Georgian Capital Market Development, Concepts and Opportunities

Transcription

1 Georgian Capital Market Development, Concepts and Opportunities CENTRAL BANK OF ARMENIA Page 1

2 About BG Capital JSC BG Capital - leader investment bank operating on the Georgian market since 2000 year, has been a member of the Bank of Georgia Group since BG Capital s key services include: Brokerage services in the securities sales & trading process Asset management and nominal ownership IPOs and Private Placements Mergers & Acquisitions (M&A) Market analysis, business valuation BG Capital s access to the major stock exchanges, international brokers, and custodians allows us to provide: Favorable prices on all securities to our clients Expanding access to international markets High professional standards and principles Corporate Market-making The best Frontier Market Investment Bank in Central & Eastern Europe 2006 & The best brokerage Company in Georgia Global Access to Securities ICSD (Through BOG Custody) Through Trading Lines BG Capital also has an extensive experience in participating in debt securities primary and secondary market placements and transactions. Page 2

3 About Georgian Stock Exchange As of December 31, companies were admitted on GSE (3 of which are on A and B listing at GSE). In 2013 OTC trades of 38 securities were fixed at GSE, total volume amounted USD 30mn. In the GSE system only 5 securities were traded during total trade volume USD 305K. Ticker Securities Number Trade Volume of trades (USD) GEB Bank of Georgia ,777 BANK Liberty Bank ,160 NRGY Caucasus Energy & Infrastructure 8 7,730 WINE Teliani Valley 7 2,649 GTC Liberty Consumer Total ,881 Volume of trades in GSE trading system 2.5% 0.9% 0.2% 44.7% 53.7% 53.7% - Bank of Georgia 44.7% - Liberty Bank 2.5% - Caucasus Energy & Infrastructure 0.9% - Teliani Valley 0.2% - Liberty Consumer 60 Total volume of trades (mn USD) 1200 Market capitalization of listed companies (mn USD) GSE Trade volume (mn USD) OTC Trade volume (mn USD) *GSE Capitalization is calculated including those companies which have not been traded for years Page 3

4 110,000, ,000,000 Bond market Local Corporate bonds: 2005 GEL 1,7mn Bank of Georgia 11% 09/ GEL 5mn Procredit Bank 15% 12/ GEL 25mn Georgian Railway 13.5% 12/11 *At the moment, there are no corporate bonds offered Ministry of Finance of Georgia Treasury Bonds (1-year, 2-year, 5-year, 10-year) are issued in national currency, in immaterial form. The nominal value of a single security is GEL1,000. The securities are sold via auctions, which are organized by the National Bank of Georgia. 90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000-1-Year T-bills Georgian Eurobonds: (sovereign and corporate) 2010 US$ 250mn Georgian Railway % 07/15 GRAIL 2011 US$ 500mn Georgian Sovereign % 04/21 GEORG 2012 US$ 400mn Bank of Georgia 7.75% 07/17 GEBGG 2012 US$ 250mn Georgian Oil and Gas Corporation 6.875% 05/17 GEOROG 2012 US$ 500mn Georgian Railway 7.75% 07/22 GRAIL ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 0 Last Auction results: Auction Date Period of Validity Average Yield % Issue Volume (GEL) 22/01/14 1 -Year ,000,000 15/01/14 2 -Year ,000,000 18/12/13 5 -Year ,000,000 20/11/ Year ,000,000 Government Securities Portfolio GEL Issue Amount Excess Demand T-bill, Weighted Average Yield G-Bonds T-Notes 10Y T-Notes 5Y T-Notes 2Y T-Bills Page 4

5 Objectives of Concept Establishment of the longterm conceptual vision To develop long-term vision of development of Georgian capital market, by involvement and sharing ideas of financial institutions, professional staff, experts and individuals who are interested in improvement of Georgian investment environment. Support preparation of longterm capital market development strategy and action plan Assure the involvement of public and industry participants in the process of market development To facilitate preparation of long-term strategic development plan and schedule of relevant activities, which would undertaken by Georgian government s economic group/team, legislative bodies and market regulators To establish practice for implementation of all legislative changes according to the pre-determined plan and provide involvement of market participants, investors, issuers and all interested parties in the process of discussion of initiatives. Facilitate introduction of international best practices The best international practice and modern trends of development of financial markets must be analyzed and reflected in the concept, by taking into account economical scale and potential of the country. Page 5

6 Main Issues/Problems Economic development of Georgia and expansion of business activities in the country Attracting foreign direct investments requires increasing effort because Georgian financial market is not developed According to the Global Competitiveness Report for improving the competitiveness of Georgia and development of business activities most problematic area is accessibility to financial resources/capital Securities market must be well-developed together with banking sector/industry for assuring access to financial resources/capital Page 6

