Georgian Co-Investment Fund CEO opens up about investing in Georgia

The Georgian Co-Investment Fund has witnessed major interest from international investors. Agenda.ge’s exclusive interview with the Fund’s CEO, George Bachiashvili.

Seeing the first investments "going public” is something George Bachiashvili, the Chief Executive Officer of Georgian Co-Investment Fund ("GCF”), a USD $6 billion private equity fund - equal to 40% of Georgia’s GDP - is looking forward to after the fund established five months ago.

While keeping the details of the investments confidential, the 28 year old, who was named on the Forbes 2014 '30 Under 30' list, revealed that over ten projects totalling USD $1.1 billion across a range of sectors were being considered for investment.

In a bid to explore Georgia’s investment potential and uncover the realities of Georgia’s private equity market at its infancy, Agenda.ge exclusively interviewed George Bachiashvili the CEO of the largest private equity fund in Georgia.

• Q: It has been a few months since the establishment of the Georgian Co-investment Fund. Does it justify the hopes and plans you had before?

A: It certainly does, as since the establishment of the Fund, we have received numerous project proposals across a range of investment sectors and have witnessed major interest from international investors. We are looking forward to our first investments going public.

• Q: How many projects have already started or are being discussed? Which type of projects are mostly promoted and in which sector? Could you name a project that you consider one of the best and why?

A: Currently, over ten projects across the range of sectors totaling USD $1.1 billion are being considered for investment. We are working closely with our partners and potential co-investors to go through the necessary due diligence and progress to the investment stage.

Our main investment sectors are energy and infrastructure, agriculture and logistics, hospitality and real estate and manufacturing. Due to confidentiality agreements, we cannot disclose specific information about the projects we are working on. At the same time, I would not necessarily point out one of them as the best since all the projects that get an approval from the Fund’s investment committee meet predefined and complex investment criteria which makes them best fit for our investors.

• Q: The Georgian Co-Investment Fund has attracted heavy weight investors including the UAE’s Abu Dhabi Group, RAKIA and Turkey’s Calik Holdings, plus a commitment of $1 billion from Bidzina Ivanishvili’s personal funds. Do you expect other investors from other countries, including the USA and EU, to invest in the fund?

A: At this point, it is our priority to source investment opportunities and deploy existing capital but it is something we could also consider. The Fund is in ongoing negotiations with numerous co-investors/partners for the specific projects.

The Fund was not marketed to US investors because our regulation only covers non-US investors. Although, we look forward to partnering with US and international companies and investors to co-invest on projects in Georgia, as relevant to both parties.

• Q: The fund aims to finance projects in energy, tourism, manufacturing, agriculture, and infrastructure. If there will be some other projects in other sectors, will you finance them?

George Bachiashvili: As you said, we are considering projects across energy and infrastructure (up to USD $3bn), hospitality and real estate (up to USD $1bn), agriculture and logistics (up to USD $0.5bn) and manufacturing (USD $1.5bn). But at the same time, despite the fact that we predefined our main investment sectors, we have also set aside around USD $500 million for the opportunities which may not necessarily fall into these categories but still can provide a compelling case for investment.

• Q: Since the launch of the Fund, there is much talk about whether Georgia’s relatively modest economy will be able to absorb such amount of capital. How would you respond to this argument?

A: Georgia is a fast growing and dynamic economy which still lacks significant foreign direct investments. This is where we come in – international investors have become much more savvy and are no longer restricted to just investing in mature economies; they are driven by returns and opportunity. We have been able to create a vehicle which enables them to profitably invest in an economy they are eager to support.

There is a number of sector-focused teams in the Fund, which are ring-fenced for industry-specific opportunities. We believe that by being an anchor and a solid local partner we will be able to attract investments into projects which would otherwise be impossible to finance. The scope and the nature of projects we are considering make us confident that the Georgian economy will be able to absorb such volumes. We should also note that the bigger projects will depend not only on Georgian but the region’s economy.

• Q: Moreover, analysts have concerns that if there are available funds, why won’t investors invest directly in Georgia’s economy and what is the advantage of directing investments through the Fund in this aspect? In particular, analysts are interested about whether the Fund will give any specific privilege to its investors?

A: It made sense to create the private equity structure to bring familiarity to global investors, while giving them the upside of the confidence that a major regional Fund will be investing alongside them, working towards a common objective – to grow businesses and deliver real value and return, which would in turn bring significant economic benefit for Georgia.

We looked at various possible co-investment vehicles and structures and we believe that a private equity structure best aligns the interests of investors, project promoters and potential partners, and the very positive feedback from potential investors we’ve had show that we made the right choice.

Talking about the privileges, GCF is a completely private entity, transparent and independent. We have set up a limited-partnership structure, in accordance with British law, to purposefully avoid any issues of conflict of interest. Its structure replicates other long-established PE businesses in the West. This was one of the major attractions for our Limited Partners.

• Q: What could be main obstacles for foreign investors investing in Georgia? And what is the advantage of partnering with the Fund for the investors?

A: Having seen significant improvements in the investment climate in Georgia, in my answer, I will focus more on the advantages as I don’t see major obstacles for international investors willing to invest in our country. Moreover, their eagerness to contribute to the GCF reinforces that the country and its economy are perceived as stable and attractive. The Government of Georgia has undertaken great strides to stabilize its political and economic systems; this is boosting investor confidence, increasingly making Georgia an attractive investment. Additionally, the recent peaceful transfer of power, as well as the World Bank’s projected growth figures for 2014 (5-6%), further reinforce investor confidence.

As for the advantages of the Fund, we provide investors with unique access to investment opportunities in the region’s fastest growing industries and sectors through a private equity structure. Also, having prominent members of the international and domestic investment communities, including sovereign wealth funds, major global corporations and private family offices as our investors make us an attractive and reliable partner to potential investors; at the same time, one of the Fund’s main objectives is to provide investors with high returns. Last but not least, the Fund is run by a management team comprised of some of the most experienced and talented professionals committed to deliver superior performance.

• Q: What will be your recommendations to businessmen who plan to submit projects to the Fund?

A: I would recommend them to promote the projects, taking into account the local and global trends as well as to get aquatinted with our investment criteria comprehensively and tailor their proposals to meet the Fund’s investment criteria.

• Q: One of the investor of the fund, the Estate of Badri Patarkatsishvili stated that if the dispute over Rustavi Steel LCC were not ruled justly, they will think about withdrawing their investment from Georgia? Does this negatively affect the development of the Fund?

A: The Estate of Badri Patarkatsishvili is one of our investors. So far, we have been cooperating successfully and see no reason for impeding our partnership. In addition, any Limited Partner participating in the Fund has the right to discontinue cooperation; and this is not something that will hinder the development of the Fund as we can attract alternative ones.

• Q: The fund’s horizon is 7-9 years, after which it will exit from all of its investments by selling its shares to co-owners, third parties or through initial public offerings. Is there serous risk that the Fund will leave the businesses unprofitable?

A: In order to generate solid returns for investors, underlying investments should be realized at the highest possible prices. This can only be achieved if these investments are able to generate sustainable profits. Hence, our success is only possible by creating healthy and sustainable businesses.

• Q: Earlier this year you were named on the Forbes '30 Under 30' list. Does this mean you face additional responsibility?

A: It is a great honor and privilege for me to be listed along with the most successful and creative representatives of my generation around the world who started from a scratch and achieved substantial results. It is another good reminder to my team and me that we are moving in the right direction.