fled after the war, the global financial crisis and political unrest that dogged Saakashvili's government for the first half of 2009.

Georgia's economy, boosted by the growing banking sector and liberal economic legislation, had been booming up to 2007, when it expanded by 12.4%. It grew 2.1 % last year and is expected to contract by up to 4 percent this year. "Georgia just needs a bit of stability going forward and as we've just invested our money here, I'm cautiously optimistic on that front," Gurgenidze says.

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