Georgian companies have started issuing securities. The companies lobbied by Bank of Georgia are very active in this direction – M2 development company, Georgian Water and Power.
Galt&Taggarts, a Bank of Georgia subsidiary, has placed bonds of the mentioned companies at the stock exchange. FINCA Bank has also issued bonds. The securities market development is of vital importance for drawing foreign investments, analysts assert. This process will steal another function from the National Bank of Georgia (NBG). Namely, securities regulatory functions will be handed over to an independent commission.
The current issuance of the company bonds mainly constitutes 20-20 million GEL. GWP has confined with only 6 million GEL bonds. Nominal value of each bond is 1 000 GEL and the maturity period is 2 years. The amount of the coupon is determined by adding a 7.5% margin to the NBG refinancing rate. Consequently, efficient cost of the bond currently makes up annual 15%. Prior to issuing the bonds, GWP obtained BB- rating from Fitch rating company to be more creditworthy in the market.
It should be noted, in March 2015, Fitch representatives met with representatives of Georgia’s 15 major companies. Under the final report over these meetings, Fitch made attractive proposals to the companies regarding the price of services. Naturally, the system reliability grows after Fitch adds positive ratings to bonds.
Hence, the securities market seems to be awakening, the growth paces, though, is low.
“Companies are cautious in this respect because of high risks, as their bonds may lose liquidity and become useless. At the same time, everything depends on whether investors are confident to buy securities”, Mikheil Tokmazishvili, the former member of the NBG board, noted.
The successful placement has already proved the existing confidence in companies, Archil Gachechiladze, head of the Galt&Taggart supervisory board, noted.
The securities market of Georgia is just taking the first steps and the year of 2016 will be more active in this respect, even more so the yield on foreign currency denominated deposits has declined and valuable and proper regulations will make the bonds more attractive, he said.
The market will be developed at high paces and Georgian companies will be accustomed to drawing investments by this instrument without waiting finance resources from commercial banks, economic expert Emzar Jgerenaia said.
“The finance market was stagnant because this instrument was not applied. We plan to implement the pension system reformation. Where will we direct this money amid the stagnant market? That’s why certain activities are discerned last period. All big companies should draw investments through issuing securities, besides drawing financial resources from commercial banks. Today the market is ready to buy bonds of any liquid company. At the same time, the T-bill purchase level should be low and the financial liabilities regulatory functions should be deprived from the NBG. I hope this process will end in the near future”, Emzar Jgerenaia noted.
The issue of separating the securities regulatory functions from the NBG is being discussed in active regime and the process is expected to end in 2016.
The securities market regulatory body has been substituted several times for the last 15 years. Under the Securities Market Law that was first adopted in 1998, the securities national commission of Georgia was formed (NSCG). In July 2007, the NSCG functions were delegated to the NBG as part of the consolidation of financial system regulations. In March 2008, excluding the bank supervision function, all other functions were transmitted to the financial supervision agency. In October 2009, the financial supervision functions were returned to the NBG again. In 2015 the mentioned function were split from the NBG and the financial supervision agency was established. The United National Movement (UNM) has staged criticism on the decision. The Free Democrats also backed these protests. They appealed against the decision to the Constitutional Court and the latter suspended the operation of the recently established agency. Thus, the NBG still maintains financial supervision functions.
At the same time, the NBG, the securities market regulator in Georgia, has not joined the International Organization of Securities Commissions (IOSCO). Moreover, Georgia has not joined the Multilateral Memorandum of Understanding for Consultations, Cooperation and Information Exchange (MMOU). Both factors add negative affects to the capital market development in Georgia, analysts assure.
Moreover, Georgia has to harmonize its legislation to the EU standards on securities and fulfill 22 instructions and regulations as part of the EU association agreement. Nor Georgia has adopted special law on securitization or mortgaged bonds. Specialists suggest the Authorities to fill the legislative gaps in the near future.
Many countries in the world draw capital through developing the securities market. Mikheil Tokmazishvili refers to the US sample.
“The US securities market is a well-developed segment that offers serious competition to commercial banks in terms of drawing investments. In Our country the 1990s showed certain signs of securities market development, but our society and companies turned out unready then”, Mikheil Tokmazishvili noted.
Various financial instruments are represented in the US market of securities that are issued by private sector, federal, state and local governments. The securities issued by the US federal Authorities dominate on the US market. Namely, in 2000-2012 treasury securities controlled more than 50% of total turnover in the US bonds market. The funds mobilized through treasury securities finance the US Federal Budget.