Bank of Georgia IPO

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Bank of Georgia IPO
Ukrainian Capital Markets Summit Kyiv, 25 - 26
June 2008
2
Bank of Georgia Group
Key Facts

• Listed in London and Tbilisi
• London Stock Exchange BGEO
• Georgian Stock Exchange GEB
• The second CIS bank to have listed GDRs on the
  LSE
• MCap (LSE) circa US789mln at 17 June 2008
• Unique ownership structure (for a CIS banking
  group)
• Circa 85 institutionally owned
• 95 free float
• Five-person Board includes two shareholder
  representatives and two independent directors
• Rated by three rating agencies
• Standard Poors B/B Stable at the
  Georgian sovereign ceiling
• Fitch Ratings B/B Stable
• Moodys B3/NP (FC) Ba1/NP (LC)
• Good access to debt funding
• Issuer of the first-ever Eurobonds in Georgia
• Bloomberg BKGEO, 5 year, 9, US200 mln
• B/Ba2/B (composite BB-)
• US458.8 mln of debt funding raised in 2007
• US131.0 mln of debt funding raised YTD in 2008,
  including US110 mln Loan Passthrough Notes
  issued in June 2008 (Bloomberg BKGORG)

• The largest bank in Georgia with an approximately
  33.7 market share by assets as at 31 March 2008
• Total Assets exceeding US2,133 mln as at 31
  March 2008
• Total Assets y-o-y growth of 93
• Highly profitable
• Net Income of US21.6 mln in Q1 2008, up 133.6
  y-o-y 2007 Net Income of US47.5, up 183 y-o-y
• Annualised ROAE 19.6, annualised ROAA, 4.2
• Well-capitalized
• Shareholders Equity of US506 mln as at 31 March
  2008
• Strong, internationally experienced management
  team
• 25 senior professionals with Western background
• Georgian, Ukrainian, Russian, Israeli, US and UK
  citizens
• Chairman ex-ABN AMRO and Vice Chairman ex-Citi
• Entrance into Ukrainian and Belarusian markets
• Acquired a 98.77 equity interest in Universal
  Bank of Development Partnership, medium-sized
  bank in Ukraine Total assets of US173 mln as at
  31 March 2008
• Acquired a 70 equity interest in Belarusky
  Narodny Bank Total assets of US48 mln as at 31
  March 2008
• Selectively considering other regional expansion
  opportunities

3
Bank of Georgia Pre-IPO Timeline
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Choice of domicile and listing

• Listing decision
• Bank of Georgia maintained an existing listing on
  the Georgian Stock Exchange
• The stock markets illiquidity meant that the
  local market capitalisation was not a fair
  valuation
• An international listing on a recognised stock
  exchange would improve liquidity and valuation
• Initially, Bank of Georgia considered a listing
  on London AIM
• Bank of Georgias financial track record meant a
  GDR listing on the London Stock Exchange was
  possible
• A main board listing was more in tune with Bank
  of Georgias quality story
• London is the home market for CIS issuers
• Georgian legislation regarding nominal versus
  beneficial share ownership provided a challenge
  to this listing option
• Managed to devise transaction structure to enable
  GDR issuance
• Domicile
• Bank of Georgia initially planned to domicile
  offshore, this would require a flip-up of local
  shareholders to new offshore entity
• The existing share listing, and treatment of
  existing retail shareholders, meant that this
  would prove difficult to achieve inside the short
  transaction timetable
• ING advised the Bank to pursue a dual listing
  instead, the most equitable solution for existing
  shareholders
• Listing of local shares on Georgian Stock
  Exchange
• Listing of GDRs on the London Stock Exchange
• Challenge to obtain premium to existing local
  market capitalisation
• Offering presented as a de facto IPO

5
Transaction Highlights

• The first ever international IPO of a Georgian
  company
• Use of proceeds to fund growth and new
  acquisition in Ukraine
• Investors like new money story in light of
  recent spate of all secondary share IPOs
• 84 of the deal is primary shares
• 5x oversubscribed, high investor demand for CIS
  banking stories
• Very high quality granular order book bids
  received from 103 accounts
• Investors keen for access to Georgian
  macro-economic story, growth potential
• Bank of Georgia unique among peers on account of
  diversified international shareholder base and
  high free float
• 95 free float post-IPO
• Prices at premium to EMEA peers, 3.7x P/BV
  pre-money valuation
• Subscription levels allowed for price range to be
  increased on final day of bookbuilding, IPO
  prices above range
• The third CIS company ever to achieve this
• Political tension between Russia and Georgia not
  problematic for specialist GEM investors
• Currently (17-June-08) trading at 1.6x P/BV

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Deal Summary

• 24 November 2006

Offering date

• US160m

Deal size

• London and Georgia

Listing

• 84 primary / 16 secondary

Primary / secondary shares

• US15.00 to US17.50

Initial price range

• US17.00 to US19.00

Final price range

• US18.00

IPO price

• US650m, 5x transaction size

Demand at US18.00

• 93

Freefloat

• US18.10, up 0.6 on IPO price

Share price close 24 November
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Pricing challenges existing local share price

