Georgia Healthcare gets London IPO away

Pricing slashed as emerging market IPOs struggle; political in-fighting ‘threatens Georgia’s reform record’.

The deal was the third IPO from Georgia and the first from a non-financial company. Bank of Georgia listed in London in 2006, while TBC Bank followed suit in June last year. Georgia Healthcare Group (GHG) defied negative sentiment over its home market to price a $100 million initial public offering in London in November.

Nikoloz Gamkrelidze-160x186
Nikoloz Gamkrelidze, GHG
GHG is part of Bank of Georgia’s non-core holdings, which also include real estate and utility assets. The listing was a strategic move to crystallize value for the bank’s shareholders, as well as raise capital for the growth of the company, says Nikoloz Gamkrelidze, chief executive of GHG.

"Georgia’s healthcare sector is very young and underdeveloped but is growing rapidly, especially since the introduction of a new universal healthcare programme last year," he adds. GHG is the country’s largest healthcare group.

The IPO attracted interest from a diverse investor base, including existing Bank of Georgia shareholders, new regional accounts and sector specialists, according to Roger Barb, head of EMEA capital markets execution at global coordinator Citi.

Tough price

Nevertheless, it failed to meet pricing expectations, closing on November 9 at £1.70 a share, substantially below the original range of £2.15 to £3.15 set four weeks earlier. The deal size was also reduced. Bank of Georgia had intended to sell down part of its own stake in GHG in the transaction but opted for a primary-only listing following the price reset.

Bankers cite a tough market environment as the main reason for the price and size shortfall. As Barb notes, several other emerging market and smaller IPOs struggled in late autumn. Another casualty from emerging Europe was Citadele Banka. The Latvian lender, which had been targeting a €115 million listing in London and Riga, said on November 11 that the deal would be postponed due to "ongoing unfavourable market conditions".

Gamkrelidze says postponement was not considered for GHG, noting that the IPO was fully subscribed within the original price range. "We could have priced at the higher level but we preferred to take a lower pricing and keep our shareholders happy," he says. "We are in the market for the long term." Bank of Georgia plans to sell down the whole of its holding in GHG over the next four years.

Those involved in bringing GHG to market also reject suggestions that the process was affected by doubts about the attractiveness of Georgia as an investment destination. "There were very few concerns expressed over Georgia by investors and these were more out of ignorance than anxiety," says Barb. "It is a stable, market-friendly and business-friendly environment with a strong macro story." 

He adds that Citi saw minimal pushback from investors because of Georgia’s political situation, despite a spate of adverse headlines in October and November relating to apparent attempts by the government to take over a popular opposition-controlled television channel, a move that was condemned by the US State Department and the OSCE. 

Gamkrelidze agrees that the controversy had little effect on GHG’s listing. "There has been some negative news flow but when investors looked at it more closely they understood that it was just political noise and doesn’t affect the country fundamentals," he says. "At a macro level, Georgia remains strong despite regional tensions and economic weakness."

Investors are less convinced. Clemente Cappello, CEO of Caucasus and Central Asia specialist fund manager Sturgeon Capital, which participated in the IPO, says: "Bank of Georgia is a market darling and emerging market healthcare is a fashionable sector, so the GHG deal had a few tailwinds working in its favour. The Georgian macro story, however, was definitely a negative."

'Key concern'

He notes that threats to the independence of the central bank, which in July was stripped of its role as banking sector supervisor by Georgia’s parliament, are a "key concern" for foreign investors, while conflicts between the current Georgian Dream government and officials of the former administration of ousted president Mikheil Saakashvili have also made for an "unhealthy political environment". 

David Ostby, investment manager at East Capital, agrees that investor sentiment is "fairly negative" towards Georgia. "Under the previous government, Georgia had a strong track record of continuous improvement in terms of the institutional framework and the investment climate," he says. "That has now stalled. There has been little sign recently of appetite for either structural reforms or increasing market liquidity."

He adds that the current government, led by prime minister Irakli Garibashvili, is seen as weak and passive. Garibashvili, who is 33, has led Georgian Dream since November 2013, when he was appointed as successor to the party’s founder Bidzina Ivanishvili. It is widely believed that Ivanishvili, a billionaire who made his fortune in Russia, is still the leading political force in Georgia.

Ostby notes that, while Georgia is still ahead of most of the former Soviet Union countries in terms of investment climate, the gap is narrowing. "Not a lot of foreign capital is going into Georgia at the moment," he says. 

While progress on reform may have stalled, however, Cappello notes that most of the initiatives undertaken by the previous government have been maintained, at least in the economic sphere, and Georgia is still a functioning democracy. "Compared to some countries in the region, that is an achievement," he says.