 (NB. Posting this again with hopefully better formatting):
Here's the Telegraph article on CGEO's CEO Irakli Gilauri FYI - can see a response from the Board on their site but nothing further from US State Dept re: sanctions. Anyone seen different?
Irakli Machaidze, The Telegraph:
Georgia’s drifts towards authoritarianism has repercussions for the London Stock Exchange
What happens in the Caucasus is no longer confined to a distant and too often overlooked region of Europe
Georgia, until recently a source of economic optimism on the troubled fringes of Europe, has elected to follow an anti-democratic path towards Moscow. The ruling Georgian Dream party has effectively halted the country’s EU accession talks, triggering political unrest, Western sanctions and mounting investor anxiety.
The TV images of protesters being beaten are heartbreaking. But while international media has focussed on democratic backsliding, a parallel threat is arising for foreign businesses and investors, particularly those invested in nominally “safer” stocks on indices like the London Stock Exchange.
New names are being added to international sanctions lists all the time. Alongside already sanctioned government ministers, there now appear names of leaders of large U.K. based companies, including firms listed on the LSE. These individuals are being outed as “enablers̶1; and beneficiaries of authoritarian practices, and they are facing potential sanctions in the US and elsewhere.
Three London-listed Georgian firms, Bank of Georgia Group PLC, TBC Bank Group PLC, and Georgia Capital PLC, serve as barometers of the country’s volatility. Since April 2024, when the Georgian government revived it push for a Russian-style foreign agents law, these companies’ share prices have plummeted by an average of 10 to 15 per cent. Georgia’s parliamentary elections in October, widely condemned as fraudulent, triggered a further 10 per cent fall. Political turmoil is manifesting in financial instability, prompting Fitch Ratings to downgrade Georgia’s outlook from “stable” to “negative̶1;
Sanctions on political elites undermine investor confidence, especially in nations dependent on foreign investment. While U.S. sanctions against Georgian Dream founder Bidzina Ivanishvili aim to limit his influence, they have a broader effect. As Georgia becomes geopolitically isolated, its economic reliance on Russia and non-Western actors will only increase.
Compounding these risks, Georgia has refused to join Western sanctions against Russia, fuelling suspicions it is facilitating sanctions evasion. Former US sanctions coordinator James O’Brien has raised concerns that Georgia is bolstering Russia’s military supply chain, claims substantiated by investigative journalists working in Georgia.
Meanwhile, the National Bank of Georgia has implemented a rule that shields sanctioned individuals from international restrictions: the Bank will only enforce sanctions if a local court has found an individual guilty, an unlikely outcome given Georgian Dream’s control of the judiciary.
Western sanctions-setters want to close loopholes by targeting businesses that back the Georgian government. The most high-profile target to date is Irakli Gilauri, Chairman and CEO of Georgia Capital PLC. A recent letter from the US House of Representatives, obtained by Radio Liberty, urged US Secretary of State Marco Rubio to impose sanctions on individuals accused of “enabling̶1; Bidzina Ivanishvili, naming Gilauri among them.
This matters because Georgia Capital holds a 20 per cent stake in Bank of Georgia, another LSE-listed Georgian giant. Sanctioning the likes of Gilauri will inevitably shake investor confidence in the governance of Georgian firms with global ties.
Irakli Gilauri just happens to be the brother of Nika Gilauri, formerly a key figure in the Georgian government and prime minister of Georgia from 2009 -2012. Both Georgia Capital and Nika Gilauri, now a vocal opposition figure, have condemned the inclusion of Irakli Gilauri in the list as “a discrediting operation”.
But the attention on Irakli Gilauri goes beyond his political affiliations. His record in management is blotted by legal disputes, including a current case involving the British Georgian Academy, Georgia’s leading international school, accredited by the Council of British International Schools (COBIS).
The dispute centres on allegations that Gilauri and Georgia Capital failed to fulfil investment commitments after acquiring a 70 per cent stake in the school. Its founder, Natia Janashia, accuses Gilauri and his associates of fraud. Following a legal battle in Tbilisi, the court granted her relief against Georgia Capital’s attempts to remove her. With the legal dispute now heading to the high court in London where Georgia Capital is listed, further revelations about Gilauri’s management practices are likely to follow.
