Commercial News Update for Georgia

 

February 2007

 

Compiled by: Kartlos Gviniashvili, BISNIS Representative, U.S. Embassy, Tbilisi

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2006. ALL RIGHTS RESERVED FOR USE OUTSIDE OF THE UNITED STATES.

NOTE: THIS COMMERCIAL UPDATE IS DRAWN FROM THE GEORGIAN PRESS AND OTHER OPEN SOURCES AND SHOULD NOT BE INTERPRETED AS OFFICIAL U.S. GOVERNMENT INFORMATION

 

GEORGIAN BUSINESS CLIMATE FOR THE ITALIAN INVESTORS

ITALIAN EMBASSY IN GEORGIA CREATES AN OBJECTIVE VISION OF GEORGIA FOR ITALIAN BUSINESSMEN

02.02.2007

Attracting foreign investment is an integral component of official government policy, and Italy is a country that has responded to the “open for business” sign hung out by the Georgia’s post-revolutionary government.

The relatively strong political relationship which exists between Italy and Georgia appears to have created fertile ground for the fostering of business and economic contacts between the two nations and the Italian Embassy in Georgia is working to strengthen Georgian-Italian business links by arranging annual business forums in Tbilisi. These forums have attracted the interest of a number of Italian entrepreneurs and have paved the way for these businesspeople to come to Georgia and to assess the country’s economic potential.

Italians have already invested much in Eastern European and Baltic countries. Will their next step be the South Caucasus? Is Georgia, a country famous for its hospitality, perceived as a hospitable business country for Italian investors? H.E. Italian Ambassador to Georgia, Fabrizio Romano spoke about the evolving economic relationship between these two countries and highlighted the importance of the upcoming Italian-Georgian Business Forum as well as clarified his position on the recent scandal involving the Italian-Georgian Badagoni wine factory.

GT: What do you think: do Italian businessmen see profitable business potential and a business-friendly environment in Georgia? Are they ready to invest in Georgia?

H.E. Fabrizio Romano: After the third Italian-Georgian Business Forum is held in March it will become evident if Italian investors are ready to invest in Georgia. The first two business forums served to spread knowledge about Georgia in Italy and to familiarize interested Italian entrepreneurs with business opportunities in Georgia.

The third forum is important because it is based on the results of the Italy-Georgia Economic Partnership Program. IGEP really played a decisive role in identifying which of Georgia’s economic sectors are the most interesting and have the most potential for Italian entrepreneurs.

I should mention that we published A Practical Guide for Economic Operators within the IGEP framework. This brochure comprises a general review of the Georgian market and covers virtually all the necessary information regarding the Georgian economy and business climate.

I am happy to say that these Italian-Georgian business forums, which are financed by the Italian government and supervised by the embassy, are effective because Georgia occupies a strategic position in the region. It is a business gateway to the Caucasus and Central Asia and I want Italian entrepreneurs to be the first to appreciate the strategic value of the country. However, I should also make it clear that my functions are fixed here and the last word, of course, is up to the businessmen themselves.

In my opinion, organizing such a business forum is important because it creates an accurate, objective picture of the business environment in Georgia. Moreover, these forums help correct the international image of the Georgian market and can help clear up the misconceptions that can arise from misunderstandings such as the well-known Badagoni incident.

Source: Margaret Shakarashvili, Georgia Today, Issue # 342

 

 

THE FIRST LARGEST PRIVATIZATION AGREEMENT IN GEORGIAN ENERGY SECTOR HISTORY HAS BEEN SIGNED

 

05.02.2007

 

On February 5, 2007 ENERGO-PRO a.s. and the Ministry of Economic Development of Georgia signed the privatization agreement for the sale of six hydro power plants and the assets of two electricity distribution companies for the total acquisition price of USD 132 million. The signing of this significant deal marked the successful completion of a 9-month active dialogue. George Arveladze –the Minister of Economic Development of Georgia and Jiri Krushina –Member of Board of Directors, Energy pro a.s. signed the aforementioned agreement.
   With the acquisition price of USD 132 million, total power generation capacity of more than 350 MW and an electricity distribution network covering over 70% of the territory of Georgia, ENERGO-PRO becomes the largest participant in the Georgian electricity market.
   The privatization agreement signed with the Ministry of Economic Development envisages the transfer of six hydro power plants and the assets of two electricity distribution companies, namely:

