16 December 2011
Bank of Georgia (BGEO LI) announced yesterday it issued 1.50 mln new common shares as a part of an executive compensation plan. Management also said the EBRD and IFC confirmed plans to exchange their convertible subordinated loans to the bank into shares. Each creditor will receive 1.82 mln new shares for USD 25 mln as part of the deal, which will increase the total number of shares by a further 11% to 36.51 million. The EBRD and IFC committed not to dispose their interest in Bank of Georgia for a period of two years. In other news, the bank said holders of 74.9% of fully diluted shares expressed an interest or committed to participate in a tender offer to exchange their shares/GDRs in Bank of Georgia into stakes in a prospective holding company “Bank of Georgia Holdings” to be listed on the main board of the LSE. Vitaliy Vavryshchuk: The recent issuance of 1.5 mln new shares implies 4.8% dilution for existing shareholders while conversion of the EBRD and IFC subordinated debt into equity will have a negligible effect on the book per share value (USD 13.86/share based on end-1H11 equity). Notably, the EBRD and IFC usually prefer to provide debt financing to private companies and their decision to invest into bank’s equity shows they are strongly positive on the bank’s prospects. Conversion of subordinated debt into equity will increase the bank’s Tier 1 ratio (11.5% as of end-1H11, according to National Bank of Georgia standards) but will not affect total CAR (15.1% as of end-1H11). With Tier 1 capital well above the NBG required minimum of 8.0%, the bank has the potential to speed up its balance growth rate to show it can utilize the capital efficiently.