Georgia’s Growing Economy Prompts a Bank to Offer More
After expanding his hotel in Batumi, with help from Bank of Georgia, Nebi Shanidze now considers building a new one. © Giorgi Nakashidze/IFC
Rocky beaches, lush greenery, and balmy weather has made Georgia’s Black Sea resort of Batumi one of the most sought-after vacation destinations in the region. Fifty-year-old resident Nebi Shanidze watched the tourists descend, season after season, overwhelming the few budget and mid-market hotels. He then came out of retirement to launch a second career as a hotel owner.
In 2011, Shanidze approached longtime IFC partner Bank of Georgia, one of the country’s largest banking networks, for a loan for a budget hotel. The seven-year $500,000 financing Shanidze received is among the many loans that Bank of Georgia grants to local small and medium enterprises.
Although tourism and travel is one of Georgia’s fastest growing sectors and a key generator of jobs, there is a large gap between supply and demand for the budget and mid-market hotel segments. Shanidze’s hotel, Iberia, opened in 2012, and it was so successful that he’s already expanding. In 2016, he received another ten-year loan from Bank of Georgia to add additional guest rooms, a conference area for business events, and a restaurant.
As a result of Bank of Georgia’s support, “My income has almost doubled in recent years,” Shanidze says. “Without the loans provided by the bank, it would have taken years to make my plans a reality and finish the construction and renovation.”
A Changing Sector Inspires New Businesses
Batumi’s welcoming beaches have helped Georgia, a country of 3.7 million people, see steadily rising rates of international visitors. Since 2010, the total number of tourists more than tripled to reach over 6 million in 2016. These vacationers have altered the economy, contributing over 7 percent to Georgia’s GDP last year.
While Georgia has one of the most developed banking sectors in the region, bank lending is low, and access to financing remains one of the major obstacles to doing business. This threatens to constrain new ventures that want to participate in Georgia’s growing economy. To help expand Georgian entrepreneurs’ access to finance, IFC last year became the sole anchor investor when Bank of Georgia’s parent company, the BGEO Group, issued its first offshore dollar-denominated bonds sold to foreign institutional investors.
IFC made the bid to boost investors’ confidence and support BGEO to achieve optimal tenor, size, and pricing. The bond was oversubscribed and attracted $350 million from 90 institutional investors from the United States and Europe. A significant part of the bond proceeds was on-lent to Bank of Georgia.
That has laid the groundwork for another milestone. As the country tries to reduce its reliance on foreign currency, availability of financial resources in local currency remains a key challenge. To address this deficiency, in May 2017, Bank of Georgia issued its inaugural local-currency Eurobond, the first offshore local-currency bond issued by a Georgian company.
IFC, again as the sole anchor investor, announced its commitment to purchase up to 30 percent of the bank’s planned issuance early on, helping strengthen investors’ confidence. The issuance has attracted 500 million Georgian lari (approximately $207 million) from about 20 international investors.
The proceeds will allow the bank to provide much-needed long-term finance in local currency to more retail borrowers and small and medium businesses, like Shanidze’s hotel—helping businesses avoid currency-related risks and ultimately contributing to the development of a local-currency market.
Serving a Long-term Vision
As IFC helps Bank of Georgia issue offshore bonds with long-term maturity, we are also helping pave the way for more Georgian private issuers to tap international capital markets, diversify funding sources for local businesses, and contribute to economic growth.
Meanwhile, thanks to Nebi Shanidze’s loan from Bank of Georgia, his new hotel business is poised to take advantage of even more opportunities to meet pressing demand.
“The growing number of tourists visiting Georgia will help my business expand, along with valuable support from Bank of Georgia. If all goes well, I plan to take another loan in the future to build another hotel,” he says.
To learn more about IFC’s work with financial institutions, visit www.ifc.org/gfm
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Published in June 2017