Bank of Georgia (BGEO LI) and its subsidiary Galt & Taggart Securities are committed to providing our clients and investors with the most up-to-date and unbiased version of news available on the conflict in Southern Ossetia. Below is a brief look at what has happened of over the weekend.
We expect investor calls to continue this week and we will make sure that every call is answered. We will continue issuing statements on daily basis. On Monday we will also arrange a conference call with an independent political analyst to give investors clear view of what is happening.
Events of 10 August:
Fighting continued in South Ossetia through the weekend
Russians continue to build up in the region and now have about 300 tanks and over 10,000 troops in South Ossetia
In the morning on Sunday the Georgian government announced a pullout from the region and called for ceasefire, which Russia declined. (Russia later confirmed that Georgian troops had left South Ossetia)
Early in the morning on August 10, the Russian air force bombed the airfield of TbilAviaMsheni, a Georgian aviation repair plant located near Tbilisi
On August 10-11 the Russian airforce also dropped bombs on several military and infrastructure targets in Gori, a Georgian town near South Ossetia, as well as the towns of Senaki, Zugdidi and Poti located in Western Georgia .
The Russian air force also began bombing raids in the Kodori Gorge, a small mountainous region in Abkhazia, currently controlled by Georgian forces
Abkhazian and Russian troops have also moved to the Georgian-Abkhazian border near the Georgian town of Zugdidi
The Russian Black Sea fleet blockaded Georgia’s Black Sea ports, although later at the evening pulled out its vessels.
This morning the fighting and the bombing look to have subsided after Georgia satisfied Russian preconditions for a ceasefire pulling troops out of South Ossetia and allowing Russian troops to patrol Zugdidi region jointly with the UN forces
Intense international pressure from the US, EU, France, Poland and several other European countries has also played a significant role in slowing down Russian hostilities against Georgia
Georgian Television has been constantly covering very active diplomatic process with a peace plan proposed by the French President Nicolas Sarkozy at the center of attention
Bank of Georgia:
Of Bank of Georgia’s 142 branches only 6 have been affected
Gori, Poti and Zugdidi branches were closed for security reasons
A branch office in Senaki (Western Georgia) was slightly damaged during the bombing of a Georgian base in that town yesterday
Bank of Georgia is cooperating closely with other banks, the National Bank of Georgia (NBG) and Financial Monitoring Service (FMS) of Georgia to make sure that banking system is operating in usual manner
Yesterday FMS issued an instruction, which restricts banks from issuing any kind of loan to clients until August 18 2008. The decree also advises banks to temporarily disable access to internet banking as a precautionary security measure
The NBG assured banks that it will provide additional financial resource for the system so that the banks are able to meet large withdrawals, which may happen.
As of 2 PM, all commercial banks are operating business as usual, Bank of Georgia observes no unusual withdrawals or client activity
Bank of Georgia reports that NBG, FSM and entire banking community is acting in a very organized and focused fashion
Bank of Georgia share price was slightly up in London trading today to $12.5 which translates in 2008F P/B of 0.7 and 2008F P/E of just above 5
International involvement:
International involvement is intensifying
The US, UK, France, EU, NATO, OSCD and a number of European countries (especially Eastern Europeans) have condemned Russian actions and are calling for immediate ceasefire
Nicolas Sarkozy proposed a peace plan which is being discussed
Ukraine has sent a special delegation to Tbilisi and Ukrainian President Viktor Yushchenko has been very active rallying support to end the conflict. (Ukraine has said it will not allow the Russian Naval vessels participating in the blockade of Georgia to return to its Crimean ports)
We expect ceasefire in the next day or two
All 27 EU Foreign Ministers are scheduled to meet in Brussels early this week to formally issue a statement calling for an immediate cease fire.
Mood on the Ground:
In Tbilisi all shops and restaurants are operating as usual
There have been no scenes of panic or of mass hording of staple goods and supplies
Some flights by international carriers have been canceled but Tbilisi International Airport is still open and Georgian Airways, and several regional carriers are still offering flights to and from the capital.
Utility supplies in the capital have not been interrupted
Several foreign embassies have set up evacuation services for foreigners to nearby Armenia
Economic impact so far:
The loss to the economy is minimal. Here is what was damaged as the result of the conflict:
Civilian infrastructure in South Ossetia – this has not been part of Georgian economy for last 16 years
5-6 military airports – relatively light damage. Also one or two radar stations
Light damage to couple of military bases
One terminal at Poti port (probably most painful, but definitely not critical)
Some elements of telecom infrastructure (mostly mobile towers in and near South Ossetia)
S&P and Fitch cut Georgia’s credit ratings by one notch to ‘B’ and ‘B+’, respectively. S&P also cut its rating on Bank of Georgia to ‘B from ‘B+’. Bond prices fell in reaction to these news
No damage to:
· Main roads
· Railway
· Tbilisi and Batumi international airports
· Utilities
· Any significant civilian buildings
· Banks
· Government buildings
· The damage is mostly to military installations.
The Statement of the World Bank
This morning the World Bank issued a statement in which it expressed its confidence in Georgia's strong economic fundamentals, including ample foreign reserves, prudent monetary and fiscal policy and wide ranging financial sector reforms that has lead to a strengthened banking sector that today is both liquid and solvent. According to the statement the International Financial Corporation, the World Bank's private sector arm, will stand by its 4 partner commercial banks and remain prepared to support them through these difficult times. World Bank believes, that the Georgian Government will continue to provide prudent economic management that has led the country to these strong fundamentals, and they look forward to supporting Georgia's reform agenda now and in the future.
The statement reads that “Over the years the World Bank has committed more than 1 billion USD to Georgia, and its outstanding commitments for existing operations currently stands at 135 million USD. Moreover, in recognition of Georgia's strong commitment to reforms, the World Bank is considering further lending in the amount of 300 – 350 million USD over the next 12 months to support Government's reform agenda and to help finance further rehabilitation of Georgia's critical infrastructure, including roads and municipal works.”
