EBRD Bonds in Georgian Currency - Cure or Risk?
25 July, 2013
EBRD Bonds in Georgian Currency - Cure or Risk?
European Bank for Reconstruction and Development plans to issue its corporate bonds in Georgian national currency. This will be the first ever corporate bond issued in Georgian national currency Lari (GEL) by the international financial institution. The move is expected to promote Georgian capital market on the one hand but some sector pundits fear it may drain money out of the yet money-deficient Georgia.
“We have been working over several months and in the near future, in about two or
three months the EBRD will issue the first corporate bond denominated in Lari on the local market. It will be the first bond issued in the national currency by the international financial institution. We hope that the same tendency will be continued not only on the part of the international financial organizations but also on the part of the Georgian banks and the strong companies that will ultimately promote capital markets development, decrease interest rates and this will be further successful step in the financial sector, Girogi Kadagidze, the Governor of the National Bank of Georgia (NBG), stated on July 17, 2013 after his meeting with Sir Suma Chakrabarti, the President of the EBRD, who found Georgian banking system sound and stable, distinguished from all other countries’ banking systems where the EBRD works.
Neither NBG nor the EBRD have disclosed however even tentative details of the upcoming bond emission such as the volume, maturity period, the date and where the bonds will be traded at Georgian Stock Exchange (GSE) or through the closed auctions of the NBG available for banks alone as Georgian state notes and bills are traded presently. Ditrikh Muller, a co-founder of Georgian Investment Group+, takes the EBRD initiative skeptically until these details are disclosed and fears that at any rate it may drain money from Georgian economy that already suffers from money hunger and deflation rather than bring palpable positive effect on Georgian capital market by cutting down credit prices.
“If the EBRD bonds will be traded through closed NBG auctions it will have no positive effect at capital market at all,” Muller conjectures. “If they will be traded at GSE it will really have some positive effect on securities market development if Georgian companies also follow it, but not significant unless the current law undermining GSE is changed. On the other hand, the EBRD [and other international organization’s] bond emission will have a negative effect on Georgian economy at any rate because whatever the reputable institution the EBRD is we should remember that it is an international organization and if other international financial institutions also follow its example it will boost money outflow from Georgia not an inflow while we are focused on attraction of investments here. It might have positive effect if we had money surplus in the economy but since Georgian economy suffers of money hunger the EBRD initiative may only affect it.” As a result of more money drainage Muller expects interest rates to soar, not to drop.
Soso Archvadze, an economic analyst, plays down Muller’s fears. He approves the EBRD move as necessary to give stimulus to Georgian securities market and expects emergence of private local proprietors in investment projects in Georgia that will discharge the banking monopoly.
“Generally we have not developed financial schemes like pension funds that might be used for pooling the financial resources that could be invested, we cannot wait for that therefore the EBRD initiative is good. We know no details of the EBRD emission as of yet therefore let’s follow the idea and we should make ordinary population physical and legal entities who could be not only depositors at banks but also proprietors to participate through securities as investors of the projects implemented throughout Georgia.”
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GEL Exchange
USD
1
USD
2.8714
EUR
1
EUR
3.2191
GBP
1
GBP
3.5832
RUB
100
RUB
4.5608
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