TBC Bank (TBCGLN), the largest lender in Georgia, expects to price its debut eurobond today. The bank is looking to issue a US$300mn 5-year security in 144A/RegS format, after an extensive roadshow. The IPT is 'low 6%s'. Assuming this means the bond could yield 6.125% to 6.375%, the guidance equates to 5Y US$ MS+425-450bp (approx.).
Bank of Georgia (GEBGG) is clearly the closest comparable issuer. We have a Buy recommendation on the Bank of Georgia GEL and US$-denominated senior bonds, and a Hold on the GEBGG 11.125% Perp. Looking at the fundamentals, it is not clear that there is a very significant difference between the lenders. Bank of Georgia’s net interest margin is slightly lower but both banks have efficiency ratios below 40% and both generate ROEs of over 20%. The banks are almost the same size (based on total assets) and the loans/deposit ratio of both lenders exceeds 100% (this ratio is higher at Bank of Georgia though). The NPL ratios reported by GEBGG and TBCGLN were the same at the end of March. Capital ratios were higher at TBC Bank at end Q1 19, but that was before Bank of Georgia included its US$100mn AT1 security in capital. The GEBGG Perp is expected to add over 2ppts to CAR.
One key differentiating factor for Bank of Georgia is its bond market track record. While TBC Bank appears to be quite well known in the equity market, as this is a debut eurobond issue, credit investors may have been meeting the bank for the first time on the roadshow (though we note that TBC Bank does have loans outstanding on Bloomberg). Another factor which has come up in our discussions is management changes at TBC Bank, which generated headlines earlier in the year, and led to a drop in the bank's share price. We note that: (a) new management has since been appointed; and (b) the stock has recovered from the February 2019 lows. The changes do not appear to have had a negative impact on the bank's ratings.
Turning back to valuations, in Table 1 we present some potential comps for the new TBC Bank bond. Bank of Georgia's track record means TBC Bank should probably trade wider, though maybe not as wide as the current price guidance suggests. The IPT places TBC Bank much tighter than Georgia Capital (GEOCAP), which owns almost 20% of Bank of Georgia. GEOCAP is clearly very different from a regulated bank, and is rated single-B at Moody's and S&P. As such, TBC Bank should probably not price as wide as GEOCAP currently trades. It may be interesting to some that the GEOCAP bond was priced to yield 6.375% in March 2018.