2019 was a Record-breaking Year in Terms of new Eurobond Issuance

2019 delivered strong growth in the Georgian fixed income market at 40% Y-o-Y (34% excluding FX effect) backed by local corporate bonds and Eurobonds.

2019 was a record-breaking year in terms of new Eurobond issuances. Four new Eurobonds from Georgian corporates, including the first issuer from the non-financial sector – Silknet, increased the outstanding stock by 64% Y-o-Y to GEL 6.2bn.

Dual listed Eurobonds on the GSE increases the available securities on the local market but secondary market remains inactive and concentrated around few locally issued bonds due to the high minimum ticket size of USD 200,000 for the Eurobonds, as well as the majority of investors being hold-to-maturity type.

The corporate bond segment saw a 47% Y-o-Y growth. GEL denominated new issues surpassed USD denominated ones for the first time, due to a high willingness of corporates to hedge the FX risks.

The increased sovereign ratings tied together with the hike in the monetary policy rate by 2.5 p.p. in 2H2019, caused by increasing inflation, creates room for investors with an appetite in the region and positive outlook on the GEL and the inflation in the medium term.

The outstanding amount of treasuries is expected to hit a record high at GEL 5bn, up by GEL 1.2bn (32% Y-o-Y) in 2020, which is in line with the General Government Debt Management Strategy’s aim to reduce FX risks by increasing the share of domestic debt from 21% in 2019 to 35% in the long term.

The Pension Agency is expected to start investing in plain vanilla financial instruments and enter the treasury market in 1H2020, increasing already high bid-to-cover ratio on treasury securities.

The new legal groundwork for derivatives and netting will enable the creation of new instruments, facilitating the private sector to safely hedge their risks and make the Georgian financial market more diversified.

TBC Research