   Through the agreement signed today, ENERGO-PRO has undertaken the obligation to continue to deliver electricity to all paying customers and to improve the quality of service provided. This modernization of the existing networks will require an extensive rehabilitation program which envisages an investment of more than USD 100 million. The Company intends to implement a large-scale modernization program for the privatized hydro power plants, to significantly improve and increase the performance of the plants with an expected total investment of USD 85 million. However, ENERGO-PRO is further committed to supporting the efforts of the Georgian Government to improve energy security through increasing the utilization of the hydro resources of the country. The Company will therefore actively seek opportunities to design, build and operate new hydro power generation capacities. ENERGO-PRO’s strategy envisages the construction of new hydro-electric power stations with an installed capacity of up to 100 MW, representing a further investment of approximately USD 100 million.
   “It’s a great success for Georgian Energy Sector and Georgian economy as well, because 132 M USD will be mobilized in the state budget, while 300 M USD will be invested for development of energy sector, namely for construction of new hydro power plants, generation and rehabilitation of distribution and generally, for sustainable growth of Georgia’s energy sector. ENERGO-PRO is a very successful and solid company and its entering one of the serious segments of Georgia’s economy is of great importance for our country” – George Arveladze said at the end of the ceremony.
   ENERGO PRO a.s.  was established in 1994 in Svitavy, Czech Republic. Currently, it owns and operates 11 hydropower plants in the Czech Republic and 8 hydro power plants in Bulgaria. The market value of ENERGO-PRO Group assets amounts today to approximately EUR 300 million.

Source: Ministry of Economic Development of Georgia

TBILISI INTERNATIONAL AIRPORT OPENED

08.02.2007

On February 7, new Tbilisi International Airport was officially opened. President of Georgia -Mikheil Saakashvili along with Ilham Aliev –president of Azerbaijan and Taip Erdogan – prime-minister of Turkey participated in the official ceremony of opening.
   The company “TAV URBAN GEORGIA” has built up the new international airport in the shortest time. The airport is equipped with modern security systems, new light-signal devices and runway. 24 registration desks, 3 departure points, baggage control new modern system and 3 telescopic bridges are installed in 24 000 sq. m of area airport. The new air station includes parking area per 200 cars; fire station is established according to the standards of International Civil Aviation Organization.
   The Tbilisi International airport will serve 1500 passengers per hour

Source: Ministry of Economic Development of Georgia

 

FRAMEWORK AGREEMENT ON KARSI –TBILISI-AKHALKALAKI RAILWAY MAGISTRAL PROJECT SIGNED

08.02.2007

On February 7, framework agreement on Karsi-Tbilisi-Akhalkalaki railway project was officially signed.  Presidents of Georgia and Azerbaijan –Mikheil Saakashvili and Ilham Aliev and prime-minister of Turkey - Rejeb Erdogan signed the agreement.
   “This project is very significant for Georgia, meaning creation of new jobs, new economic opportunities and ties for Georgia, especially for Samtskhe-javakheti region. Very serious transit corridor is being created, which will connect not only three countries, but China, regions of Europe and central Asia as well.“ – George Arveladze said.
   Karsi-Tbilisi-Akhalkalaki railway project costs 422 M USD and rehabilitation of its corresponding infrastructure will cost 600 M USD. 200 M USD, which Georgia received due to a 25 year loan, will be spent for construction-rehabilitation of Marabda-Akhalkalaki and Kartsakhi-Akhalkalaki railway link, also for construction of running gears shop in Akhalkalaki.
   Intergovernmental meeting between Georgian and Azerbaijan officials about preparation of framework agreement was held in January, Tbilisi. Negotiations were leaded by George Arveladze-the Minister of Economic Development of Georgia and Azerbaijan’s Transport Minister - Zia Mamedov.

