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JSC Liberty Finance Factsheet - March 2014

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Information about JSC Liberty Finance Factsheet - March 2014
Finance

Published on March 6, 2014

Author: LibertySecurities

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JSC Liberty Finance Factsheet - March 2014
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JSC Liberty Finance | High Yield | Georgia | March 2014 GEL/US$ 1.7381 LIBERTY FINANCE Permissible Investments Maximum permissible % of the NAV Georgian issued instruments Georgian Treasury bills US$ denominated bank deposits & CDs GEL denominated bank deposits & CDs Promissory notes issued by non-bank lenders (GEL & US$) Loans to non-bank lenders (GEL & US$) Working capital credit facilities Managed P2P lending opportunities (GEL) Preferred shares Similar instruments in Azerbaijan & Armenia Other instruments Long only, no leverage, no derivatives, no currency hedging >80% <25% <25% <50% <75% <75% <75% <75% <25% <20% <10% HIGH YIELD GEORGIA LIBERTY FINANCE HIGH YIELD GEORGIA Investment Team & Governance Relevant experience Supervisory Board Tengiz Lashkhi, Chairman Victor Meskhi Vano Barbakadze Director Vano Barbakadze 8 years Vano Barbakadze served, from July 2008 through June 2013, as portfolio manager at Abbey Asset Management, a leading asset management company in Georgia, managing Aldagi Pension Fund, the largest pension fund in Georgia by AUM. Gross Returns (GEL) Net Returns (GEL) Gross Returns (US$) Net Returns (US$) AUM2, US$ mln Georgian CPI JPM EMBI+ MSCI FM 100 S&P Frontier BMI FTSE Frontier 50 MSCI EM 2H ‘08 -16.6% -18.1% -29.0% -30.3% 1.0 1.0% -9.1% -55.2% -52.4% -51.7% -47.8% 2009 81.6% 68.8% 79.6% 66.9% 2.2 3.0% 25.9% 4.2% 9.1% 2.2% 74.5% 2010 17.1% 13.2% 11.4% 7.6% 2.8 11.2% 11.8% 21.1% 18.9% 12.6% 16.4% 2011 17.2% 13.4% 24.4% 20.3% 4.1 2.0% 9.2% -22.5% -18.7% -27.1% -20.4% 2012 15.4% 11.7% 16.4% 12.6% 4.9 -1.4% 18.0% 4.1% 5.4% 12.4% 15.1% 1H ‘13 7.8% 5.9% 8.1% 6.2% 5.5 0.3% -9.4% 7.2% 7.6% 6.4% -10.9% Since 1 November 2013, Vano Barbakadze and the individuals comprising the Supervisory Board of Liberty Finance have been managing the Georgia & The Caucasus High Yield Individual Account Strategy (currently closed to subscription), which has an investment mandate similar to that of Liberty Finance, with the same list of the Permissible Investments and portfolio construction principles. Georgia High Yield Individual Account Strategy Net Return Cumulative (since 1 November 2013) Annualised GEL 12.3% 37.3% US$ 6.6% 20.1% Contact Details Liberty Securities Ltd The Liberty Tower, 74 I. Chavchavadze Ave., Tbilisi 0162 Georgia www.libertysecurities.ge Sales Temur Iremashvili LIBERTY FINANCE 7 years 5 years 8 years Investment Manager Vano Barbakadze 1. Gross annualised yield 2. As at period end Mobile: +995 591 158 877 temur.iremashvili@libertysecurities.ge sales@libertysecurities.ge Skype: temur_75 Mobile: +995 591 604 040 vano.barbakadze@libertysecurities.ge Skype: vano_barbakadze Investment Objective & Philosophy JSC Liberty Finance (LF, unlisted) seeks to provide high total return from current income by offering investors high-yield participating promissory notes, the proceeds of which LF intends to invest in a range of fixed-income assets, principally situated in Georgia and mostly denominated in the local currency. LF has commenced the issuance of GEL and US$ denominated participating Promissory Notes (the “PNs”). Key terms & conditions of the PNs are set out below: Liberty Finance GEL Denominated Participating Promissory Notes Issuer Instrument Currency Term Minimum Investment Maximum Investment Issue Size Interest Base Interest Rate Participating Interest** JSC Liberty Finance Participating Promissory Notes GEL (Georgian Lari) 12 and 24 months *; principal repaid within 30 calendar days GEL 100 per PN GEL 0.5 mln Up to GEL 5 mln for each of the 12-month and 24-month PNs The sum of the Base Interest Rate and the Participating Interest 12.5% p.a. for the 12-month PNs, 14.5% p.a. for the 24-month PNs, payable together with principal within 30 calendar days from the relevant maturity date 20% of any distributable net income accrued monthly on a pro rata basis of the GEL equivalent (as of the relevant end-of-month date) aggregate principal of all the PNs outstanding and payable together with principal within 30 calendar days from the maturity date Liberty Finance US$ Denominated Participating Promissory Notes Issuer Instrument Currency Term Minimum Investment Maximum Investment Issue Size Interest Base Interest Rate Participating Interest** JSC Liberty Finance Participating Promissory Notes US$ (United States Dollar) 12 and 24 months *; principal repaid within 30 calendar days US$100 per PN GEL 0.5 mln equivalent Up to GEL 5 mln equivalent for each of the 12-month and 24-month PNs The sum of the Base Interest Rate and the Participating Interest 8% p.a. for the 12-month PNs, 10% p.a. for the 24-month PNs, payable together with principal within 30 calendar days from the