Several days ago National Bank of Georgia (NBG) released a special statement promulgating that corporate bonds are not insured by either Government or NBG guarantees.
Therefore, NBG warns the population to show caution when purchasing bonds. Issuance of corporate bonds started in 2014 and several companies have already issued similar securities. Therefore, the field specialists stage serious criticism over the mentioned statement. At this stage, corporate bonds have been issued by M2, JSC Nikora, Silknet and so on.
Corporate bonds are not insured by either government or NBG guarantees. Payment of the principal amount of an investment and interest rate depends on a company solvency. Moreover, financial instrument may lose market value partly or fully. Therefore, making investments in similar instruments is related to personal risks of investors and such decisions require corresponding caution and analysis», NBG statement reads.
Attracting financial resources through issuance of corporate bonds is a new instrument for Georgia-based major companies. There are many reasons for such a situation and the role of regulatory bodies is one of them, namely, their policy towards the capital market development.
Economic expert Akaki Chargeishvili says that the NBG statement hampers securities market development and the head of the parliament’s finance and budgeting committee was to react to the mentioned statement, which contains two inaccuracies: 1) NBG talks that corporate bonds are not insured by the Government and 2) the bonds are not guaranteed by NBG either. Similar interpretations aim at misinforming the society on behalf of financial interests of commercial banks on the free market.
«In reality, in the market environment, free economy, when private companies use one of the free market instruments, be it a privileged share or bond, this signifies that everything depends on the company’s private obligation. It is not correct when the regulator tells the consumer in advance that these securities are not guaranteed by either government or the national bank. This signifies that interested bodies should not buy similar bonds at all and the securities market will not be developed», Chargeishvili said.
NBG should be called to account for this statement. Today, banking monopoly has occupied the Authorities and parliamentary control does not exist either, he said.
The NBG statement was also criticized by Gogi Loladze, founder of Caucasus Capital brokerage company and the former head of the stock exchange supervisory board. Each word in the statement complies with the legislation, however, the fact is that intensification of similar statements raises many questions, even more so we have not heard similar warnings for commercial banks’ depositors, Loladze said.
«We have market economy and a company is responsible for any obligation they take. The information that is required for public offer should be supplied to a wide society in line with the legislation – through an issuance prospectus. NBG proves an issuance of prospectus and its correspondence to the legislation. Therefore, content of this statement is correct, however, NBG is, first of all, to regulate commercial banks and we have not heard the same warnings for millions of depositors. Nobody has said that deposits (at commercial banks) are not insured by the Government and NBG», Loladze noted and pointed to the asymmetric position that NBG demonstrates in relation to various sectors of financial field.
«Discriminating attitude is demonstrated towards the securities market and this is a big error. Today, there are only several hundreds of citizens interested in purchasing bonds, while we have millions of depositors in the country, while statements are directed towards those potential or active investors, who have applied different mechanism – securities market. Therefore, this fact raises a lot of questions», Loladze noted and explained that the banking sector and securities market are competitor fields as two alternative sources for attracting financial resources to the business.
Therefore, the logics is that the banking sector is not interested in securities market development. Georgia’s main stock exchange infrastructure entirely belongs to the banking system and the field cannot be developed, when it is controlled by the competitor sector, he pointed out.
The Caucasus Capital founder also talks about legislative gaps, but notes that today only the banking sector representatives are prioritized and the so-called strategy approved by NBG and Government are designed for development of only the banking sector instruments.
«First of all, we should note that the securities regulator is subjected to the National Bank, while NBG regulates almost the whole finance sector. Small market players are exceptions and NBG avoids the responsibility to control them. At the same time, NBG carries out active control and issues corresponding resolutions for the securities market regulation to hamper a development of the banking sector’s competitor. All these tendencies are expressed in a lot of samples, including, over the past period NBG has released several statements to urge population to abstain from buying corporate bonds, under the pretext they are not insured by either Government or NBG. Similar statements signify that NBG and the Government are not interested in the securities market development. However, investors know very well that unlike state securities, corporate bonds bear high risks and when the regulator urges the investor to abstain from purchasing similar securities, this signifies the corporate securities market development is artificially hindered. Therefore, it is surprising how the Government plans to reform the capital market, when, to this end, it is of fundamental importance to raise the interest of as many investors as possible so as they buy shares of successful Georgian companies or issue shares at the Georgian stock exchange themselves», Shota Gulbani, president of Association of Young Financiers and Businessmen (AYFB) noted.
Over the past period, only several issuances were carried out on Georgian corporate bonds market, mostly by BGEO Group companies. Successful placement of these bonds is carried out by JSC Galt&Taggart, a 100% subsidiary of Bank of Georgia holding company (BGEO). Nikora Trade is an exception that is not related to major banking group.
Note that Galt&Taggart owns about 90% ratio of brokerage market on the Georgian stock exchange and almost all major placements at the stock exchange is carried out by this company.
Today, only one brokerage company operates in Georgia that is not a subsidiary of any commercial bank. This signifies that commercial banks control all alternative sources for attracting capital. Therefore, similar situation cannot ensure competitive environment, while the Government has promulgated to develop the capital market. And in this situation NBG releases negative statements around corporate bonds. As a result, the capital market development is frustrated.