BOG is playing monopoly as PrivatBank leaves Georgia
11 December, 2014
BOG is playing monopoly as PrivatBank leaves Georgia
PrivatBank, the largest commercial bank of Ukraine, leaves the Georgian market. Bank of Georgia, a local powerholder, buys the Georgian assets of PrivatBank for USD 51 million. Analysts regret that the large Ukrainian investor quits Georgia and indicate concern of increased monopolistic risks.

On December 5, Bank of Georgia (BOG) announced plans to buy Ukrainian PrivatBank’s Georgian subsidiary PrivatBank Georgia, as well as minority stakes in Georgian Global Utilities Limited, which owns water treatment facilities in Tbilisi, Rustavi and Mtskheta.
BOG, which took a premium listing on the London Stock Exchange in 2012, has placed new ordinary shares to raise funds for the planned expansion, which will also include potential additional acquisitions for its healthcare subsidiary. Bank of Georgia Holdings PLC, a UK-based holding company of BOG, said that it raised about 114 million USD as a result of placing 3.59 million new ordinary shares with existing and new institutional investors, representing up to 10 percent of its current issued share capital.
PrivatBank Georgia is the ninth largest bank in Georgia by total assets, with a focus on retail banking. Therefore BOG hopes that its new acquisition (PrivatBank Georgia) will boost its highly profitable retail business. This makes sector analysts concerned about monopolistic risks. According to Georgian legislation, companies are considered monopolies if they control 40 percent of the market. However, in Europe a company is acknowledged as a monopoly if it takes 25 percent.

“When a big investor like PrivatBank leaves the Georgian market, it indicates that this investor lost interest in the country. This sends a bad signal for others”

Analysts think that Georgian law is too liberal and does not prevent the market from monopolistic risks. “BOG covers roughly 32 percent of the market and can be considered an actual monopoly by EU standards. The addition of PrivatBank’s shares will definitely enhance its power,” Lia Eliava, a financial analyst, believes.
Dietrich Muller, a co-founder of Georgian Investment Group+, thinks the withdrawal of PrivatBank from the Georgian market is bad news inasmuch that this is a very big and important investor. He expects the deterioration of a competitive climate.
“When a big investor like PrivatBank leaves the Georgian market, it indicates that this investor lost interest in the country. This sends a bad signal for others,” Muller said in the interview with Georgian Journal.
Analysts also disapprove of the acquisition of 25 percent of Georgian Global Utilities Limited that BOG acquired for 26 million USD. BOG plans to enhance its stakes in GGU to 49.9 percent for an additional 26 million USD within ten months. GGU also owns three hydroelectric power plants with a total capacity of 143 Megawatts. This deal defies the recent order from Georgian National Bank that prohibits Georgian commercial banks to have non-profile assets. The NBG issued the order at the end of October, requiring Georgian banks to get rid of non-banking assets by the end of 2015.
According to statement made by BOG, its recent acquisition does not counter the NBG requirement as long as the bank changes its corporate structure, which will completely separate the banking business from the non-banking one.

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