7 Main Issues/Problems SOLUTION In order to raise capital at the Georgian market, the necessary appropriate and relevant environment should be developed, which may be defined as transparent and reliable investment environment, where market entry/exit mechanisms are ensured. Its necessary to ensure transition from stakeholder to market model of holding. MAIN PRINCIPLES Establishment of the mechanism for motivation of private sector participants to the securities market Formation of competitive, transparent, fair and credible environment at the capital market Development of culture for investing in securities, motivating ownership dispersion and to easy investing process Page 7

8 Diversity of Investment Instruments Transparency and protection of information It ensures the reduction of information asymmetry Diversity of investment instruments It provides an alternative capital raising mechanism and turnover Developed environment of capital market operations It ensures easy enter-exit to financial markets Reporting availability/accessibility Support and Promotion of public companies Organized stock exchange market with ensured liquidity Legally enforced information confidentiality and protection of private property rights Development of Debt securities segment Developed Central Depository Fair pricing Availability of Local risk-hedging mechanisms Developed institutional infrastructure Integrated mechanisms of information dissemination Ensuring Transparent Process of Privatization Developed OTC market Page 8

9 Diversity of Investment Instruments DEBT SECURITIES Secondary market of state securities Corporate debt securities Other types of debt securities (e.g. municipal bonds, options) LOCAL RISK- HEDGING MECHANISMS Legislation of security market for derivatives Derivatives market PUBLIC COMPANIES Status of public companies and legislative support Status of listing/listed company and legislative support Legislative support to initial public offerings DIVERSITY OF FINANCIAL INSTRUMENTS TRANSPARENT PROCESS OF PRIVATIZATION Privatization of state enterprises through the stock exchange market Page 9

10 Structured Investment and Financial Markets with Ensured Liquidity ORGANIZED LIQUID STOCK EXCHANGE MARKET Development of existed Stock Exchange Development of listing/listed companies (quantitatively and qualitatively) Liquid financial instruments Development of market makers Ensure secondary trading of State-issued securities Development of Corporate and other debt securities Development of Trade rules, procedures, software and development of electronic communication means. THE CENTRAL DEPOSITORY Increase the status of the Central Depository Development of ownership structure Integration with other financial institutions International Integration Development of Trade rules, procedures, software and development of electronic communication means. DEVELOPED OTC MARKET The development of non-public companies, an increase in the quality of financial reporting Standardization of information about non-public Treasury securities, (certain standards of transparency) EASY ENTRY AND EXIT DEVELOPED INSTITUTIONAL INFRASTRUCTURE Support development of Brokerage companies The development of collective investment schemes Page 10

11 Action Plan Ensuring information transparency and protection by relevant regulation mechanisms Changes in legislation, creating unified regulation of non-bank financial markets Close cooperation and coordination with other field and anti-monopolistic regulators Encouraging creation of various investment and financial instruments by information transparency and protection Executing transparent process of privatization utilizing financial markets Encouraging development of local risk hedging instruments, Encouraging IPOs for debt securities Ensuring the liquidity of financial and investment instruments Encouraging financial infrastructure and market participants institutional development Encourage development of competitive trading areas/systems to ensure financial and investment instruments circulation, Ensuring liquidity Page 11

12 Action Plan Corporate Debt Market Creation of foreign currency exchange risk insurance mechanisms and currency hedging liquid instruments Supporting Corporate bonds public issuance and admission to the Stock Exchange Listing Approval of public issuance prospectus and Listing the bonds on the Exchange should be allowed by considering a minimum amount and company's scale, rating, accountability and corporate governance standards of quality Liquidity requirements should be set-up for of listed companies and existence of market maker for corporate bonds is very important. Page 12

13 Tax Policy and Benefits Motivation for investors : Zero or reduced income tax rate on dividend for shareholders of public companies Zero or reduced income tax on capital gain from the listed securities Considering the loss received from sale of the listed securities (for individuals) The targeted tax breaks that are directed at specific sectors of the economy to invest in securities Tax breaks for strictly regulated public companies in case of domestic corporate, compensation and investment scheme are developed Motivation for issuance of companies: Establishment of tax benefits system for public and/or listing companies Page 13