Source: Ministry of Economic Development of Georgia

 

INTERNATIONAL BANK OF AZERBAIJAN ENTERS GEORGIAN BANKING SECTOR

09.02.2007

The International Bank of Azerbaijan – Georgia, a daughter company of the International Bank of Azerbaijan, has been given a license to operate in Georgia. The Georgian banking sector anticipates that in 2007 up to a half billion dollars in overseas investments to flow through the sector.

The presentation ceremony of the new commercial bank the International Bank of Azerbaijan-Georgia was held on February 7 at the head office of National Bank of Georgia. Roman Gostiridze, the President of NBG handed a license to Asker Mamedov, Chairman of the Supervisory Board of the International Bank of Azerbaijan-Georgia. The President of the International Bank of Azerbaijan, Jahangir Gajiev, also attended the event, declaring that “The International Bank of Azerbaijan would like to take an active part in Georgia’s economic activity.”

Georgia and Azerbaijan – the neighboring energy partners who are tied by a number of regional projects including the Baku-Tbilisi-Ceyhan oil and Baku-Tbilisi-Erzerum gas pipelines – appear to be building closer relationships in other sectors as well. The upcoming Baku-Tbilisi-Kars railway project and the entrance of one of the biggest Azeri banks into the Georgian financial sector illustrate this tendency.

The appearance of the International Bank of Azerbaijan-Georgia is a part of the expectations of NBG officials who, when summing up the results of the past year in Georgia’s banking sector, made the prognoses that half a billion dollars will enter the Georgia banking sector through foreign investments in 2007.

“I’m glad that the Georgian banking sector is able to attract leading financial institutions across the globe. We are expecting FDIs [Foreign Direct Investments] of half a billion dollars to be invested in the Georgian banking sector through both share capital and long-term loans alike,” Gotsiridze said.

This new Azeri daughter bank was founded by two Azeri banks – the International Bank of Azerbaijan and CI Bank, which own 75% and 25% of the new bank’s shares respectively. 50% of the International Bank of Azerbaijan is owned by the Azeri government and the bank accounted for 50.9% (USD 1257.9 million) of the total assets of the Azeri banking sector by 2005. By the same date the bank’s credit portfolio accounted for 53.48%, deposits – 61.91%, and its share capital was 24.58% of the entire Azeri banking sector.

In 2006 the International Bank of Azerbaijan was awarded long-term BB, short-term B and individual D/E international Fitch ratings.

Source: Nino Patsuria, Georgia Today, Issue # 343

MEETING WITH BUSINESSMEN

09.02.2007

Prime-minister of Georgia – Zurab Nogaideli, state minister – Kakha Bendukidze and ministers of economic development and healthcare – George Arveladze and Lado Chipashvili met Georgian businessmen on February 9, in “Courtyard Marriot” and introduced them to the general plan of hospital sector development. Approximately 70 Georgian businessmen, including representatives of banking sector and big companies attended the presentation.
   General plan of hospital sector development envisages construction of 100 modern hospitals in Georgia by 2009. Companies revealed by competition will implement the project investment.
   “Specific proposals will be submitted after we announce privatization. We’ve introduced businessmen to the investment plans of hospital sector development. The project implementation requires an investment of 400 M USD. The Ministry of Economic Development will announce fixed sums, since the privatization on specific items is announced’– prime-minister said.
   “It is a very important step forward for our healthcare system to meet the international standards” – George Arveladze said.

Privatization of several hospitals will be announced in the nearest future.

Source: Ministry of Economic Development of Georgia

 

NEW COMMUNICATION SYSTEM OF THE TAX DEPARTMENT

15.02.2007

 

European Union-funded ‘Support to Tax Administration Reform’ project assisted last year a new initiative of the Georgian Tax Department to improve taxpayer service, raise awareness and credibility of tax collection.

On Thursday 15th February 2007 at the Marriott Courtyard Hotel the Georgian Opinion Research Business International “GORBI” officially announced at an official presentation the results of a survey to determine the information needs of the Georgian public and to assess the country’s social-economic status and how the Department is perceived by the public in general.

         The survey was conducted by GORBI on the initiative of the Tax Department and with the financial support of the EU-funded ‘Support to Tax Administration Reform’ project. Monitoring was conducted nation-wide in the summer of 2006 and over one thousand families were surveyed.

