Below we discuss the key points of its investment story.

#1 Georgia Capital is a quality play on a fast-growing frontier economy

Georgia is an attractive economy at the junction of Europe and Asia, capitalising on trade flows in both directions. It has been in a secular growth trend for over 20 years, with a 5.5% average real GDP growth rate in 2003–23, assisted by structural reforms that made the country an attractive place for doing business with stable governance compared to other countries in the region. The International Monetary Fund expects this growth to be sustained in the coming years at above 5% annually. Currently, Georgia enjoys a boost to its GDP and foreign currency flows from the information and communication services sector, driven by the influx of highly skilled immigrants, mostly from Russia.

#2 GCAP holds an equity portfolio of local market leaders, including one of Georgia’s top banks

GCAP’s portfolio consists of resilient and well-established businesses in Georgia. Around 90% of this portfolio is valued externally, either by public markets (the listed BoG) or the independent valuer Kroll. It has exposure to the country’s growth story through several core sectors of the economy, including mature businesses of retail pharmacy, hospitals, insurance and its minority stake in BoG, as well as investment stage companies in renewable energy, education, and clinics and diagnostics, among others.

#3 GCAP has an active approach to value creation

GCAP is an active private equity investor that supports growth of its portfolio companies both organically and through a ‘buy and build’ strategy. It also encourages companies to incorporate best business practices, including ESG. The investment team has around 20 years’ experience in building local leaders, as the members of GCAP’s investment team were previously responsible for BoG’s investment division. For instance, in December 2021, GCAP sold its water utility business to one of the top water companies globally realising a 2.7x multiple of invested capital and a 20% internal rate of return (see our January 2022 note for details).

#4 GCAP maintains a strategic focus on deleveraging

GCAP continues to decrease its leverage at holding level, supported by stable and recurring income generated by its relatively mature portfolio and distributed to GCAP through dividends. In August 2023, GCAP refinanced its debt by issuing a US$150m sustainability-linked bond (maturing in 2028), rated ‘BB-’ by S&P, which attracted high-profile international financial institutions. GCAP pays an 8.5% fixed coupon, which was broadly in line with US corporate high yield bonds at the time of issuance.

#5 GCAP regularly performs NAV-accretive share buybacks

GCAP invests in companies that have potential to reach sufficient size to attract international investors, thus expanding its exit opportunities pool. When making capital allocations, GCAP intends to buy assets at a higher discount to their listed peers than GCAP’s discount to net asset value to generate a higher expected return than buying back its own shares. However, given GCAP’s high discount to NAV in recent years and good progress on its deleveraging agenda, GCAP spent US$86m on NAV-accretive share repurchases since its inception in 2018 to end-2023 (c 17% of its issued capital).