Transcript Trends in Emerging Market Financing and What This Means

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
Note: The increase in issuance volume is for period from Jan to Aug.
1
Emerging Market Debt Issuance Volume by Region
Geographic breakdowns have largely remained the same in 2010 vs 2011YTD
2010
2011YTD
Africa
3%
SE Asia
12%
Middle
East
11%
Middle East
7%
Latin
3-4Y
America
14%
29%
North Asia
5Y
17%
29%
Rusia, CIS
and
6-9Y
Other CEE
12%
28%
Total: US$308.8bn
Africa
4%
Lavender
SE Asia
12.5%
15%
North Asia
20%
Gold
12.5%
Latin
America
Orange
27%
12.5%
5Y
27%
Russia, CIS and
Other
CEE
Aqua
6-9Y
27%
12.5%
16%
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.
2
Emerging Market Debt Issuer Type Breakdown
Corporates still remain the largest issuers in the Emerging Market space
2010
Sovereign
28%
2011YTD
Corporate
41%
FIG
31%
Total: US$308.8bn
Sovereign
26%
Corporate
46%
FIG
28%
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.
3
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
4
Key Terms of the Issuance
Key Terms
Value
Issuer
Georgia
Ratings
Ba3 (stable) / B+ (positive) / B+ (positive)
Issue Format
144A / Reg S
Issue Size
US$500m
Pricing Date
07-Apr-2011
Maturity Date
12-Apr-2021
Coupon
6.875%
Price
98.233%
Yield
7.125%
Spread to Mid Swaps
346.4bps
Joint Lead Managers
Goldman Sachs, J.P.Morgan
Listing
London Stock Exchange
5
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…..”
“…they should be about 100bp over Ukraine…..”
“….interested in being anchor investor, but would
require more details…..”
“……the 7.75% is where I think it should be priced
(not a limit)......my order is still good at 7.5% or
lower……”
“…..we have met the ministry before and like the credit a
lot and would definitely place an order…..”
6
Secondary Trading Bond Levels from April 2011 – 2011 YTD
Issue
Rating
(Moody’s/S&P/Fitch)
Current
Yield
Georgia
Ba3 / B+ / B+
6.67%
Ukraine
B2 / B+ / B
7.95%
Serbia
NR / BB / BB-
6.84%
Source: Bloomberg, GS Internal
7
Key Investor Areas of Focus on Georgia
GDP
Resilient Banking Sector
 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)
Moderate Levels of Government Debt provide
Georgia with Financial Flexibility
Regional Energy Hub
 Gas supply contracts with Azerbaijan for 10 years and with Shah-Deniz for 20
years
Net Electricity Exporter
Net Exports
Source: IMF, NBG, MOF
1. IMF forecast
8