EBRD launches its inaugural Georgian lari bond

By Loretta  Martikian

The European Bank for Reconstruction and Development (EBRD) marked an historic milestone in Georgia with the first-ever bond issue by an international financial institution in Georgian lari. This offering will not only help to drive forward the development of the local capital market but is also an additional tool that will enable the EBRD to raise local currency in support of its lending programme in Georgia.

The two-year bond totaling 50 million lari (€20.7 million) was jointly lead-managed and underwritten by two leading local financial institutions: JSC BG Capital, the wholly-owned brokerage subsidiary of Bank of Georgia, and TBC Bank. The transaction is the first bond placed by the foreign issuer in Georgia and also represents the first floating rate note on the domestic market.

The coupon on the EBRD’s inaugural lari bond is flat to the three-month rate on certificates of deposit issued by the National Bank of Georgia. The bonds are eligible for sale and repurchase operations carried out by the National Bank of Georgia (NBG).

The EBRD has played a leading role in the development of the local currency and capital markets in Georgia, working with the Georgian government, the NBG and local financial institutions. The issuance of the lari bond is the latest development in the EBRD’s Local Currency and Capital Markets Development Initiative, which was launched in May 2010 in the wake of the global economic crisis. The Initiative aims to tackle excessive reliance on foreign capital and foreign exchange borrowing in emerging economies.

The EBRD seeks to encourage borrowing in local currency and also to develop or strengthen local capital markets, thereby increasing the supply of locally-sourced finance.

Bruno Balvanera, EBRD Director for Caucasus, Moldova and Belarus, said: “This is a very significant step for the Georgian local capital market. It brings a new instrument for investors and, at the same time, allows the EBRD to diversify its source of lari and to continue lending to companies in need of long-term financing in local currency.”

Giorgi Kadagidze, President of the NBG, commented: “With developed local bond and currency markets come improved efficiency of financial intermediation, diversification and reduction of the currency risks in the banking sector. These lessen important risks connected with exchange rates and strengthen the stability of local financial systems in the Georgian economy as a whole. I am confident that the first ever lari-denominated bond issuance by the EBRD will pave the way for such issuances by other international financial institutions and will further the development of Georgian capital markets.”

Irakli Gilauri, CEO of Bank of Georgia, said: “I am pleased that BG Capital, our brokerage subsidiary, and TBC Bank have joined forces with the EBRD in this landmark transaction for Georgia. Having successfully placed Georgia’s debut lari-denominated corporate bonds in 2005, I am particularly pleased that with BG Capital acting as a lead manager and underwriter, Bank of Georgia is part of the first-ever lari-denominated securities issuance by an international financial institution.”

Vakhtang Butskhrikidze, CEO TBC Bank, remarked: “We are honoured to act as lead manager of this milestone transaction for the country. Accessibility of local currency financing for Georgian companies is very important for their further growth and development. The EBRD has always been a pioneer in providing well-targeted products and services to Georgian companies and we are particularly proud to support it in such an initiative. The EBRD is our long term partner and one of our shareholders, significantly contributing to TBC Bank’s development during the past several years.”

To date, the EBRD has invested a total of €1.86 billion for 167 projects in various sectors of the Georgian economy, and has mobilised a further €3 billion for these ventures from other sources of financing.