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May 30, 2019
Fixed Income Securities in Georgia - Report Update 2018
Financial Market Reports
- The securities market in Georgia showed a substantial growth in 2018. The total stock of outstanding bonds grew 23% y-o-y to GEL 9,992mln in the same period. Corporate Eurobonds and Treasuries had the largest share in total bonds outstanding, accounting to 38% and 32% of total, respectively. Local corporate bond market represented 3%, the smallest share in the total bonds outstanding, and has largely untapped potential.
- Eurobonds and Georgian corporate GEL bond listed on foreign exchanges outstanding grew 20% y-o-y to GEL 5,586mln in 2018. Two Georgian corporates, Silknet and Bank of Georgia, have issued new Eurobonds so far in 2019, with par values of USD 200mln and USD 100mln respectively. Both bonds were oversubscribed by international investors, indicating an appetite for Georgian fixed income instruments.
- Treasuries displayed y-o-y growth of 23% reaching GEL 3,175mln, 7.7% of GDP in 2018, compared to 6.8% in 2017. High demand on Treasuries allows the government to decrease its reliance on foreign currency debt.
- Local bonds outstanding reached GEL 1,231mln, up by 40% y-o-y. Growth was driven by local corporates and IFIs, demonstrating 29% and 44% y-o-y growth, respectively. The stock of publicly issued and listed corporate and IFI bonds reached GEL 825mln in 2018, up 205% y-o-y. On the other hand, publicly issued unlisted bonds decreased by 33% y-o-y to GEL 406mln in 2018. Tax breaks on publicly listed securities incentivize corporates to publicly issued bonds, as well as increases the investor base.
- Even though the number of publicly listed corporate bonds has grown over the past year, the secondary market remains inactive, partly caused by the lack of alternative investment products. Additionally, most of the investor base is made up of held-to-maturity investors, which also hinders secondary trading.
- The pension fund is expected to increase institutional demand on local bonds from 2020. TBC Capital estimates the fund growing from GEL 506mln in 2019 to GEL 4bn in 2023. Considering the regulatory investment constraints, the fund’s investment in local bonds could gradually reach GEL 398mln by 2023. We believe that the pension fund will operate as one of the key drivers for new issues, as well as secondary market development.
- From September 2018, an international central securities depository – Clearstream started offering settlement, custody and asset servicing for selected Georgian corporate bonds. Presence of the international central securities depository will increase trustworthiness of the local market, widen access for foreign investors, and enable smooth secondary trading for listed issues. In March 2019, TBC Capital successfully settled the first Georgian corporate bond with an international institutional investor via the Clearstream link.
- The expected acts and amendments to the existing regulatory framework and legislation over the medium-term will increase investor confidence and create basis for new investment vehicles, which will significantly strengthen the Georgian securities market.