Title: Bank of Georgia IPO
1Bank of Georgia IPO
Ukrainian Capital Markets Summit Kyiv, 25 - 26
June 2008
2Bank of Georgia Group
Key Facts
- Listed in London and Tbilisi
- London Stock Exchange BGEO
- Georgian Stock Exchange GEB
- The second CIS bank to have listed GDRs on the
LSE - MCap (LSE) circa US789mln at 17 June 2008
- Unique ownership structure (for a CIS banking
group) - Circa 85 institutionally owned
- 95 free float
- Five-person Board includes two shareholder
representatives and two independent directors - Rated by three rating agencies
- Standard Poors B/B Stable at the
Georgian sovereign ceiling - Fitch Ratings B/B Stable
- Moodys B3/NP (FC) Ba1/NP (LC)
- Good access to debt funding
- Issuer of the first-ever Eurobonds in Georgia
- Bloomberg BKGEO, 5 year, 9, US200 mln
- B/Ba2/B (composite BB-)
- US458.8 mln of debt funding raised in 2007
- US131.0 mln of debt funding raised YTD in 2008,
including US110 mln Loan Passthrough Notes
issued in June 2008 (Bloomberg BKGORG)
- The largest bank in Georgia with an approximately
33.7 market share by assets as at 31 March 2008 - Total Assets exceeding US2,133 mln as at 31
March 2008 - Total Assets y-o-y growth of 93
- Highly profitable
- Net Income of US21.6 mln in Q1 2008, up 133.6
y-o-y 2007 Net Income of US47.5, up 183 y-o-y - Annualised ROAE 19.6, annualised ROAA, 4.2
- Well-capitalized
- Shareholders Equity of US506 mln as at 31 March
2008 - Strong, internationally experienced management
team - 25 senior professionals with Western background
- Georgian, Ukrainian, Russian, Israeli, US and UK
citizens - Chairman ex-ABN AMRO and Vice Chairman ex-Citi
- Entrance into Ukrainian and Belarusian markets
- Acquired a 98.77 equity interest in Universal
Bank of Development Partnership, medium-sized
bank in Ukraine Total assets of US173 mln as at
31 March 2008 - Acquired a 70 equity interest in Belarusky
Narodny Bank Total assets of US48 mln as at 31
March 2008 - Selectively considering other regional expansion
opportunities
3Bank of Georgia Pre-IPO Timeline
4Choice of domicile and listing
- Listing decision
- Bank of Georgia maintained an existing listing on
the Georgian Stock Exchange - The stock markets illiquidity meant that the
local market capitalisation was not a fair
valuation - An international listing on a recognised stock
exchange would improve liquidity and valuation - Initially, Bank of Georgia considered a listing
on London AIM - Bank of Georgias financial track record meant a
GDR listing on the London Stock Exchange was
possible - A main board listing was more in tune with Bank
of Georgias quality story - London is the home market for CIS issuers
- Georgian legislation regarding nominal versus
beneficial share ownership provided a challenge
to this listing option - Managed to devise transaction structure to enable
GDR issuance - Domicile
- Bank of Georgia initially planned to domicile
offshore, this would require a flip-up of local
shareholders to new offshore entity - The existing share listing, and treatment of
existing retail shareholders, meant that this
would prove difficult to achieve inside the short
transaction timetable - ING advised the Bank to pursue a dual listing
instead, the most equitable solution for existing
shareholders - Listing of local shares on Georgian Stock
Exchange - Listing of GDRs on the London Stock Exchange
- Challenge to obtain premium to existing local
market capitalisation - Offering presented as a de facto IPO
5Transaction Highlights
- The first ever international IPO of a Georgian
company - Use of proceeds to fund growth and new
acquisition in Ukraine - Investors like new money story in light of
recent spate of all secondary share IPOs - 84 of the deal is primary shares
- 5x oversubscribed, high investor demand for CIS
banking stories - Very high quality granular order book bids
received from 103 accounts - Investors keen for access to Georgian
macro-economic story, growth potential - Bank of Georgia unique among peers on account of
diversified international shareholder base and
high free float - 95 free float post-IPO
- Prices at premium to EMEA peers, 3.7x P/BV
pre-money valuation - Subscription levels allowed for price range to be
increased on final day of bookbuilding, IPO
prices above range - The third CIS company ever to achieve this
- Political tension between Russia and Georgia not
problematic for specialist GEM investors - Currently (17-June-08) trading at 1.6x P/BV
6Deal Summary
Offering date
Deal size
Listing
- 84 primary / 16 secondary
Primary / secondary shares
Initial price range
Final price range
IPO price
- US650m, 5x transaction size
Demand at US18.00
Freefloat
- US18.10, up 0.6 on IPO price
Share price close 24 November
7Pricing challenges existing local share price
- Pre-IPO, Bank of Georgias domestic share listing
traded at significant discount to EMEA peers due
to illiquidity - Marketing challenge to convince investors to pay
premium to domestic price - Bank of Georgias issues 400k local shares at
US12.5 in October 2006, one month prior to