        The survey was followed by a series of special one-week meetings in Tbilisi, Batumi and Telavi with different focus groups (mainly small and medium size businessmen) with the support of the ‘Support to Tax Administration Reform’ project and the Federation of Businessmen.

        Further, on the basis of the results of the survey and proposals made by businessmen during the meetings, a new draft Communications Strategy was developed by the Tax Department with the support of EU-funded project. The aim of the Strategy is to provide taxpayers with relevant information and improved services. The document will be finalized in the near future.

        Representatives of international financial institutions and business groups as well as First Deputy Minister of Finance, Mr. Lasha Gotsiridze and high-ranking officials of the Ministry of Finance and Tax Department attended the Presentation.

Source: Ministry of Finance of Georgia

 

BANK OF GEORGIA STAGES EUROBOND COUP

USD 200 MILLION ISSUE OF 5-YEAR, UNSECURED EUROBONDS CONSIDERED A MAJOR LEAP

 

16.02.2007

The Bank of Georgia, the leading Georgian commercial bank, marked it first ever allocation of Eurobonds on February 1, 2007 with an emission of five-year unsecured Eurobonds with a total value of USD 200 million. This figure, however, lagged far behind the unbelievable demand for these bonds which amounts to over USD 600 million. Georgia is now the fourth country in the CIS to offer Eurobonds and the move was much praised by leading European media entities, such as The Financial Times. The transaction was run by Merrill Lynch, Global Market & Investment Banking Group.

The Bank of Georgia seems to be playing an undisputed first fiddle in the Georgian commercial banking sector. With assets equaling GEL 1.2 billion as of October 2006, Bank of Georgia accounts for 30% of the Georgian banking sector, and it seems to be keeping up with its ambitious goals of making an impact on the international market. Few months after becoming the first ever Georgian company to be listed on the London Stock Exchange, the Bank of Georgia has become the fourth CIS company to issue a Eurobond. Georgia as a state itself hasn’t issued any kind of Eurobond as of yet.

On February 12, to trumpet the news throughout the country, Lado Gurgenidze, the chairman of Bank of Georgia’s supervisory board, summoned the Georgian media and disclosed the details of the bank’s latest success: the successful allocation of USD 200 million debut Reg five-year senior unsecured Eurobonds.

According to Gurgenidze: “Only three CIS countries – Russia, Ukraine and Kazakhstan – have issued these sorts of bonds. Now Georgia has become number four and the Bank of Georgia is the first Georgian company which has ever managed to place Eurobonds. This success is similar to putting our shares on the LSE.”

Source: Nino Patsuria, Georgia Today, Issue # 344

 

 

NEW GEORGIAN–POLISH COMPANY COMMITTED TO MAKING TBILISI GREEN

JOINT LANDSCAPING VENTURE TO UTILIZE CUTTING EDGE, ECOLOGICAL BUILDING TECHNIQUES

 

16.02.2007

The Georgian company Olympic Star and the Polish company Grabczewscy have united to establish a new joint Georgian-Polish Company in order to improve the view of Tbilisi. On February 13, at the Tbilisi Marriott, representatives of Olympic Star and their Polish partners hosted a presentation of the new company and held a conference focusing on landscape design and ecological architecture. The event was attended by representatives of the Tbilisi City Administration, the Polish Embassy and a number of local businesses.

The new company will be focused on landscape design and the planting of greenery. Company officials believe that both of these issues have been virtually ignored in Georgia during the past twenty years, despite the fact that in places like the United States and most European countries – and even in some developing countries – the policy of aggressive urbanization which characterized the 20th century is now being reconsidered in favor of a more environmentally-friendly approach. Sergo Buighlishvili, a consultant and project manager at Olympic Star, expressed certainty that the time has come for people in Georgia to recognize the importance of landscape design and ecology.

Source: Nina Akhmeteli, Georgia Today, Issue # 344

 

BUDGET IN BRIEF

20.02.2007

 

The manual describes how the budget assists government in implementation of the state policy and priorities, how the main economic document of the country is created, what is the budget process, self-government units and their budgets, what sums are attracted and spent by the state for achievement of the goals, how the budget for medium term is prepared, what is deficit and state debt. It gives the definition of different important terms.

