More transparency required for Georgian Co-Investment Fund
05 December, 2013
More transparency required for Georgian Co-Investment Fund
More transparency is required for regulation of the Georgian Co-Investment Fund, a private equity fund established in September 2013. The fund has already raised USD 6 billion – equivalent to 38% of Georgian GDP at the moment - and is actively seeking investment opportunities in key sectors of the country’s economy: energy, tourism and hospitality, agriculture, and manufacturing.
However, GCF has not made clear as of yet its mechanism for financial accountability. The Fund will co-finance large-scale investment projects that
require at least USD 5 million, while the Fund’s participation ranges from 25% to 75%. And 80% of the Fund-attracted finances will be invested in Georgia alone. The Fund is expected to retain its ownership interest in the portfolio companies for up to seven years, extendable to a maximum of nine years.
The only things that are clear about the GCF regulation as of yet is that investors will not be involved in the management, and it will be accountable against the National Bank of Georgia (NBG) as of 1 March 2014. After this deadline the independent Commission of Securities is expected to be put in charge of regulation of all investment funds, Davit Onoprishvili, Head of Finance and Budgetary Committee at Parliament, said to Georgian Journal. He could not specify the financial regulation details at the moment, since they are still under discussion.
“All changes to the fund regulation will be approved in ten days,” Onoprishvili said.
Meanwhile the unclear regulation mechanism of the GCF makes analysts and non-governmental watchdogs nervous. They worry that the portion of investments the Fund intends to invest in Georgia is unusually large for such a small country, and in likelihood will have a crucial impact on the Georgian economy. Whether or not this impact will be positive or negative depends on the level of transparency of GCF, they say.
Lia Eliava, a financial market analyst, considers nine years to be too long a participation period for the investments fund that brings in Foreign Direct Investments (FDIs), and believes the transparency issue is particularly critical here.
“The best world practice suggests that such investments funds leave projects quickly – the sooner they sell their share, the higher is the profit. FDIs imply the level of economic influence, and USD 6 billion is enough to buy all of Georgia. Therefore there is a risk that objects of strategic importance will be handed to foreign investors for a long period. In the meantime, we have no experience of relationships with millionaires and multi-billionaires, and we cannot know what interests they may have here,” she elaborated. “Therefore the GCF should make its projects transparent.”
Transparency International (TI) Georgia called for more transparency in the financial accountability of the GCF and more oversight mechanisms on the website that provides very scant information today.
A TI Georgia report released on 26 November indicates that the owner companies of the GCF are registered in offshore zones of the Cayman Islands, Hong Kong and Luxemburg. Moreover, a number of potential investors and financial institutions expressed concerns about co-investing alongside some of GCF’s investors like Alexander Mashkevich, who was involved in money-laundering and fraud charges in Belgium in 2011, and released after paying a fine.
“Given its huge potential financial firepower and importance to the Georgian government and economy, the GCF must institute an independent, experienced oversight board, and be transparent about who its investors are and what they are seeking to invest in,” the report stated. “This openness will be important to attract investors, whether they wish to co-invest with the Fund or in a project that may be in competition with a GCF-backed project.”
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