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A Debut Transaction in Georgia

J.P. Morgan acts as development finance structuring agent and leads the first green bond offering for a longstanding client in the country of Georgia – a transaction that marks a number of important firsts for the firm.

August 6, 2020

When Georgia Capital was looking to raise a corporate bond late last year for one of its portfolio companies, Georgia Global Utilities (GGU), its first and only call was to J.P. Morgan. The senior management of Georgia Capital, a holding company that invests in developing businesses across sectors in Georgia, has been a client for over a decade. J.P. Morgan has also maintained its market-leading position in Georgia, leading all 18 international bond transactions from the emerging economy since 2008.

Following a global “Zoom roadshow” targeting institutional investors across EMEA, the U.S. and Asia Pacific, the deal closed on July 30, with J.P. Morgan sole lead-managing GGU’s $250m 5NC2-year green bond offering, with a yield of 7.75%.

“While it was a relatively small credit for the international capital markets, we have a strong relationship with Georgia Capital’s leadership team after years of executing a number of fixed income transactions, and we wanted to make this work for them,” says Ahmet Berkmen, Debt Capital Markets (DCM), Emerging Markets – EMEA. “Since their portfolio includes renewable energy and water utility companies, we believed that leaning into both the green and development finance angles would be the right strategy to broaden investor reach.”

GGU is a water utility owned by Georgia Capital, and it is a regulated monopoly in the capital city of Tbilisi and the surrounding area. GGU provides water and wastewater services to 1.4 million residents – more than one-third of Georgia’s population – and also operates hydro power plants that provide a total capacity of 149 megawatts of renewable energy to its customers.

To prepare GGU for its international capital markets debut, the DCM team advised Georgia Capital to combine its renewable energy and water utilities to help create a business of scale for international investors. Following the restructuring, J.P. Morgan helped GGU obtain its first-time credit ratings from Fitch and S&P. From there, the green bond qualification process took approximately one month, with J.P. Morgan working closely with Sustainalytics, which provides ESG research and ratings to investors.

Though execution was underway, Stefan Weiler, DCM, Emerging Markets – EMEA, introduced J.P. Morgan’s new Development Finance Institution (DFI) to the transaction. “After hearing the DFI speak at our team’s offsite, we immediately understood the significant value it could bring and were excited to form a new partnership,” says Weiler.

The J.P. Morgan DFI was launched in January 2020 to help attract private investment to supporting critical projects in emerging markets. In consultation with leading development institutions, the DFI created rules-based criteria to analyze the potential development impact of financial transactions.

“The GGU transaction represents a significant milestone for the J.P. Morgan DFI,” says Faheen Allibhoy, Managing Director, who heads this new initiative. “While we have qualified other deals as development finance, this was the first time we were named Development Finance Structuring Agent for a capital markets transaction.” The DFI team also played an important role in introducing new investors with an emerging markets and development impact focus, ultimately broadening and deepening GGU’s investor base.

According to the World Bank’s Development Indicators, 10% of Georgia’s population lacks access to basic sanitation services, and approximately 2% of the population lacks access to basic drinking water. GGU is expected to use the bond’s proceeds for eligible green projects including renewable energy, energy efficiency, pollution prevention and control, sustainable water and wastewater management and climate change adaption. This will be achieved through the refinancing of existing loan arrangements, and financing new capital expenditures in GGU’s water supply and sanitation business.

Group 24 Created with Sketch. After hearing the DFI speak at our team’s offsite, we immediately understood the significant value it could bring and were excited to form a new partnership. Stefan Weiler Managing Director Debt Capital Markets, Emerging Markets – EMEA

The DFI and DCM team partnered to understand the transaction’s use of proceeds, and helped GGU to articulate the development impact in the offering prospectus. Together, they identified investors that were motivated by GGU’s focus on being a leader in environmental and development impact in the region.

Group 24 Created with Sketch. The GGU transaction represents a significant milestone for the J.P. Morgan Development Finance Institution. This was the first time we were named Development Finance Structuring Agent for a capital markets transaction. Faheen Allibhoy Managing Director J.P. Morgan Development Finance Institution

The firm served in four capacities on the GGU transaction: sole Bookrunner; sole Ratings Advisor; Green Structuring Agent and Development Finance Structuring Agent. The market norm in most international bond transactions is at least two bookrunners, and Weiler notes that it is quite rare to be mandated as the only bank on a deal. He attributes this position to the strong trust built over time with Georgia Capital’s top decision-makers. “In the first several deals with this client, J.P. Morgan was among numerous bookrunners,”says Weiler. “Then, a few years ago we were one of two banks. Now, with the GGU transaction, we were the sole bookrunner.”

Three International Finance Institutions (IFIs) – existing lenders to Georgia Capital – were anchor investors on the deal. “Since this was a smaller scale debut transaction and unknown to international investors, the IFI engagement was extremely helpful,” says Berkmen. “It demonstrated that the credit was publicly vetted by highly-recognized investors, and also provided reassurance to market investors that the transaction would take place.” The deal’s sound allocation was underscored by the positive secondary performance the day after pricing.

This is the first green bond in the Caucasus region (excluding Russia), and the first in Georgia. “J.P. Morgan began executing green bonds approximately eight years ago and over time, the amount of these assets under management has multiplied exponentially,” says Berkmen. “Clients and investors inquire about ESG in every meeting.” However, once markets began to reopen after the initial shock of COVID-19, green issuance was not at the forefront. “We saw a short pause while investors focused on raising liquidity but in the past six weeks, the green issuance trend is back on the rise,” says Berkmen.

The GGU transaction was an important test case for J.P. Morgan’s DFI, and both Weiler and Berkmen believe it will serve as a benchmark for future deals and as a key differentiator for the firm. “No other investment bank has its own DFI – it is truly unique to J.P. Morgan,” says Weiler. “Our client, Georgia Capital, is a pioneering company and saw the value our DFI brought to the transaction.”

Press Coverage: J.P. Morgan’s Development Finance Arm Structures First Deal (Reuters, July 28, 2020)

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