      The brief guideline of the budget includes the actual data of the current year state budget, namely, total revenues of the state budget, budget revenues according to the sources, total expenditures of the budget and etc.

      The manual is created is created in two languages, Georgian and English. It will add transparency to the State Budget Law and increase public trust towards the government. 2007 State Budget in brief was first published in October 2006 by the Ministry of Finance together with primary data of the state budget. It was distributed in the legislative and executive branches of the government, media, international financial organizations and business circles.

 

Ministry of Finance with assistance of US treasury created budget in brief for 2007-2010 State Budget. The aim of this manual is to give the general idea to the citizens and all the interested persons on the priorities of the government of Georgia for 2007-2010 and the planned activities, assist in easier understanding of the State Budget.

 

Source: Ministry of Finance of Georgia

 

SONY ERICSSON ENTERS GEORGIAN MARKET

 

23.02.2007

 

On February 20, the Georgian company Ultra Technics, a representative of the American company Ultra Media, declared that it would be cooperating with Sony Ericsson, known for producing mobile phones, accessories and additional devices including the Bluetooth Car Handsfree garniture, the Bluetooth Speakerphone for cars, and the Bluetooth Headset and PC-card. This means that Sony Ericsson has officially entered the Georgian market

 

Source: Maka Lomadze, Georgia Today, Issue # 345

 

 

FITCH RATES VTB BANK GEORGIA IDR ‘B’; OUTLOOK STABLE

 

23.02.2007

Fitch Ratings has today assigned JSC VTB Bank (Georgia) (“VTB Georgia”) ratings of Issuer Default (“IDR”) ‘B’ with a Stable Outlook, Short-term ‘B’, Individual ‘D/E’ and Support ‘4’.

The bank’s IDR, Short-term and Support ratings are underpinned by possible support from the bank’s majority shareholder JSC Vneshtorgbank (“VTB”; IDR ‘BBB+’), Russia’s second-largest and state-controlled bank. In Fitch’s opinion, VTB would have a strong propensity to support the bank, given its 53% ownership, shared brand and VTB Georgia’s small size (accounting for less then 1% of consolidated end-Q306 IFRS equity). However, potential Georgian country risks limit the extent to which this support can be factored into the ratings.

The bank’s Individual rating reflects its small size, limited, albeit growing, local franchise and potential political risks stemming from tensions in Russo-Georgian relations, although to date the latter has not created any serious issues for the bank. VTB Georgia’s liquidity is potentially vulnerable although the bank has not suffered any significant liquidity squeezes to date. Its capitalization is likely to become rather tight relative to (admittedly stringent) local regulatory requirements in 2007.

VTB Georgia’s asset quality is adequate, although the loan portfolio has been growing rapidly and problems could be revealed at a later stage, when the long-term portfolio seasons. Profitability is adequate and improved in 2005/9M06 on the back of greater business scale, increased leverage and growing micro-finance lending. However, profitability is likely to be constrained in the short- to medium-term by lower-margin corporate lending, a costly branch network and funding diversification efforts (including through retail term deposits).

Movement in the bank’s IDR, Short-term and Support ratings could most likely result from changes in Georgia’s country risk.

Upside potential for the Individual rating is currently limited, but could result from a substantial increase in the bank’s size and franchise without any deterioration of asset quality or capitalization. Substantial credit losses or heightened liquidity pressure from any further deterioration of Russo-Georgian relations could put downward pressure on the rating, although these scenarios are not considered likely at present.

VTB Georgia, formerly United Georgian Bank, has become one of the top three banks by assets in Georgia following VTB’s acquisition of a majority stake in January 2005. This was attributable to a growing local franchise and an USD 92m investment loan back-to-back financed by VTB as part of its strategy to serve customers across the CIS. At end-Q306 the back-to-back loan accounted for 41% and 36% of VTB Georgia’s loans and liabilities respectively, although it did not weigh on capitalization or breach single-borrower exposure regulatory limits due to the risk-free nature of the transaction for VTB Georgia.

Source: Georgia Today, Issue # 345

 

 

 

For more information on Georgia, visit BISNIS online at http://bisnis.doc.gov/bisnis/country/Georgia.cfm

 

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov).