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FT Invest in Georgia Forum: Financial Investors in Georgia and the 2011 US$ Eurobond Issue

FT Invest in Georgia Forum: Financial Investors in Georgia and the 2011 US$ Eurobond Issue. Alex von Sponeck. Singapore, 04-Oct-2011. Emerging Market Debt Issuance Volume Overview – 2010 vs. 2011. Issuance volumes have increased by 4% compared to same period last year. Source: Dealogic

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FT Invest in Georgia Forum: Financial Investors in Georgia and the 2011 US$ Eurobond Issue

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  1. FT Invest in Georgia Forum: Financial Investors in Georgia and the 2011 US$ Eurobond Issue Alex von Sponeck Singapore, 04-Oct-2011

  2. Emerging Market Debt Issuance Volume Overview – 2010 vs. 2011 Issuance volumes have increased by 4% compared to same period last year Source: Dealogic Note: The increase in issuance volume is for period from Jan to Aug.

  3. 2010 2011YTD Emerging Market Debt Issuance Volume by Region Geographic breakdowns have largely remained the same in 2010 vs 2011YTD Africa4% Africa3% Middle East7% SE Asia12% Latin America27% Lavender 12.5% Latin America29% 3-4Y14% Orange 12.5% SE Asia15% Middle East11% 5Y27% North Asia20% North Asia17% Russia, CIS and Other CEE27% 5Y29% Aqua 12.5% Rusia, CIS and Other CEE28% 6-9Y12% Gold 12.5% 6-9Y16% Total: US$308.8bn Total: US$203.6bn • Source: Dealogic • Includes USD, CHF, GBP, EUR and JPY issuances greater than or equal to USD100m equivalent size. • 2011 YTD value as of 19-Sep -11.

  4. 2010 2011YTD Emerging Market Debt Issuer Type Breakdown Corporates still remain the largest issuers in the Emerging Market space Sovereign 26% Sovereign 28% Corporate41% Corporate46% FIG 28% FIG 31% Total: US$308.8bn Total: US$203.6bn • Source: Dealogic • Includes Emerging Market major and local currency Eurobond issuances greater than or equal to USD100m equivalent size. • 2011 YTD value as of 19-Sep -11.

  5. Transaction Highlights of the 2011 US$500m Georgia Sovereign Eurobond • Successful pricing of a new 10-year $500m Reg S / 144A benchmark transaction at 7.125% and in parallel redemption of $417m of its existing $500m 7.50% bond due 2013 through an “any and all” cash tender • The tender participation ratio of 83% was very high and the majority of existing investors took advantage of the opportunity to swap their exposures into the new 10-year benchmark offering • The issuance saw heavy demand and garnered a demand of over $2.66bn (5.3x oversubscription) from 149 accounts • The new 10-year offering priced 148bps inside of its existing bond due 2013, which traded at 494bps over swaps prior to the announcement of the tender • The transaction’s 357bps spread over the 10-year UST provided a 117bps improvement over Georgia’s shorter-dated $500 million 5-year offering issued in 2008, or a 37.5bps decrease in yield • The achieved pricing level was also materially inside of other similarly rated sovereign issuance from the region • The timing of the transaction benefited from very limited competing sovereign supply and strong market technicals • The offering took advantage of the current historically low UST yields • S&P’s and Fitch’s decisions to upgrade Georgia's credit rating outlooks to ‘positive’ from ‘negative’ in March helped highlight the country’s positive credit momentum ahead of the deal announcement

  6. Key Terms of the Issuance

  7. Investor Feedback Gathered During Roadshow • Summary of Investor Views from the Roadshow: • Strong demand for 10 year bonds in the market • Price guidance of close to 8% with majority of investors willing to continue with their orders if the pricing came in tighter • Strong recognition of Georgia credit story • Majority of investors even if they hadn’t made investment in Georgia in the past were closely following it • Awareness of the reforms made in the banking system and view of the banking sector being sound • Praise for the sound and good policy making • Appreciation of the Government for effective execution of the policies, including anti-corruption drive “….they should target 8% in terms of price guidance which should make them able to build a robust book and probably tighten the price to 7.75% which in my opinion should be a fair level given its rating peers and economic fundamentals…..” “……the 7.75% is where I think it should be priced (not a limit)......my order is still good at 7.5% or lower……” “…they should be about 100bp over Ukraine…..” “….interested in being anchor investor, but would require more details…..” “…..we have met the ministry before and like the credit a lot and would definitely place an order…..”

  8. Secondary Trading Bond Levels from April 2011 – 2011 YTD • Source: Bloomberg, GS Internal

  9. GDP Resilient Banking Sector Moderate Levels of Government Debt provide Georgia with Financial Flexibility Regional Energy Hub Key Investor Areas of Focus on Georgia • Georgia’s banking sector represents only a moderate contingent liability of the sovereign (Ratio of assets to Nominal GDP is 50.8% as of end - Dec-2010) • Well capitalised with average Basel I capital adequacy ratio of 24% (18% local standards) • Gas supply contracts with Azerbaijan for 10 years and with Shah-Deniz for 20 years Net Electricity Exporter Net Exports • Source: IMF, NBG, MOF • IMF forecast

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