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Eurobonds used for second time to soothe Georgian Economic pain

By Salome Modebadze
Wednesday, April 13
Georgia tapped in to the international Eurobond market for the second time, refinancing the previous bond at a cheaper rate and for a longer tenure. It was in April 2008 when the country first tapped in to the international capital markets with a $500 million 5-year bond, while the new 10-year bond with a 6.9% deal would attract investors’ attention in making long-term investments in Georgia. As the Minister of Finance of Georgia Kakha Baindurashvili said on April 12, investors’ trust towards the Georgian economy has doubled. “Moreover, private companies would easily attract foreign capital, which the Georgian economy is lacking so much. Nonexistence of long-term investments is the most problematic issue for the Georgian market while the new initiative would bring additional stimulus,” he stated.

It was last week when the Georgian Government issued the 10-year Eurobonds with a lower interest rate than in 2008. As Prime Minister Nika Gilauri told the media on April 12 “Georgia is more trusted by the world financial market than any other country in the region.” Talking of the new opportunities for the private sector Gilauri highlighted that the local companies would reach new markets with long-term loans and merit in development of Georgian economy. The PM also emphasized that the country would have enough time to pay back the foreign debt by 2021 instead of 2013. “Georgia had to pay quite a large amount of money by 2013 but this debt has practically been repaid by issuing the new Eurobonds,” he added.

Manana Manjgaladze Press Speaker of President Mikheil Saakashvili also spoke of the importance of new Eurobonds as a step towards the country's development. “International media and experts have already commented on the issue as one of the best bargains aimed at increasing trust of foreign investors in our country,” Manjgaladze said at Tuesday’s traditional briefing. As a matter of a fact Fitch Ratings has assigned Georgia's USD500m Eurobond, due 12 April 2021, a rating of 'B+'. The ratings are in line with Georgia's 'B+' Long-term foreign currency Issuer Default Rating (IDR). Fitch affirmed Georgia's Long-term foreign currency IDR at 'B+' and revised the Outlook to Positive from Stable reflecting Georgia's strong economic recovery, a reduction in both the budget and current account deficits, an improvement in the financial sector's health and some easing of political risk.

But Georgian opposition MPs had a different approach towards the issue. Wondering what use the previous bonds had brought to our country, Levan Vepkhvadze Deputy Parliamentary Chairman from Christian-Democratic faction worried of the “additional burden” on the Georgian economy. “Our Government is acting as a starting creditor – first they waste money then they take on new debt to refund and finally they start talking of the “merit” of Eurobonds,” The MP worried that the state would have to give around GEL 25 million annually for the Eurobonds.

General Director of TBC bank Vakhtang Butskhrikidze welcomed the initiative stressing that the Georgian companies would now attract more foreign investment. All of this according to Butskhrikidze would become a new start for banks to improve their activities. “There would have been no better alternative to changing old bonds with the new ones for covering the debt, but as a matter of a fact the Government has introduced new bonds a day earlier than adoption of a law,” Irakli Lekvinadze economical analyst stated. Analyst Shota Murghulia also spoke of the importance of the decision explaining that “otherwise the Government would have failed in paying back the previous debt by 2013.” Welcoming the introduction of long-term Eurobonds the analyst explained that their interest rate is not at all cheap for the international market.