USD 500 million Eurobond issue is government’s first international bond offering

The Georgian government announced last week it is considering a USD 500 million Eurobond issue, which analysts suggest will both raise money and improve the country’s investment climate.

Prime Minister Lado Gurgenidze said on January 31 that the government is in talks with several major banking groups, including JP Morgan, UBS and Merrill Lynch to manage the issue.

Gurgenidze specified that some of the income from the issuance would go toward building a natural gas storage terminal and electricity transmission lines connecting Georgia and Turkey.

Cameron Brandt, a senior global markets analyst with Emerging Portfolio Fund Research (EPFR Global), thinks the Georgian government will benefit from the issue in several ways.

“[First] the recent election keeps the country's reform story alive, [second] US interest and backing may dim after George Bush leaves office,” Brandt said.

The analyst provided a third explanation for the issue, referring to the relative emptiness of the sovereign debt pipeline globally.

“A lot of the more creditworthy emerging markets borrowers took advantage of the conditions during first half of 2007 to meet some or all of this year's borrowing requirement,” Brandt told the paper. “That said, the markets are clearly skittish, so having an established investment banking ‘name’ steering—or, better yet, underwriting—the issue makes sense.”

Chair of the Georgian Stock Exchange’s supervisory board Giorgi Loladze says the government intends to create fiscally attractive Georgian capital market instruments, few of which now exist.

He also talks about another feature of the Eurobonds—every investor looking at Georgia, he says, is interested in the movement of the country’s benchmark interest rate.

“The Georgian government Eurobonds definitely can serve as such a benchmark instrument. So it will be one more prerequisite for attracting further investments to Georgia,” he points out.

The interest of the major foreign banks in these Eurobonds, Loladze adds, comes from their general interest toward emerging markets and “growing confidence in Georgia as one of the most dynamically developing economies.”

Trevor Cullinan, an associate with Standard & Poor’s Sovereign Ratings, points to the Georgian government’s “very low” outstanding debt to bi- and multilateral institutions, a welcome indicator for investors.

“As there is no government of Georgia debt on the capital markets at the moment, this issue could be interesting to investors in terms of providing diversification in their portfolios,” Cullinan said.

The first international bond offering from Georgia came in 2007, when the private Bank of Georgia issued five-year unsecured Eurobonds with a total value of USD 200 million. Merrill Lynch managed the transaction.

Over 100 institutional investors from the UK, Switzerland, Italy, Greece, other European countries and Asia placed bids for the bank’s Eurobonds, increasing the transaction size from USD 150 million to USD 200 million.