Georgian Railway IPO Deal Booed by Political Tycoon?
31 May, 2012
Georgian Railway IPO Deal Booed by Political Tycoon?

Georgian government delayed Initial Public Offering (IPO) of 25% shares of the state- owned JSC Georgian Railway at London Stock Exchange under the excuse of flawed markets. Speculations impute the dissolved IPO deal to Georgian tycoon Bidzina Ivanishvili acting as political opposition since past fall, who is believed willing to buy the questioned 25%.



“We have been consulting with bankers and investors during the last few days. Unfortunately markets have deteriorated so much that they did not advise to do

this [IPO] against the backdrop of this market. Accordingly, we delayed the process,” Nika Gilauri, Prime Minister of Georgia, stated at governmental session on May 24, 2012 the trade opening day London Stock Exchange (LSE) when Georgian Railway’s IPO was supposed to take place.
Neither government nor Georgian Railway (GR) specified the trade day before claiming that Citigroup and Goldman Sachs International been appointed as joint global coordinators and joint bookrunners of the GR’s IPO were still researching market for finding proper momentum.
“I do not know the day. Our investments banks dealing with the IPO transaction are carrying out researches to find a proper momentum for IPO placement and I cannot name when it happens this month or later,” Irma Stepnadze, Public Outreach Manager of GR told Georgian Journal.
Government kept this IPO news in secrecy in fact until Reuters based on its anonymous sources reported of possible IPO of GR’s 25% on May 24, 2012 expected to attract USD 200-250 million. Both GR and government confirmed the fact only after the Reuters revelation made in mid-May. Neither did authority make public placement of USD 250 million worth Eurobonds by another state owned enterprise Georgian Oil and Gas Corporation (GOGC) until the emission took place on May 16. Financial papers of GOGC meantime are still out of public reach and no economic reasonability of the Eurobond emission was provided beforehand.
Non-transparence triggered speculations that government decided both LSE-related deals in a slap-dash manner as far as it desperately needs money for financing pre-election campaign for the parliamentary elections scheduled this coming fall. That the ruling National Movement misused the state budget to finance its pre-election campaigns before is an open secret hailed by non-governmental watchdogs for years. But this parliamentary election year is more troublesome for the financial resource balance between rivaling parties first ever since rose-revolution weighs down in favor to opposition led by billionaire Ivanishvili with USD 6 billion at his disposal and pledging not to spare his money to win the elections.
As a matter of fact international markets rather worsened than rallied since past fall when Georgian government planned to implement IPO of minority shares of Georgian Railway as well as GOGC and Telasi, Tbilisi electricity distribution network, but delayed the deal till better times. 
In this past April when international market analysts predicted another surge of crisis and recession in eurozone due to a package of problems topped by Greece on the brim of default, Spain and Italy in debt troubles, Georgian government found apt to resume activity to place the state-owned assets at the LSE. 
“Markets did not rally since past fall, the situation did not get better but the state budget is deprived of money and they need to fill the budget and therefore decided to place minority shares of GR and issue Eurobonds of GOGC,” Lia Eliava, an economic analysts, said.
Gilauri underlined that markets were pretty good a week ago when GOGC successfully placed USD 250 million Eurobonds but due to the problems of Greece and Spain markets got quite worse and placement of Georgian Railway’s 25% is delayed for better time when markets will rally.
Dirtikh Muller, a financial market analyst with Georgian Investment Group, believes the market was as bad as a week ago pretty aware of the Greece, Spain and Italy problems when GOGC Eurobonds were emitted.
“International markets only worsened this year in fact, only American indices showed positive trends while all the European indices plunged lower and situation was inclement for both Eurobonds and IPO placement alike,”  he said adding that IPO of minority shares of GR fewer than 25% is a good idea within itself but attraction of USD 200-250 million for 25% was not worth of offering for such a valuable asset as GR should be evaluated as no less than USD 350-400 million. 
Georgian Railway is a strategic asset of Georgia claiming to be a transit hub in the Transcaucasia region. It is an integrated part of the historical Silk Road transit corridor as is linking Caspian Sea with the Black Sea, but the upcoming Baku-Akhalkalaki-Karsi railway [directly connecting Azerbaijan, Georgia and Turkey] scheduled to be completed by 2012 is expected to increase GR’s  transit capacity many folds translating into bigger profits accordingly.
The sudden cancelation of the IPO triggered speculations that the real reason government revoked the IPO in the last moment was that Ivanishvili decided to buy the offered 25% of GR, one of the major financing channels of the state budget as well as the ruling power similarly. Ivanishvili is also supposed intent to buy shares at Telasi as well as KaztransGas Tbilisi, the Kazakh owned gas distribution network of Tbilisi in order to cut down consumer tariffs and sweep polls by parliamentary elections scheduled in this coming fall. Whether or not Ivanishvili plans to buy shares at GR, Telasi and Kaztransgas Tbilisi, still remains mysterious.  “I can neither refuse nor confirm this fact at the moment,” Nona Kandiashvili, his spokesperson, told GJ.
Muller does not rule out that Ivanishvili might really be interested in acquisition of such valuable assets as GR from both business and political points of view.
“Ivanishvili can hit two hares if acquires 25% of GR,” Muller said. “On the one hand he may enjoy commercial profits paying just USD 200-250 million that is quite low price for GR’s 25%. On the other hand he can be in course of what’s going on within GR that’s one of the key channels of the state budget. For example he can buy this 25% through five companies like 5% per company and as far as holders of 5% can demand an audit he can inspect GR five times. That many audits can reveal a lot of things actually.”
Ivanishvili himself in a TV talk-show at Kavkasia said “nothing is ruled out” but neither confirmed nor denied the news on his claim for GR’s shares.

 

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