If sanctions against business leaders like Irakli Gilauri do materialise, the flight of capital from Georgia could accelerate rapidly. More broadly, the increasing alignment of Georgian institutions with pro-Russian policies raises serious concerns about the sustainability of investments there. Investors in London must grapple with the risks posed by a government that is willing to sacrifice its Western economic ties in pursuit of political consolidation in Russia. Caveat emptor. |
Here's the Telegraph article on CGEO's CEO Irakli Gilauri FYI - can see a response from the Board on their site but nothing further from US State Dept re: sanctions. Anyone seen different? Irakli Machaidze, The Telegraph: Georgia's drifts towards authoritarianism has repercussions for the London Stock ExchangeWhat happens in the Caucasus is no longer confined to a distant and too often overlooked region of EuropeGeorgia, until recently a source of economic optimism on the troubled fringes of Europe, has elected to follow an anti-democratic path towards Moscow. The ruling Georgian Dream party has effectively halted the country's EU accession talks, triggering political unrest, Western sanctions and mounting investor anxiety.The TV images of protesters being beaten are heartbreaking. But while international media has focussed on democratic backsliding, a parallel threat is arising for foreign businesses and investors, particularly those invested in nominally "safer" stocks on indices like the London Stock Exchange.New names are being added to international sanctions lists all the time. Alongside already sanctioned government ministers, there now appear names of leaders of large U.K. based companies, including firms listed on the LSE. These individuals are being outed as "enablers" and beneficiaries of authoritarian practices, and they are facing potential sanctions in the US and elsewhere.Three London-listed Georgian firms, Bank of Georgia Group PLC, TBC Bank Group PLC, and Georgia Capital PLC, serve as barometers of the country's volatility. Since April 2024, when the Georgian government revived it push for a Russian-style foreign agents law, these companies' share prices have plummeted by an average of 10 to 15 per cent. Georgia's parliamentary elections in October, widely condemned as fraudulent, triggered a further 10 per cent fall. Political turmoil is manifesting in financial instability, prompting Fitch Ratings to downgrade Georgia's outlook from "stable" to "negative"Sanctions on political elites undermine investor confidence, especially in nations dependent on foreign investment. While U.S. sanctions against Georgian Dream founder Bidzina Ivanishvili aim to limit his influence, they have a broader effect. As Georgia becomes geopolitically isolated, its economic reliance on Russia and non-Western actors will only increase.Compounding these risks, Georgia has refused to join Western sanctions against Russia, fuelling suspicions it is facilitating sanctions evasion. Former US sanctions coordinator James O'Brien has raised concerns that Georgia is bolstering Russia's military supply chain, claims substantiated by investigative journalists working in Georgia.Meanwhile, the National Bank of Georgia has implemented a rule that shields sanctioned individuals from international restrictions: the Bank will only enforce sanctions if a local court has found an individual guilty, an unlikely outcome given Georgian Dream's control of the judiciary.Western sanctions-setters want to close loopholes by targeting businesses that back the Georgian government. The most high-profile target to date is Irakli Gilauri, Chairman and CEO of Georgia Capital PLC. A recent letter from the US House of Representatives, obtained by Radio Liberty, urged US Secretary of State Marco Rubio to impose sanctions on individuals accused of "enabling" Bidzina Ivanishvili, naming Gilauri among them.This matters because Georgia Capital holds a 20 per cent stake in Bank of Georgia, another LSE-listed Georgian giant. Sanctioning the likes of Gilauri will inevitably shake investor confidence in the governance of Georgian firms with global ties.Irakli Gilauri just happens to be the brother of Nika Gilauri, formerly a key figure in the Georgian government and prime minister of Georgia from 2009 -2012. Both Georgia Capital and Nika Gilauri, now a vocal opposition figure, have condemned the inclusion of Irakli Gilauri in the list as "a discrediting operation".But the attention on Irakli Gilauri goes beyond his political affiliations. His record in management is blotted by legal disputes, including a current case involving the British Georgian Academy, Georgia's leading international school, accredited by the Council of British International Schools (COBIS).The dispute centres on allegations that Gilauri and Georgia Capital failed to fulfil investment commitments after acquiring a 70 per cent stake in the school. Its founder, Natia Janashia, accuses Gilauri and his associates of fraud. Following a legal battle in Tbilisi, the court granted her relief against Georgia Capital's attempts to remove her. With the legal dispute now heading to the high court in London where Georgia Capital is listed, further revelations about Gilauri's management practices are likely to follow.If sanctions against business leaders like Irakli Gilauri do materialise, the flight of capital from Georgia could accelerate rapidly. More broadly, the increasing alignment of Georgian institutions with pro-Russian policies raises serious concerns about the sustainability of investments there. Investors in London must grapple with the risks posed by a government that is willing to sacrifice its Western economic ties in pursuit of political consolidation in Russia. Caveat emptor. |
I've just bought shares in Georgia Capital (BGEO) and then saw this - https://www.telegraph.co.uk/news/2025/02/12/georgia-authoritarianism-uk-investments-caucasus/Is BGEO on a sanctions list? Does anyone know what this means for investors? |
Bank up 9% today. Capital only up 3% today. Trade accordingly... :) |
I have reduced my holdings in both CGEO and BGEO because of the concerns surrounding GD and the pivot away from joining the EU and becoming more aligned with Russia but still maintain small stakes in both which without the political risk are both undervalued. |
This fund is so easy to trade for profit it's silly.