14 The leading bank in Georgia Leading market position: No. 1 bank in Georgia by assets (34.1%), loans (33.8%), deposits (30.4%) and equity (35.5%) 1 Underpenetrated market with stable growth perspectives: Real GDP growth for of 6.1% CAGR. IMF estimates 2.5% real GDP growth for Gross loans/gdp grew from 9.6% to 33.7% from , still below regional average; Total deposits/gdp grew from 10.0% to 31.4% over the period Strong brand name recognition and retail banking franchise: Offers the broadest range of financial products to the retail market through a branch network of 199 branches with more than employees, more than 500 ATMs and more than 1,000 Express Pay Self Service Terminals to more than one million customers as of 30 September 2013 The only Georgian company with credit ratings from all three global rating agencies: S&P: BB-, Moody's: B1/Ba3 (foreign and local currency), Fitch Ratings: BB- ; outlooks are Stable High standards of transparency and governance: First and still the only entity from Georgia to list on the London Stock Exchange since 2006 (in the form of GDRs since 2006 and premium listing since February 2012) Only private entity to issue Eurobonds from the Caucasus: In November 2013 issued US$150 mln Eurobonds, which were consolidated forming a single series with the US$250 mln Eurobonds issued in July The bonds are currently trading at a historical low yield of c.6% Sustainable growth combined with strong capital, liquidity and strong profitability US$ mln 2 9M Change /2011 Total assets 3, , , , % Loans to customers, net 1, , , , % Customer funds 3 1, , , , % Total equity % Revenue % Profit % Experienced management with deep understanding of local market and a strong track record: 9M Sep 2004 Change Market capitalisation (US$ mln) 1,261.9* x Total assets (US$ mln) 3, x Market share by total assets 34% 18% 16ppts * Market capitalisation for Bank of Georgia Holdings PLC, the Bank s holding company, as of 5 February 2014, GBP/USD exchange rate of Market data based on standalone accounts as published by the National Bank of Georgia (NBG) as of 30 September US$/GEL , , and as at 30 September 2013, 31 December 2012, 31 December 2011 and 31 December 2010, respectively 3 Amounts due to customers 4 Revenue adjusted for one-off currency gain by BNB in 2012 and one-off BYR hedge in 2011 Page 14

15 The leading bank in Georgia - Securities Settlement and Custody Services JSC Bank of Georgia (BoG) is leading provider of safekeeping and securities settlement services covering all type assets on the local market. The best custodial service provider on the Georgian market, award winner of the Global Finance Best Sub-Custodian Bank Georgia 2012 Bank of Georgia has launched custody service early in 2010, serving several non resident and resident individual and institutional clients and giving aces to the international as well as local markets. As of December 31, 2013 assets under Bank of Georgia Custody on behalf of its clients were USD 75 mln (30% invested in local and 70% invested in foreign assets). 30% 70% International Local Page 15

16 Securities Settlement and Custody Services Bank of Georgia custody is a member of two active depositories (CSD) on the local market as well international central securities depositories (ICSD) Clearstream Bank Euroclear Bank National Bank of Georgia Georgian Central Securities Depository Page 16

17 Securities Settlement and Custody Services - GCSD On-exchange Steps: 1 to 4 OTC Steps: (bold Lines) A to D All settlement confirmations shown with orange dotted lines This flow chart does not show any trade or settlement amendment Settlement cycle for on exchange is T+0 and prefunding is necessary, settlement cycle for off exchange is T+ X (no overnight settlement is possible) All instructions and Confirmations exchanged with investor goes through the Global Custodian if such exist in the process Page 17

18 Securities Settlement and Custody Services - NBG On-exchange Steps: 1 to 5 OTC Steps: (bold Lines) A to D All settlement confirmations shown with orange dotted lines This flow chart does not show any trade or settlement amendment Settlement cycle for on exchange (primary market ) is T+1and prefunding is necessary, settlement cycle for off exchange is T+ X (no overnight settlement is possible) Primary market participants can be only commercial banks All instructions and Confirmations exchanged with investor goes through the Global Custodian if such exist in the process Page 18

19 Securities Settlement and Custody Services Infrastructure and Regulations Problems: Infrastructure and System capabilities of the Georgian capital market Mandatory Prefunding and T+0 settlement cycles Failed trade mechanisms: buy-ins and trade protections like penalties Standardized corporate action management Solutions: As developing Infrastructure and System capabilities is a long term goal for the market, we ve automatized and standardized this part on our side which includes settlement, confirmation, corporate action managements (SWIFT ISO ) We ve removed prefunding requirements for the clients with high ratings and credit line/overdraft capabilities Page 19

20 Securities Settlement and Custody Services - Account Structure No Barriers for market entry/exit Preliminarily registration is not required Beneficiary disclosure is not required under the market level Omnibus and Segregated account structures Assets segregation No limits on foreign exchange transactions No restriction on currency repatriation Page 20

21 Elene Tskhadaia Head of Custody and Securities Settlement JSC Bank of Georgia 29a Gagarini Str., Tbilisi 0160, Georgia Irakli Kirtava General Director JSC BG Capital 7 Chavchavadze Ave., 0179 Tbilisi, Georgia ikirtava@bgcap.ge THANK YOU CENTRAL BANK OF ARMENIA Page 21