Issue 4, 2017. August-September



Georgian Prime Minister Giorgi Kvirikashvili has announced plans to list Georgia's government-owned wind power station on the stock market. The plan has been praised as a way to jump-start Georgia's capital and energy markets.

Sally White

The georgian government's decision to privatise Kartli wind power station is feeding into hopes for the country's green energy sector and its capital market. Once a valuation is complete, shares in the station are to be sold at the Georgian Stock Exchange.

A success with this sale will encourage the government to expand the privatisation programme by launching similar sales for hydro, thermal and more wind power stations, according to market experts.

Kick-off for green energy

The plan has the potential to put new life into Georgia's stock market and attract domestic and foreign investors to Georgian privatisations. Also being targeted is provision of funds to help grow the country's burgeoning green energy industry. As a kick-off, the 21-megawatt Kartli farm has a good investment story to tell, a third of its electricity going as exports to Turkey, the rest being used to cover peak power demand in the cold winter months.

Announcing the move, Prime Minister Giorgi Kvirkashvili said on the government's website, "We have decided to make a public offer on the Georgian Stock Exchange and we have offered, for the first time, (opportunities) to buy a stake in this project. This is a form of privatisation. I believe this decision will incentivise the stock exchange and our citizens will acquire the feeling of involvement in on-going projects. Moreover, domestic investors will also be able to buy the project shares.

"The project will be prepared for public offer on the domestic stock market and this is a very good precedent," he added.

Kartli Wind Power Station was completed last year and is currently owned by the Georgian Energy Development Fund. Speaking to international news agency Bloomberg, Deputy Energy Minister Mariam Valishvili said: "The share sale will be the first public offering locally, a better option than classic privatisation and definitely possible this year. We will hire auditors to evaluate the offer."

The export market is complex, but basically Georgia needs to generate more electricity if it is to supply its own requirements and have tradeable surpluses. However, green energy does not come cheap - Georgia's first wind project cost $30 million to build, Bloomberg pointed out.

More wind plants are being planned, with two more to be constructed in 2018. Kvirikashvili has made his strategy to grow a green energy industry clear. As he said on "We have taken many serious steps in this direction. Green energy should become one of the important priorities. "

Role for stock market

Georgia has also been working with the EU to put in place the necessary regulations and institutions to manage its energy markets profitably. As the IMF commented: "State-of-the-art infrastructure requires appropriate regulatory and commercial mechanisms that ensure its technical and economic efficiency."

The stock market part of the plan is important as Georgia's capital markets need to catch up with those elsewhere in the region. Otherwise it will be hard to achieve the government's aim of developing a local pension sector and expanding the insurance market, let alone grow the economy.

The major banks, TBC and Bank of Georgia have leapt with alacrity to follow up on the government's enthusiasm for the local stock market. TBC has done bond placements, the most recent of which is a $10 million bond for Georgia's Nikora food group. It has been trading this security after placing the bonds with foreign and local investors, and now will ensure that it continues to trade actively in the market.

While, as TBC says, it is difficult to judge how fast the market will grow given that it is "in its nascent stage" it expects a build-up of new funding on it by Georgian companies over the coming months. Both foreign buyers and (with the emergence of a Georgian pension industry) local investors are, it says, attracted by Georgian bonds. The bank sees bonds rather than shares being the main form of investment offered at the moment. But, it adds "... watch this space! TBC capital is aggressively expanding its platform; we are adding more innovative products for our customers."

TBC also sees scope for Georgia to develop as a funding and investment hub for the whole region: "Infrastructure is in place, investment banking experience has been accumulating and foreign interest in this market is growing. Also considerable investments were made into local stock exchanges in order to facilitate trading operations."

The Bank of Georgia (BoG), too, has a pipeline of corporates seeking to raise funds locally (having dominated international bond issuance) and has already started to help build a local investor-base for the market. Reflecting the government's drive to create a local pensions industry, BoG's broking company, Galt & Taggart, has signed a first private pension fund management contract and started managing pension assets. Says BoG's CEO Kakhaber (Kaha) Kiknavelidze: "We will be actively involved in the implementation of the wider pension reform planned from 2018."

While the Georgian market can offer attractions to foreign investors - good bond yields, diversification, a growing economy - BoG, like TBC, is being careful not to over-hype expectations, he added. Georgia's scale was small for many foreign investors, and when it came to equities there remained a lot to be put in place in terms of regulation and governance.

However, BoG is also doing its bit with helping turn the locals into investors, he said: "..... we are working in conjunction with the National Bank of Georgia and have developed a program on how to improve finance education among Georgian citizens. The program is comprehensive and includes regular trainings, financial literacy workshops both in cities and rural areas, courses in universities, etc."