Fitch Ratings says the recent announcement of BGEO Group PLC to demerge into a London-listed banking business and a London-listed investment business should be neutral for the ratings of Bank of Georgia (BoG, BB-/Stable/bb-) and its Georgia-based holding company JSC BGEO Group (BGEO, BB-/Stable/bb-).
Currently, BoG is 99.6%-owned by BGEO, which in turn is fully owned by UK-based holding BGEO Group PLC, which is listed on the London Stock Exchange. Fitch understands from management that BGEO will remain the holding company for Bank of Georgia following the demerger. However, BGEO will cease to be the holding company for the group’s investment business.
The demerger will not have a direct impact on BoG’s financial metrics, in Fitch’s view, as the investment business was already deconsolidated from BoG as a result of a legal restructuring in August 2015. Fitch also believes the refinancing risks of the bank will be manageable in case of a transfer of the USD350 million senior Eurobond from the BGEO level to the bank. The bond is equal to a significant 10% of the bank’s end-1Q17 liabilities, but USD150 million of the bond proceeds have already been on-lent by BGEO to BoG, and the bank maintains a sizeable liquidity cushion (at end-1Q17 equal to 19% of its liabilities). The details on how BGEO might transfer the Eurobond to BoG are unclear at present.
The direct impact on the financial profile of BGEO should be moderate, in Fitch’s view. The transaction will likely be accounted as an equity distribution for BGEO, but Fitch estimates that double leverage should not increase as a result and should remain below 120% in the medium term.
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