Strategy Note /

Georgia's politicians sign a fragile truce

  • Opposition leader release, Parliament boycott ends, general election if ruling party wins under 43% in October local one

  • Tourism drives 9% of GDP so fewer protests are positive but truce is fragile with October the next potential flash point

  • Contradiction: US$500mn 5y Eurobond 4x oversubscribed this month whereas bellwether stock Bank of Georgia down c10% ytd

Georgia's politicians sign a fragile truce
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
21 April 2021
Published byTellimer Research

The boycott of Parliament by the largest opposition party, the United National Movement, and protests should be coming to an end under the terms of a deal, brokered by the EU on 20 April, with the ruling Georgia Dream party. However, this truce is likely to be a fragile one because some members of the opposition wanted an immediate re-run of last October's election, and the underlying tensions with the government remain: growing authoritarianism, proximity to Russia, and close to 15% unemployment.

While the diffusion of protests should allow, Covid-19 permitting, for a recovery in tourism, which directly drives almost 10% of GDP. But the next flashpoint in politics is coming in October: a condition of the truce is that if the ruling party wins less than 43% of the vote in local elections then a general election will be called. Is the opposition likely to trust the results of that election anymore than last October's one?

There is a curious schizophrenia currently on display in capital markets. On the one hand, Georgia's first Eurobond for a decade was successfully issued on 15th April: the 5-year US$500mn was 4x over-subscribed and priced at a yield of 2.875%. On the other hand, the bellwether equity, Bank of Georgia, is down close to 10% year-to-date. It is valued on merely 0.8x forward PB (for 19% ROE) and forward PE of 4.8x.

Georgia Parliament after disputed 2020 election

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