• Pre-IPO, Bank of Georgias domestic share listing
  traded at significant discount to EMEA peers due
  to illiquidity
• Marketing challenge to convince investors to pay
  premium to domestic price
• Bank of Georgias issues 400k local shares at
  US12.5 in October 2006, one month prior to
  launch
• Risk that a price precedent for the IPO has been
  set
• ING presents Bank of Georgia as a de facto IPO
  to differentiate from underlying Georgian
  listing
• IPO prices at US18.00, a 30 premium to
  prevailing local market price
• Several institutions holding underlying local
  shares pre-IPO, and who bought in October local
  share issue, subscribed to the London GDR at IPO
  price

Historic share price and Bank of Georgia local
equity issues
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Advisers
Selling Agent
Global Co-ordinator/Bookrunner and Lead Manager
Co-lead manager
Legal advisor to bank of Georgia on Georgian law
Depositary Bank
Auditors to Bank of Georgia
Transaction counsel and legal advisor to Bank of
Georgia on English law
Underwriters and depositarys counsel
Public Relations
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Documentation

• Sending the Bank of Georgia message
• Prospectus
• Company research
• Country research
• Roadshow presentation
• Website

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Roadshow meetings
Roadshow schedule 16 to 23 November 2006
6 days, 75 accounts visited
London Lado Gurgenidze, Chairman Nick
Enukidze, Vice-chairman Irakli Gilauri,
CEO Macca Ekizashvili, Head of IR
Roadshow team
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Demand build-up
Headline demand US653m Total number of orders
103 Average order
size US6.3m
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Demand curve
At revised price range US17.00 to US19.00
(initial range US15.00 to US17.50)
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Valuation evolution building up to the IPO price
May 2006
November 2006
ING incentive fee agreed target valuation
thresholds
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Demand
Geographic demand
Investor type demand

• Wide geographic spread of investor demand
• UK investors, as expected, dominate the book with
  over 57 of demand
• Key Swedish and German accounts contribute less
  demand than is typical as many are majority
  shareholders pre-IPO
• Russian accounts participate despite geopolitical
  situation
• One large inflated order received from Italy

• 103 accounts place orders in the book
• 85 of investors visited on roadshow place an
  order (Hit Rate)
• Core of demand is from Global Emerging Market
  investors (GEMs)
• Speculative orders from hedge funds late in the
  bookbuild

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Allocation Strategy

• Biggest is not always best
• Allocation to quality accounts requires deep
  understanding of investor base
• Danger of inflation of orders
• Quality of investor demand comes under tension
  when revising a price range

• Top investors
• Allocated 100k GDRs

11 drop-off in quality demand following price
range revision
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Aftermarket stabilisation
Volatile first morning trading following shock
news flow, share price soon recovers

• Friday 24 November 08.28am one-line press
  statement announces explosion on Russian gas
  pipeline into Georgia
• Friday 24 November 08.56am more detail released
  from Russian newswire on pipeline explosion, gas
  supply is suspended
• Friday 24 November 09.00am share price opens
  down 14 on IPO price at US15.50, pipeline
  newsflow deemed root cause
• Friday 24 November 10.17am Georgias Minister
  for Energy announces that gas supply is
  unaffected by explosion
• Share price recovers, later emerges that US15.50
  open is due to fat finger error - a broker away
  from ING inputs incorrect opening offer price
• In spite of negative morning news flow, just 18
  of IPO traded on first day indicative of high
  quality placement. KKB traded 26 in its first
  day
• 15 Greenshoe option exercised in full on 30
  November, share price trading comfortably above
  IPO price up 9 at US19.70

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Bank of Georgia maiden U.S. roadshow schedule
3-day post-IPO roadshow in the US after 40-day
seasoning period
Timing
U.S. 40-day seasoning period
6-Nov
24-Nov
8-Jan
3-Jan
16-Nov
U.S. roadshow
IPO roadshow to Reg S institutional investors
IPO priced, trading commences
Research blackout ends, ING initiates coverage
distributing 1,200 reports globally
Over 1,000 research reports distributed
U.S. roadshow route
Bank of Georgia representatives Lado
Gurgenidze, Chairman of the Supervisory Board
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Post-IPO Relationship Building With The Sell-Side
Buyside Community

• Research coverage initiated by three houses so
  far

• Executive Chairman management team have
  committed significant time to non-deal roadshows
  to incentivise and reward analyst coverage

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Post-IPO Share Price Performance
Bank of Georgia Price vs. Selected MSCI Indices,
2007 January 2008
Bank of Georgia Price vs. CIS Banks 2007
January 2008 Price Performance
Source Galt Taggart Securities
Bank of Georgia Price GDR Price Performance
Source Bloomberg
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Key Takeaways

• Good Performance momentum and market share gains
  are essential part of the equity story
• High degree of transparency and IFRS accounts are
  critical, the presence of the IFI is not
• A competent IR department with near-native
  fluency in English and positive news flow
  momentum is critical...
• although a well-chosen corporate broker can
  compensate for qualified personnel shortage
• Well-run beauty contest and advisor selection are
  critical get outside help if you have not done
  this before
• The preparation for the IPO will inevitably be
  disruptive, so plan ahead
• Carefully build and cultivate sell-side and
  buy-side relationships