When the bank spikes in the morning, it takes the market until the afternoon to remember that CGEO's share price = its stake in BGEO and the share price of CGEO also goes up. |
Only if CGEO keeps it on the balance sheet (does it?). I assumed it was just eaten up as “expenses.R21; |
Good point.CGEO presumably receive the divi tho so will ultimately be reflected in the value, arguably more tax efficiently? |
yeh, but BGEO would be affected as well so your argument doesnt stand up |
I know that Georgia has its risks...
But BGEO makes up nearly £9 of CGEO's NAV, with a £10 share price. £1 for £13 of Georgian private assets? Seems like an added margin of safety versus investing directly in the bank? |
Worth a read.
hxxps://capital.com/georgian-lari-forecast#:~:text=The%20Georgian%20economy%20is%20driven,the%20value%20of%20the%20lari. |
The Georgian currency is a very big risk here and if the GEL was to return to the same average exchange rate against the USD and GBP as in 2021 then these shares would fall by about 30%
In May 2021 the USD bought 3.45 GEL but it only buys about 2.75 now
And in May 2021 the GBP bought about 4.80 GEL but it only buys about 3.50 now
There does not seem to be any good reason for this huge rise in the GEL gainst the USD and GBP in the last 3 years and so it is likely that the GEL will return to a more normal level against these currencies
This would mean a fall of about 30% in the shares |
Can't understand what has happened in the last two weeks. Is it just the political issue? |
Georgia capital features in the above article and the shares will be benefitting today from B of G's continued strong rise. |
Continued progress with the share price currently at a 50% discount to NAV at Dec 23 and that is likely to have increased further following Bank of Georgia's recent share price increase as a result of the proposed purchase of bank of Armenia for 0.65 of book value and 2.6 x P/E 2023. |
Also in December’s report – and in the month Georgia was granted EU candidacy status – we look at the surge in popularity with Elite Investors of some of the country’s leading financial businesses. London-listed Bank of Georgia (GB:BGEO), TBC Bank (GB:TBCG) and Georgia Capital (GB:CGEO) have all gained AAA ratings during 2023. Read more. |
 Nick Greenwood-
Georgia
Georgia has made significant progress over the past decade, with its GDP per capita increasing by 55% from 2011 to 2021. Despite an improved economic outlook in recent years, investor appetite for Georgia has been muted, with sentiment impacted further by Russia’s invasion of Ukraine last year – which stoked memories of the conflict between Russia and Georgia in 2008.
As a result of the Russian invasion of Ukraine, many highly skilled Russians, particularly IT professionals, have moved across the border to Georgia. This has given the economy a further recent boost. Nevertheless, with non-existent demand for Eastern European strategies in recent years, the country remains firmly out of the investor spotlight. While there may be no near-term catalyst for Georgia, the significant valuation mispricing is simply too compelling to overlook.
We have a position in the London-listed Georgia Capital (CGEO), which was spun out of Bank of Georgia after the combined entity became too large to manage at 16% of GDP. The portfolio has investments in various areas such as wine, motor insurance, education, renewable energy, water supply and its listed stake in the Bank of Georgia. With a current discount of 60% – this represents a major mispricing opportunity, given our optimism in the country’s internal dynamics. |
The following is the link to the latest Edison report on Georgia Capital. It is quite long so I have just posted the comments at the start and in particular on the bond refinancing. At first look the new bonds with a coupon of 8.5% seem quite high but not when you read the full context below. The forecast GDP growth of 5% pa out to 2028 looks very encouraging as well.
