Georgia Healthcare Group gears up for €480mn London IPO

By bne IntelliNews October 28, 2015

Monica Ellena in Tbilisi -

Georgia Healthcare Group (GHG), the country’s largest healthcare provider, is gearing up to float on London’s stock exchange, setting a price range that could value the company at as much as £347mn (€480mn). GHG will join one of several Georgian companies on the LSE and is part of growing trend of emerging market healthcare groups looking to take advantage of global investor appetite.

GHG, which owns 42 hospitals and is the largest medical insurer in Georgia, announced a price range of between £2.15 and £3.15 for its initial public offering. The final pricing will be announced around November 6, with trading expected to kick off November 11. The group forecasts the deal will raise around £65mn from the placing of between 28mn and 45mn shares, meaning a free float of between 25% and 38%, and will value the company at £257mn-347mn.

CEO Nikoloz Gamkrelidze believes that, “the dynamics of the Georgian healthcare market provide long-term growth opportunities and that GHG is well positioned to take advantage of the significant market growth prospects."

GHG stated it would use the net proceeds to renovate and develop recently bought healthcare facilities, fund expansion plans, and reduce debt. It also plans to add about 500 beds to its current portfolio. The push is part of a strategy pegged to the Georgian government’s programme to provide universal healthcare.

“We view [it] as a positive development,” James Watson, managing director at Fitch Ratings’ financial institutions for Emerging Europe, tells bne IntelliNews. “In general, we do not like banks to hold on to large amounts of non-core assets, although Bank of Georgia has managed its non-core assets relatively well, and they are moderate in relation to the capital of the bank.”

The GHG is the product of its spin-off from Bank of Georgia Holding (BoGH), the parent company whose primary business is Bank of Georgia, that was carried out in spring 2015. In November 2014, the country’s central bank decided to tighten regulations and force banks to ditch non-financial assets.

Healthcare has proved to be a good bet for BoGH since it began developing the business in 2006. GHG now owns the largest market share of 21% with 2,200 beds, and in the first half of 2015 reported a standalone profit that almost tripled from the year before to GEL12.9mn (€4.86mn). Revenues grew to GEL107.4mn from GEL94.8 in 2014.

Nursing back to health

As the Soviet Union collapsed, Georgia’s health system suffered the consequences of the country’s newfound independence. The economy fell to its knees and the state’s empty coffers could no longer afford the semashko Soviet system, which was completely state-controlled and owned with free care for all.

Since then, various Georgian governments have tested new healthcare models. With three main waves of reforms, from 1995 through 2013, the South Caucasus nation has privatised most of its clinics and hospitals, and today about 95% of the facilities are privately owned.

The ruling Georgian Dream (GD) coalition put healthcare at the centre of its election programme in 2012. In a blitz reform, the government has put roughly 90% of its population of 4.5mn on state-financed healthcare in just over a year and a half.

The sector remains under-utilised and highly fragmented, leaving significant room for medium- to long-term growth. Spending per capita is low at about €196, with annual outpatient encounters of only 2.7 per capita and hospital bed utilisation of only 50%.

GHG estimates the healthcare services market at GEL2.1bn (€788.7mn) for 2015, with a strong compound growth rate of 13.5% between 2011 and 2014, which is expected to continue growing 13.3% during the period 2014-2018.

Embryonic capital markets

GHG will be the third Georgian company to IPO on the London Stock Exchange – a remarkable result for a small nation where capital markets are still embryonic and monopolised by the banking sector.

The precedent was set by the country’s two main lenders, TBC Bank and Bank of Georgia. TBC Bank, Georgia’s largest retail bank, floated on the LSE in June 2014, raising $96mn in new equity in a $256mn IPO – then the largest-ever Georgian placement. TBC announced that it would seek a premium listing in 2016 to expand its investor base, enhance its public profile and allow for future FTSE inclusion.

According to Sberbank senior analyst Andrew Keeley, “the advantages of this move are that it would open up the stock to a much wider spectrum of investors, such as UK small and mid cap funds and allow for potential entry into the FTSE indexes.”

TBC Bank would follow in the footsteps of Bank of Georgia, which obtained a premium listing in February 2012, six years after it floated in London in 2006. Bank of Georgia is the country’s largest bank by assets (36% market share) and loans (33.4%)

In 2011, Georgian Railways cancelled its much-anticipated IPO, blaming fragile markets and investor reluctance to bet on emerging markets amid the Greek crisis. The state-owned railway monopoly had planned to raise up to $250mn (€226mn) by selling as much as 25% stake, as it looked to boost the company's international profile and fund its long-term development.

“The IPO remains on our agenda, but not in the short time,” Georgian Railways’ chief financial officer, Irakli Titvinidze, told bne IntelliNews in a recent interview. The company is currently involved in the construction of the Baku-Tbilisi-Kars corridor – a $600mn project aimed at boosting transport from energy-rich Azerbaijan to Turkey via Georgia.

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