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Hualing Group: What Georgian Banking Sector Should Expect

Hualing Group has started active process of re registering Bank Republic. The group that had no experience in the banking business before Basisbank acquisition in 2012 has entered the Georgian bank sector.

Since Chinese investors have taken bold steps in the Georgian business sector, they need a commercial bank for transactions. We know that Turkish, Arab, Kazakh and Azerbaijani commercial banks also operate to serve investors from the mentioned countries, but these commercial banks are less known. However, Bank Republic is other dimension. This is one of the leading commercial banks and its disappearance from the bank sector will further narrow the competition environment.

Origins of Hualing Group 

Hualing Group entered the Georgian market in 2007 and at this stage the company has implemented 8 main investment projects and their total investment value is about 0.5 billion USD. Moreover, in 2014 Hualing Group was Georgia’s major foreign investor. Initially, the company bought a 20-year logging license in 2007 and environmentalists staged serious criticism against the company.

Two Chinese timber processing workshops operate in Kutaisi and the village of Lia, the Samegrelo Region. In Kutaisi, Hualing Group also owns furniture manufacturing plant. In 2012 the Chinese Group expanded business activities in Georgia. The investors bought a 20-year construction and facing stone mining license for extracting 2400000 cubic meters of raw materials. By the way, in 2009 Hualing Group purchased the territory of the former automobile building plant in Kutaisi and arranged stone and furniture plants on the mentioned territory.

Moreover, in 2012 Hualing Group bought a stake in Basisbank and currently, the Chinese Group holds a 99.8% stake. The deal was aimed at strengthening Basisbank for serving the ongoing and new projects and enhancing China-Georgia economic cooperation. The key function of Basisbank was to ensure money flows. In the same year of 2012, Hualing Group launched implementing its major investment project of Tbilisi Sea New City. Recently, on June 14, 2016, jointly with the government members, Tbilisi Sea Hospital was unveiled.

The multiprofile clinic has 100 places. The Chinese Group has also entered the healthcare sector. Moreover, on June 25 jointly with Prime Minister Giorgi Kvirikashvili, the company laid a foundation of a cement plant construction. LLC Black Sea Cement will manufacture 3500 tons of Clinker cement a year.

Why Bank Republic?

The mentioned projects have evidently demonstrated the objectives of Hualing Group in Georgia. Namely, the company plans to enhance business activities and cover absolutely all sectors in Georgia. It is clear that Hualing Group needed a commercial bank to serve so many projects. However, the question is why Hualing Group needed a major bank, even more so this group does not have experience in the banking sector.

Analysts hope that the Chinese group will not transform Bank Republic into a bank for only money flow and will not leave the monopolized bank sector in hands of four commercial banks.

«The Chinese company has bought a commercial bank. We can appraise this fact as a positive event, despite the Group does not have experience in bank management. This signifies Chinese businessmen will continue operation and will make serious investments in the Georgian bank sector. All foreign investors that bring big capital to Georgia try to have own commercial banks. Kazakhstan, Turkey follow this policy and naturally, China is taking the same efforts”, Mikheil Tokmazishvili, the former member of the national bank of Georgia (NBG) noted and added that Chinese investors seem to be going to make serious investments in Georgia.

The Chinese Group is expected to maintain the segment of Bank Republic and take active steps in the Georgian banking sector like all other fields, Tokmazishvili said.

«I do not expect the Chinese investors to change the segment of Bank Republic, which is a successful commercial bank. Therefore, they are expected to expand banking business and we should not expect serious threats in this direction», Tokmazishvili noted.

There is no accurate information about what Hualing Group represents in reality and their financial operations are unknown, professor David Aslanishvili said.

“When an investor buys a commercial bank, the Georgian legislation requires the company to have experience in banking business and professional management. At the same time, if the National Bank of Georgia (NBG) issues a permission, this signifies Hualing Group satisfies the due requirements”, Aslanishvili noted.

It is not ruled out either that Societe Generale wanted to withdraw from the market and the bank was seeking a buyer and the Chinese Group decided not to miss the opportunity, Aslanishvili added.

«Before this deal, successful commercial bank Basisbank was bought by one of the major Chinese company. Now the Chinese group has bought Bank Republic, member of Societe Generale, the world’s giant financial institutions and one of the major players in the bank sector. As a result of this deal, Societe Generale will withdraw from Georgia, in practice. This is negative result for the bank sector. The second big bank is about leaving the country, after HSBC bank. The contemporary finance-banking giants cannot find their niche here. Even German ProCredit Bank considerably narrows activities. Our country is disappearing from the Eurozone’s banking interest. The Chinese company remains, but it cannot actually replace those perspectives that were expected from the EU two giant banks», David Aslanishvili noted.

Giorgi Tsutskiridze, executive director of the Association of Banks, finds these statements exaggerated. On the contrary, competitive capacity will grow in the banking sector and this is very good for the consumer, he said.

«When two banks merge, the capital and assets grow. Therefore, it is natural that this process promotes healthy competition. This new configuration will only make benefits to the consumer», Tsutskiridze noted.

In the new Chinese bank that will be set up in several month Societe Generale will hold only 8%, the EBRD will control only 3.9% stake and the Chinese party will own 88.1%.

Hualing Group corporation was founded in the city of Urumci, China, in 1988. Key directions of the company activities are as follows: construction, leasing and management of shopping malls and wholesale markets, construction and management of the network of hotels, development of natural resources, energy and cattle-breeding projects. The corporation has also outlined new directions – healthcare and banking sector.