7 September 2023
Georgia Capital — Successful bond refinancing improves risk profile
Georgia Capital (GCAP) delivered positive newsflow during August, including the successful pricing of its new sustainability-linked bond (with proceeds used to redeem the 2024 Eurobond), as well as its Q223 results release, with a robust 8.2% NAV total return (TR) in GEL terms posted during the quarter. We believe that the successful bond refinancing, coupled with continued deleveraging at holding level (net capital commitment ratio of 17.4% at end-June 2023) further reduces GCAP’s risk profile. Despite the above, GCAP’s shares are still trading at a relatively wide c 58% discount to its ‘live’ NAV estimate.
Milosz Papst
GCAP made further progress on its deleveraging agenda in H123
Georgian economy remains strong
GCAP provides diversified exposure to Georgia, mostly through resilient, marketleading businesses in sectors such as healthcare, pharmacy, financials, renewable energy and education. The Georgian economy has proved its resilience throughout the COVID-19 pandemic and the war in Ukraine and maintains its solid momentum, with H123 GDP growth of 7.6% y-o-y (after 10.1% in 2022), assisted by a healthy combination of external demand, FX flows and local credit expansion. At the same time, inflation remains contained, standing below the 3% central bank target since April 2023. The International Monetary Fund forecasts 4.0% GDP growth in 2023 and 5.0% growth pa in 2024–28. Galt & Taggart and TBC Capital (local brokers) expect 2023 GDP growth of 6.8% and more than 7.2%, respectively.
A quality play on the local economy
We believe that GCAP’s value proposition is underpinned by the following drivers: 1) 26% of its end-June 2023 NAV is attributable to the listed Bank of Georgia, a highly profitable bank (H123 ROE at 31.3%) and one of the local leaders, now trading at a moderate 1.0x book; 2) 92% of its portfolio is valued externally, with most of its private holdings valued by a third-party specialist; and 3) GCAP receives a steady income stream from dividends and buybacks from its holdings, with management expecting GEL150–160m of regular distributions in 2023 (GEL205–215m including one-off distributions), implying a 4.5–4.8% yield on its end-June 2023 portfolio value (6.1–6.4% including one-off distributions).
Successful refinancing of the 2024 Eurobonds
On 1 August 2023, GCAP announced that it has successfully priced a US$150m, five-year sustainability-linked bond in the Georgian market. GCAP highlighted that it was the largest ever corporate bond offering in the local market, and attracted significant interest from local investors. While high-profile international financial institutions (European Bank for Reconstruction and Development, Asian Infrastructure Investment Bank, Asian Development Bank and International Finance Corporation) committed to a US$110m investment in GCAP’s bonds, their tranche was scaled back to US$67m to allow local investors to acquire the remaining US$83m. It is also worth noting that holders of US$23m of the existing Eurobond transitioned their holdings to the new bond.
The bond bears a fixed coupon of 8.50% and was issued at par, which compares to a 6.125% fixed coupon for the previous bond (issued in March 2018). GCAP secured a quite attractive rate when compared to the local interest rates in Georgia (the current central bank refinancing rate is 10.25%), and the rate on GCAP’s bonds is also close to the US corporate high yield bonds (the effective yield of the ICE BofA High Yield Index at 1 August 2023 was 8.23%). Importantly, given the lower volume of the new bonds versus the US$300m Eurobonds, GCAP will reduce its overall interest expenses. The new bonds were rated ‘BB-’ by S&P, which represents a one-notch upgrade compared to the previous Eurobonds.
Key financial covenants embedded in the bond include: 1) net debt to total equity must be less than 45%; 2) payments such as dividends or capital stock redemptions will be restricted to 50% of end-2022 retained earnings and 50% of consolidated net profit thereafter; 3) interest coverage should be at least 100%; and 4) dividend payments and other distributions from material subsidiaries can be restricted only up to 50% of net profit of the material subsidiary. The sustainability-linked target embedded in the bond terms involves a 20% reduction in scope 1, 2 and 3 emissions versus the 2022 baseline of 22,829 tonnes of carbon dioxide equivalent by 2027 (scope 3 emissions represent aggregate scope 1 and 2 emissions of GCAP’s portfolio). This reduction will be an important milestone on GCAP’s agenda to become net zero in terms of carbon emissions by 2050. |
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