The former Soviet republic of Georgia is not on many investors’ minds – yet. But Bank of Georgia, the country’s number one bank – and the only actively traded stock in the country – intends to reincorporate as a UK holding company and shift to a premium London Stock Exchange listing. That will replace the global depositary receipts that have traded in London since 2006 with ordinary shares, opening it to a much broader universe of investors.

The bank has much going for it. Bank of Georgia was one of the best performing stock among shares of banks from the former Soviet republics last year. Despite the interruptions of the 2008 conflict with Russia and the 2009 financial crisis, the bank has ridden the stronger economic growth and improving business climate thanks to liberal economic reforms since Georgia’s “Rose” revolution of 2003. In seven years, its market value has grown from $20m to $454m today; assets have increased ten-fold to $2.5bn.

Having already amassed 36 per cent of loans and 34 per cent of deposits market, Bank of Georgia’s scope for increasing its market shares further is likely to be limited. But the bank’s big selling point is that it is best-placed to exploit expansion of the still highly underdeveloped Georgian banking market. In other words, while its share of the pie may be hard-pressed to grow much more, the pie itself should get much bigger.

Total loans in the country are less than 30 per cent of gross domestic product, compared with a 50 per cent average across central and eastern Europe, and 100 per cent-plus in developed markets. Credit penetration is particularly low in retail banking. Housing and consumer debt account for only 4 per cent and 5 per cent of GDP, respectively.

But the bank has an additional attraction as a kind of proxy for the broader Georgian economy. Georgian GDP grew by 6.4 per cent last year, and 5.8 per cent in the first quarter of 2011, though full-year growth is forecast to slow a little to 5.5 per cent. Importantly, most of that growth is domestically-driven. Exports account for only 14 per cent of GDP – against two-thirds or more in, say, the Czech Republic or Hungary. That makes it, in theory, less vulnerable to a slowdown in export demand, and especially the German export machine with which central Europe’s economies are closely linked.

The recent markets sell-off and flight from risk, however, has left the bank looking cheap; its shares, at $14.50, are down by a third from their February peak. Its forecast 2011 price/book value of 0.97 times, on Bloomberg consensus estimates, is towards the lower end of the spectrum for CEE and former Soviet republic banks, but return on equity of about 20 per cent is towards the top. So if the premium listing goes ahead, come the fourth quarter it may well be worth investors having Bank of Georgia on their mind.

Related reading:
Groups from former Soviet Union eye London, FT
Liberal laboratory at Russia’s door, FT
Georgia: Property boom or bubble?, beyondbrics
Midnight train to Georgia: packed with oil, steaming ahead, beyondbrics

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