38541 - BGEO Bonds

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Summary of Investment Information

Project Number

38541

Company Name

GEORGIA CAPITAL PLC

Date SPI Disclosed

Jul 28, 2016

Country

Georgia

Region

Europe

Projected Board Date

Jun 14, 2016

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Jun 11, 2022

Department

Regional Industry - FIG - ECA

Industry

Financial Markets

Previous Events

Approved : Jun 14, 2016
Signed : Jul 6, 2016
Invested : Jul 26, 2016

Sector

Commercial Banking - General

Project Description

IFC invested in a tradable Eurobond issued by Joint Stock Company BGEO Group (JSC BGEO or the Company), a Georgia-based wholly owned subsidiary of BGEO Group PLC Formerly Bank of Georgia Holdings PLC
, incorporated in the United Kingdom (the Group), an IFC strategic partner in Georgia, (the Project). The issuance comprises new notes offered by JSC BGEO in the amount of US$350 million, with a 7-year maturity (the New Notes). Proceeds from the issuance of the New Notes are being used to provide senior funding to JSC Bank of Georgia (BOG) for the purpose of redeeming its outstanding notes due in 2017 under a tender offer and exit consent solicitation, which was announced on 30 June 2016, and to be retained by the Company and used for its general corporate purposes, including to fund investments in existing Group businesses and potential opportunistic acquisitions. The New Notes are listed on the Irish Stock Exchange under 144A/Reg S and were offered to qualified institutional buyers in the United States and to non-US persons elsewhere.

Playing the role of anchor investor in the New Notes issuance, IFC made a commitment to purchase up to US$70 million in the order book. The Company allocated IFC a final investment amount of US$25 million.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	70.0
Equity

Development Impact

(i) Demonstrate the ability of a Georgian entity to attract long-term funding from international investors through a market transaction during volatile economic times; and
(ii) Increase financial inclusion in Georgia. By providing long-term financing to JSC BGEO, IFC supported a systemically important lender/investor in Georgia, heightening JSC BGEO''s role in diversifying the country''s economic base, creating jobs, and fostering sustained economic growth. Banking sector penetration in Georgia remains low. In order to enlarge financial intermediation it is essential to increase the flow of credit to MSMEs and the economy in general.

IFC purchased the bond as a means of providing long-term financing aimed at helping the systemically important group in Georgia to meet its long-term funding needs at affordable commercial terms and to implement its growth strategy.
IFC''s anchor investor role was intended to help mobilize funding via the bond issuance by contributing to investor appetite and providing market confidence.
IFC supported the issue of the New Notes by the Company, laying down the foundation for the roll out of sustainable bond funding in the future.
IFC would assist the Bank to enhance its ESMS, ensuring the Bank''s compliance with IFC''s Exclusion List, host country laws and regulations, and IFC''s performance standards for high risk projects.

E&S Category Rationale / Risks and Mitigation

The project is an anchor investment of US$25 million in a 7-year US$350 million Eurobond issued by the Company. Banking is the Group''s core business. The banking business consists of corporate investment banking, retail banking, as well as advisory and brokerage, insurance and leasing services. The Group primarily conducts its banking business through BOG and banking operations in Belarus through Belarusky Narodny Bank (BNB), both existing IFC clients (BOG projects - #30683, 34173, 36640; BNB projects - #28582, #34287). The Group also has an investment arm that comprises: (i) a healthcare business - Georgia Healthcare Group PLC; (ii) a real estate development business - M2 Real Estate, which is an existing IFC client (#35845); and (iii) a renewable energy business - Georgia Renewable Power Company that invests in small and medium size hydropower plants. In addition, in 2016 BGEO acquired an additional 75% stake in Georgian Global Utilities (GGU) taking the overall stake held by BGEO Group PLC in GGU to 100%. GGU supplies water and provides waste water treatment services in Tbilisi, Mtskheta and Rustavi; as well as operates hydropower generation facilities for its own power supply needs and sale to third parties. The Group''s other investments include Teliani Valley, a wine and beverage business.

Of the approximately US$346.8 million in net proceeds from the issue of New Notes, up to US$250 million will be funded to BOG by way of senior debt and applied to fund the acquisition of 2017 Notes by BOG as part a tender offer and exit consent solicitation which was announced on 30 June 2016. Up to US$100 million will be retained by JSC BGEO and used for its general corporate purposes, including funding existing investments and opportunistic acquisitions.

IFC’s investment in the New Notes would constitute a fraction of the intended debt funding of BOG from the proceeds of the New Notes. BOG''s existing portfolio includes limited exposure to business activities with potential significant adverse environmental and/or social impacts. It is expected that the E&S risk profile of the prospective portfolio will be very similar. The project has therefore been categorized as FI-2 in accordance with IFC’s Sustainability Framework. BOG will be required to comply with the IFC Exclusion List, national E&S laws and the IFC’s Performance Standards.

The main E&S risks and impacts of this proposed project derive from BOG’s banking activities, as well as BOG’s capacity to manage these risks. BOG, representing the core of the Group''s banking business, is an existing IFC client and such has met IFC’s E&S requirements set by previous projects including implementing an Environmental and Social Management System (ESMS) and assigning an ESMS officer to manage the E&S risks. BOG’s current E&S risk management is considered as overall satisfactory. BOG is found to be generally in line with IFC Performance Standard 2 Labor and Working Conditions on its own HR management. BOG is required to: (i) continue to implement its ESMS satisfactory to IFC; (ii) provide staff training responsible for the ESMS implementation, and (iii) submit an Annual Environmental Report (AEPR) to IFC.

Contacts

For Inquiries About the Project, Contact

JSC BGEO Group, 29a Gagarini Str., Tbilisi, Georgia

For Inquiries and Comments About IFC, Contact

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Local Access of Project Documentation

JSC BGEO Group, 29a Gagarini Str., Tbilisi, Georgia

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