JUNE 2013 - FEAS

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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013GEORGIAN STOCK EXCHANGE2012 turned out to be the year of significantpolitical changes in Georgia.George LoladzeChairman of the Supervisory Board2012 turned out to be the year of significantpolitical changes in Georgia. In the programof the Georgian Dream - the parliamentaryelections winner coalition and respectvely inthe new Government’s plans important placeis devoted to further improvement of theinvestment environment and implementetion ofthe pension reform in the country. This providesgrounds for optimism and new momentum fordevelopment of the Georgian securities market.HISTORY AND DEVELOPMENTEquity securities first appeared in Georgia in1991 after the declaration of independencethat signaled the beginning of market-orientedreforms. A vast majority of the newly establishedjoint-stock companies were owned by a rathersmall number of private shareholders andtrading in these shares was relatively inactive.With the launching of the Mass PrivatizationProgram in 1994, approximately 1,300 stateownedenterprises were organized as jointstockcompanies, creating about half a millionindividual private shareholders. However, duringa five-year period (1994-1999), the lack of anappropriate legal framework and organizedmarket infrastructure seriously impeded thesecondary trading of these shares and anyover-the-counter market activity was nearlynonexistent.The Georgian Stock Exchange (GSE) wasfounded in 1999 by a group of Georgiansecurities market professionals, leading banks,investment and insurance companies. It is theonly organized securities market in Georgia.Designed and established with the assistanceof the United States Agency for InternationalDevelopment (USAID) and operating within thelegal framework of corporate and securitieslaws drafted with the assistance of Americanand German experts, the GSE can assert thatit is designed and operated to comply with“global best practices” and offers an attractiveinvestment environment to foreign investors.Official trading at the GSE began in March 2000.The number of companies admitted for tradingat the GSE trading system increased graduallyand by the end of 2004 reached 277. Practicallyall of these companies are former state ownedand operated companies transformed into jointstockcompanies and then privatized.2004, was a landmark year for the GSE, dueto the unprecedented increase in basic tradingfigures compared with previous years, reflectingthe overall revitalization of the economy in thewake of the “Rose Revolution” of 2003.In the end of November, 2006 Bank of Georgia(GSE:BOG), the company listed at the GSEsince 2001, concluded successful IPO at theLondon Stock Exchange Main Market andthrough issuance of GDRs raised circa US$ 160ml. The bank is the first Georgian company everand the second bank rom the CIS since 1999listed on the London Stock Exchange.In 2007 the remote trading system waspractically implemented at the GSE.In 2008 significant amendments were made inGeorgian legislation, GSE Charter and Rulesensuring GSE demutualization, stock-exchangemembership for various licensed financialinstitutions, including remote membership forrespective foreign entities. In August 2009 thedecision on GSE capital increase was takenby GSE General Meeting of Shareholderswith purpose of attraction of NASDAQ-OMXas a strategic partner. In May, 2010 the GSESupervisory Board took decision on introductionof the official stock exchange indicator - GSEindex (GSX). GSX is published on a daily basisat the GSE website.In November, 2010 the Georgian CentralSecurities Depository - the 99% subsidiary ofGSE - completed fundamental amendmentsto it self-regulation rules inspirited by intentionof one of the largest global custodians to startoperations in Georgia. In the end of 2010the National Bank of Georgia adopted newregulation according to which the procedureof public offering in Georgia of the securitiesadmitted for trading at the eligible foreignexchanges is dramatically simplified.In March 2011 an agreement was signedbetween GSE and Bloomberg, one of thelargest data vendors, regarding GSE real timeand end-of-day data dissemination.FUTURE OUTLOOKIn 2012 the Georgian Stock Exchange plans to:1. Make important changes in its trading systemand trading rules so as to increase the efficiencyof trading and increase the liquidity of themarket:• Further improve remote trading system forbrokerage companies;• Establish electronic links between stockexchange, central depository, brokeragecompanies, banks and securities registrars;• Introduce partially guaranteed trading ofsecurities.2. Launch a new web-site for the GSE, whichalong with traditional statistics will providecorporate reports database for the companieswho are admitted to the trading system.3. Finalize upgrade of the Georgian CentralSecurities Depository clearing and settlementsystem, thus increasing efficiency of operationsfor large institutional investors and globalcustodians.PAGE 44
FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013GEORGIAN STOCK EXCHANGECAPITAL MARKET DEVELOPMENTAND ECONOMIC OUTLOOKMark Griffiths, IMF Mission Chief for Georgiacommenting on 2013 economic outlook forGeorgia noted: “GDP growth could reach 6percent. This forecast is subject to risks. Onthe upside, there is the possibility of increasedtrade with Russia and of new sources of foreigninvestment. However, if the current uncertaintypersists or demand from trading partners falters,then growth could be lower. Strong domesticpolicies and communication are needed toinstill confidence and to reassure markets thatthe new government is committed to prudentmacroeconomic policies and further enhancingGeorgia’s business-friendly environment.“Inflation has remained very low in 2012 dueto the earlier nominal appreciation of the lariagainst currencies of Georgia’s main tradingpartners, and declines in food prices overthe last 12 months. As the impact of thesetemporary factors wears off, the missionprojects that inflation will increase from -0.5percent in November to 4 percent by end-2013, and gradually move toward the mediumterm inflation objective of the National Bank ofGeorgia (NBG). The mission considers that themonetary policy stance, including the recent cutin official interest rates, is broadly appropriateand consistent with the projected rise ininflation.“The draft 2013 budget is socially oriented yetprudent. It increases social spending to protectthe most vulnerable, while continuing with thepath of fiscal consolidation. The fiscal deficit isprojected to decline to 2.8 percent of GDP in2013. This will facilitate external adjustment andcreate room for countercyclical fiscal policy.This is consistent with the medium-term strategyto bring the deficit down to about 1π percentof GDP by 2016 and should keep Georgia’sgovernment’s debt-to-GDP ratio on a firmdownward path.”As for the business climate in the country, thecountry has made remarkable strides overthe last few years—the World Bank’s DoingBusiness Index ranks Georgia as 9th in theworld, first in Eastern Europe and Central Asiaand first among lower middle-income countries.In the program of the Georgian Dream - the2012 parliamentary elections winner coalitionand respectvely in the new Government’splans important place is devoted to furtherimprovement of the investment environmentand implementetion of the pension reform inthe country. This provides grounds for optimismand new momentum for development of theGeorgian capital market.Key Information ContactsNational Bank of Georgia www.nbg.gov.geMinistry of Finance of Georgia www.mof.geGeorgian Central Securities Depository www.gcsd.geGeorgian Corporate Directors Association www.gcda.geCONTACT INFORMATIONContact Name Mr. George Loladze E-mail info@gse.ge Website www.gse.gePAGE 45
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JUNE 2013 - FEAS

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