launch - Risk that a price precedent for the IPO has been
set - ING presents Bank of Georgia as a de facto IPO
to differentiate from underlying Georgian
listing - IPO prices at US18.00, a 30 premium to
prevailing local market price - Several institutions holding underlying local
shares pre-IPO, and who bought in October local
share issue, subscribed to the London GDR at IPO
price
Historic share price and Bank of Georgia local
equity issues
8Advisers
Selling Agent
Global Co-ordinator/Bookrunner and Lead Manager
Co-lead manager
Legal advisor to bank of Georgia on Georgian law
Depositary Bank
Auditors to Bank of Georgia
Transaction counsel and legal advisor to Bank of
Georgia on English law
Underwriters and depositarys counsel
Public Relations
9Documentation
- Sending the Bank of Georgia message
- Prospectus
- Company research
- Country research
- Roadshow presentation
- Website
10Roadshow meetings
Roadshow schedule 16 to 23 November 2006
6 days, 75 accounts visited
London Lado Gurgenidze, Chairman Nick
Enukidze, Vice-chairman Irakli Gilauri,
CEO Macca Ekizashvili, Head of IR
Roadshow team
11Demand build-up
Headline demand US653m Total number of orders
103 Average order
size US6.3m
12Demand curve
At revised price range US17.00 to US19.00
(initial range US15.00 to US17.50)
13Valuation evolution building up to the IPO price
May 2006
November 2006
ING incentive fee agreed target valuation
thresholds
14Demand
Geographic demand
Investor type demand
- Wide geographic spread of investor demand
- UK investors, as expected, dominate the book with
over 57 of demand - Key Swedish and German accounts contribute less
demand than is typical as many are majority
shareholders pre-IPO - Russian accounts participate despite geopolitical
situation - One large inflated order received from Italy
- 103 accounts place orders in the book
- 85 of investors visited on roadshow place an
order (Hit Rate) - Core of demand is from Global Emerging Market
investors (GEMs) - Speculative orders from hedge funds late in the
bookbuild
15Allocation Strategy
- Biggest is not always best
- Allocation to quality accounts requires deep
understanding of investor base - Danger of inflation of orders
- Quality of investor demand comes under tension
when revising a price range
- Top investors
- Allocated 100k GDRs
11 drop-off in quality demand following price
range revision
16Aftermarket stabilisation
Volatile first morning trading following shock
news flow, share price soon recovers
- Friday 24 November 08.28am one-line press
statement announces explosion on Russian gas
pipeline into Georgia - Friday 24 November 08.56am more detail released
from Russian newswire on pipeline explosion, gas
supply is suspended - Friday 24 November 09.00am share price opens
down 14 on IPO price at US15.50, pipeline
newsflow deemed root cause - Friday 24 November 10.17am Georgias Minister
for Energy announces that gas supply is
unaffected by explosion - Share price recovers, later emerges that US15.50
open is due to fat finger error - a broker away
from ING inputs incorrect opening offer price - In spite of negative morning news flow, just 18
of IPO traded on first day indicative of high
quality placement. KKB traded 26 in its first
day - 15 Greenshoe option exercised in full on 30
November, share price trading comfortably above
IPO price up 9 at US19.70
17Bank of Georgia maiden U.S. roadshow schedule
3-day post-IPO roadshow in the US after 40-day
seasoning period
Timing
U.S. 40-day seasoning period
6-Nov
24-Nov
8-Jan
3-Jan
16-Nov
U.S. roadshow
IPO roadshow to Reg S institutional investors
IPO priced, trading commences
Research blackout ends, ING initiates coverage
distributing 1,200 reports globally
Over 1,000 research reports distributed
U.S. roadshow route
Bank of Georgia representatives Lado
Gurgenidze, Chairman of the Supervisory Board
18Post-IPO Relationship Building With The Sell-Side
Buyside Community
- Research coverage initiated by three houses so
far
- Executive Chairman management team have
committed significant time to non-deal roadshows
to incentivise and reward analyst coverage
19Post-IPO Share Price Performance
Bank of Georgia Price vs. Selected MSCI Indices,
2007 January 2008
Bank of Georgia Price vs. CIS Banks 2007
January 2008 Price Performance
Source Galt Taggart Securities
Bank of Georgia Price GDR Price Performance
Source Bloomberg
20Key Takeaways
- Good Performance momentum and market share gains
are essential part of the equity story - High degree of transparency and IFRS accounts are
critical, the presence of the IFI is not - A competent IR department with near-native
fluency in English and positive news flow
momentum is critical... - although a well-chosen corporate broker can
compensate for qualified personnel shortage - Well-run beauty contest and advisor selection are
critical get outside help if you have not done
this before - The preparation for the IPO will inevitably be
disruptive, so plan ahead - Carefully build and cultivate sell-side and
buy-side relationships