JUNE 2013 - FEAS

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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013 GEORGIAN STOCK EXCHANGE 2012 turned out to be the year of significant political changes in Georgia. George Loladze Chairman of the Supervisory Board 2012 turned out to be the year of significant political changes in Georgia. In the program of the Georgian Dream - the parliamentary elections winner coalition and respectively in the new Government’s plans important place is devoted to further improvement of the investment environment and implementation of the pension reform in the country. This provides grounds for optimism and new momentum for development of the Georgian securities market. HISTORY AND DEVELOPMENT Equity securities first appeared in Georgia in 1991 after the declaration of independence that signaled the beginning of market-oriented reforms. A vast majority of the newly established joint-stock companies were owned by a rather small number of private shareholders and trading in these shares was relatively inactive. With the launching of the Mass Privatization Program in 1994, approximately 1,300 stateowned enterprises were organized as jointstock companies, creating about half a million individual private shareholders. However, during a five-year period (1994-1999), the lack of an appropriate legal framework and organized market infrastructure seriously impeded the secondary trading of these shares and any over-the-counter market activity was nearly nonexistent. The Georgian Stock Exchange (GSE) was founded in 1999 by a group of Georgian securities market professionals, leading banks, investment and insurance companies. It is the only organized securities market in Georgia. Designed and established with the assistance of the United States Agency for International Development (USAID) and operating within the legal framework of corporate and securities laws drafted with the assistance of American and German experts, the GSE can assert that it is designed and operated to comply with “global best practices” and offers an attractive investment environment to foreign investors. Official trading at the GSE began in March 2000. The number of companies admitted for trading at the GSE trading system increased gradually and by the end of 2004 reached 277. Practically all of these companies are former state owned and operated companies transformed into jointstock companies and then privatized. 2004, was a landmark year for the GSE, due to the unprecedented increase in basic trading figures compared with previous years, reflecting the overall revitalization of the economy in the wake of the “Rose Revolution” of 2003. In the end of November, 2006 Bank of Georgia (GSE:BOG), the company listed at the GSE since 2001, concluded successful IPO at the London Stock Exchange Main Market and through issuance of GDRs raised circa US$ 160 ml. The bank is the first Georgian company ever and the second bank rom the CIS since 1999 listed on the London Stock Exchange. In 2007 the remote trading system was practically implemented at the GSE. In 2008 significant amendments were made in Georgian legislation, GSE Charter and Rules ensuring GSE demutualization, stock-exchange membership for various licensed financial institutions, including remote membership for respective foreign entities. In August 2009 the decision on GSE capital increase was taken by GSE General Meeting of Shareholders with purpose of attraction of NASDAQ-OMX as a strategic partner. In May, 2010 the GSE Supervisory Board took decision on introduction of the official stock exchange indicator - GSE index (GSX). GSX is published on a daily basis at the GSE website. In November, 2010 the Georgian Central Securities Depository - the 99% subsidiary of GSE - completed fundamental amendments to it self-regulation rules inspirited by intention of one of the largest global custodians to start operations in Georgia. In the end of 2010 the National Bank of Georgia adopted new regulation according to which the procedure of public offering in Georgia of the securities admitted for trading at the eligible foreign exchanges is dramatically simplified. In March 2011 an agreement was signed between GSE and Bloomberg, one of the largest data vendors, regarding GSE real time and end-of-day data dissemination. FUTURE OUTLOOK In 2012 the Georgian Stock Exchange plans to: 1. Make important changes in its trading system and trading rules so as to increase the efficiency of trading and increase the liquidity of the market: • Further improve remote trading system for brokerage companies; • Establish electronic links between stock exchange, central depository, brokerage companies, banks and securities registrars; • Introduce partially guaranteed trading of securities. 2. Launch a new web-site for the GSE, which along with traditional statistics will provide corporate reports database for the companies who are admitted to the trading system. 3. Finalize upgrade of the Georgian Central Securities Depository clearing and settlement system, thus increasing efficiency of operations for large institutional investors and global custodians. PAGE 44
FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013 GEORGIAN STOCK EXCHANGE CAPITAL MARKET DEVELOPMENT AND ECONOMIC OUTLOOK Mark Griffiths, IMF Mission Chief for Georgia commenting on 2013 economic outlook for Georgia noted: “GDP growth could reach 6 percent. This forecast is subject to risks. On the upside, there is the possibility of increased trade with Russia and of new sources of foreign investment. However, if the current uncertainty persists or demand from trading partners falters, then growth could be lower. Strong domestic policies and communication are needed to instill confidence and to reassure markets that the new government is committed to prudent macroeconomic policies and further enhancing Georgia’s business-friendly environment. “Inflation has remained very low in 2012 due to the earlier nominal appreciation of the lari against currencies of Georgia’s main trading partners, and declines in food prices over the last 12 months. As the impact of these temporary factors wears off, the mission projects that inflation will increase from -0.5 percent in November to 4 percent by end- 2013, and gradually move toward the medium term inflation objective of the National Bank of Georgia (NBG). The mission considers that the monetary policy stance, including the recent cut in official interest rates, is broadly appropriate and consistent with the projected rise in inflation. “The draft 2013 budget is socially oriented yet prudent. It increases social spending to protect the most vulnerable, while continuing with the path of fiscal consolidation. The fiscal deficit is projected to decline to 2.8 percent of GDP in 2013. This will facilitate external adjustment and create room for countercyclical fiscal policy. This is consistent with the medium-term strategy to bring the deficit down to about 1π percent of GDP by 2016 and should keep Georgia’s government’s debt-to-GDP ratio on a firm downward path.” As for the business climate in the country, the country has made remarkable strides over the last few years—the World Bank’s Doing Business Index ranks Georgia as 9th in the world, first in Eastern Europe and Central Asia and first among lower middle-income countries. In the program of the Georgian Dream - the 2012 parliamentary elections winner coalition and respectively in the new Government’s plans important place is devoted to further improvement of the investment environment and implementation of the pension reform in the country. This provides grounds for optimism and new momentum for development of the Georgian capital market. Key Information Contacts National Bank of Georgia www.nbg.gov.ge Ministry of Finance of Georgia www.mof.ge Georgian Central Securities Depository www.gcsd.ge Georgian Corporate Directors Association www.gcda.ge CONTACT INFORMATION Contact Name Mr. George Loladze E-mail info@gse.ge Website www.gse.ge PAGE 45
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