The Lari bond emission in the spotlight
20 March, 2014
The Lari bond emission in the spotlight
European Bank for Reconstruction and Development (EBRD) launched the first ever bond issue in the Georgian national currency – Lari - on 17 March. The Central Bank is hopeful that the EBRD’s pattern in Georgia will pave the way for further development of Georgian capital markets by giving an impetus to other financial institutions to follow. Skeptically disposed economic analysts expect no breakthrough and even a zero-effect.
The two-year bond totaling GEL 50 million (EUR 20.7 million) was jointly led
and underwritten by two leading local financial institutions: JSC BG Capital, the wholly-owned brokerage subsidiary of Bank of Georgia, and TBC Bank. The transaction is the first bond placed by a foreign issuer in Georgia, and also represents the first floating rate note on the domestic market. The coupon on the EBRD’s inaugural Lari bond is flat to a three-month rate on certificates of deposit issued by the National Bank of Georgia (NBG) which, according to official statistics, stands around 4.10-4.30% at the moment. The bonds are eligible for sale and repurchase operations carried out by the NBG.
Bruno Balvanera, EBRD Director for Caucasus, Moldova and Belarus, said: “This is a very significant step for the Georgian local capital market. It brings a new instrument for investors and, at the same time, allows the EBRD to diversify its source of the Lari and to continue lending to companies in need of long-term financing in local currency.”
The EBRD has played a leading role in the development of the local currency and capital markets in Georgia, working with the Georgian government, the NBG and local financial institutions. The issuance of the Lari bond is the latest development in the EBRD’s Local Currency and Capital Markets Development Initiative, which was launched in May 2010 in the wake of the global economic crisis. The Initiative aims to tackle excessive reliance on foreign capital and foreign exchange borrowing in emerging economies. The EBRD seeks to encourage borrowing in local currency and also to develop or strengthen local capital markets, thereby increasing the supply of locally-sourced finance.
However, some Georgian economic analysts are pretty skeptical toward the EBRD bond emission in national currencies at large, and in Georgian currency in particular. The only winner in this kind of deals is the EBRD they say. According to Lia Eliava, a financial market analyst, as well as to Ditrikh Muller, co-founder of the broker company Georgian Investment Group+, the effect of this bond emission will be zero to either the Georgian economy or its flabby securities market. Both believe its pumping money out of the investment-and-money-hungry Georgian economy with scarce prospects for any back-injections of the capital.
“It is cheaper to issue bonds in Lari than in US dollar or in Euro. Besides, interests in Georgia are lower compared to the international market and the issuer will pay less while it takes money out of the Georgian economy; and it is not clear whether or not it will be somehow returned to it,” Muller said.
The floating interest rate seems to be mismatching the Georgian reality also. It can be misleading for potential investors who cannot forecast what rates the NBG will be fixing on its certificates of deposits, Eliava admits. “It would be much better to establish fixed interest rates to attract investors since a fixed rate creates more stable expectations of the profit,” she said. According to her, the only one who will enjoy profit out of the Lari bond emission will be the EBRD itself and TBC Bank together with BG Capital which will witness profit out of secondary trades. But Muller doubts that there will be a big turnout of investors for Lari bonds because the interest is much higher at bank deposits benchmarking 8-9%.
“Neither will this Lari bond emission give an impetus to the Georgian Stock Exchange,” Eliava elaborates. “The problem of the Georgian securities market is that companies shun bond emissions because they are afraid of losing control over their business, on the other hand Georgian companies lack transparency and investors would not trust their bonds.”

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