relevant maturity date 20% of any distributable net income accrued monthly on a pro rata basis of the GEL equivalent (as of the relevant end-of-month date) aggregate principal of all the PNs outstanding and payable together with principal within 30 calendar days from the maturity date Why Georgia High Yield? Georgia, a top reformer in the world in 2006-2011 according to the World Bank, has experienced a long period of high economic growth rates in 2004-2012 and has evolved into an attractive lowtax jurisdiction with full currency convertibility and attractive business climate (currently ranked by the World Bank as No. 8 in the Ease of Doing Business global rankings and No. 22 in the WSJHeritage Foundation Economic Freedom Index). Georgia’s economic openness, attractive location, and liberal visa and trade regime have contributed to Georgia’s ongoing transformation into a regional tourism, trade and financial hub. Due to the growing receipts from tourism and remittances, export growth and stable FDI, portfolio and donor inflows, Georgia has been comfortably financing its current account deficit in the past decade. Its currency, the Lari (GEL), has depreciated by less than 10% against the US$ since the beginning of 2009, and inflation has hovered around 0% for most of the past two years, down from the historical high single-digits level. The Georgian banking sector is among the most stable, dynamic and innovative in the FSU/SEE and has grown by over 1,000% since 2003; nonetheless, the banking penetration remains low, with bank credit to GDP at 33% and bank credit to individuals to GDP at 14% at YE 2012. The historically high interest rates on bank loans and deposits have decreased considerably in the past 12 months, with 12-month bank term deposits in US$ currently yielding no more than 5%6% (compared with 8%-10% attainable in 2002-2012). The current outstanding stock of private banking deposits in Georgia is estimated at US$500 mln, with at least half of this amount contributed by non-resident clients. As these term deposits expire, it will be impossible to reinvest the funds in bank term deposits at anywhere near the yield levels of 2010-2012. The Georgian non-bank lending sector has experienced robust growth in the past five years, with the aggregate loan book of non-bank lenders exceeding US$300 mln in 2012 (up from less than US$30 mln in 2006). The non-bank lending sector comprises over 60 microfinance companies licensed by the National Bank of Georgia, and up to 20 other traditional and newly-established online lenders that do not require a regulatory license. Given their lending rates that typically exceed 30% p.a. for secured loans and 60% for unsecured loans, these lenders attract funds at the rates reaching, and sometimes exceeding, 10% p.a. Why Liberty Finance? Founded and managed by individuals at the forefront of the financial services sector development in Georgia for over 10 years Rigorous bottom-up driven investment screening process to identify the best reward-risk opportunities based on the investment team’s superior understanding of the banking and nonbank lending markets in Georgia Investment discipline and risk controls ensuring the diversification insofar as possible within the set boundaries of the investment strategy Access to attractive opportunities, such as, for instance, certificates of deposit issued by Liberty Bank, promissory notes and loans yielding over 10% in selected leading non-bank lenders, and access to the managed P2P lending platform (eLoan.ge) owned and operated by eCapital, a Liberty Securities affiliate *The repayment of principal will occur within 30 calendar days from the maturity date of the PNs **20% of the annual distributable net income will be accrued monthly and paid out to the PN holders within 30 calendar days from the maturity date of the PNs Not a bank deposit or a regulated investment product | Not insured | May lose value 6/3/2014

JSC Liberty Finance | High Yield | Georgia | March 2014 Key Terms & Conditions HIGH YIELD GEORGIA LIBERTY FINANCE The charter of JSC Liberty Finance can be accessed at http://bit.ly/1b33SWc Capital Structure 65,000 Class A ordinary shares, each carrying two voting rights 35,000 Class B ordinary shares, each carrying one voting right Other than voting rights, all ordinary shares carry equal rights, including the economic participation rights, regardless of the class Nominal Value GEL 0.01 each, regardless of the class Ownership structure Liberty Securities Ltd Vano Barbakadze Tengiz Lashkhi Victor Meskhi Temur Iremashvili 100.0% of Class A shares outstanding 57.1% of Class B shares outstanding 14.3% of Class B shares outstanding 14.3% of Class B shares outstanding 14.3% of Class B shares outstanding Annual General Meeting (AGM) All AGM decisions will be passed with 50% + 1 simple majority of the votes of the ordinary shares present Governance Director: Makes all decisions (investments/disposals) of up to the lower of (i) GEL 250K or (ii) 10% of LF’s assets as of the end of the previous fiscal quarter Supervisory Board: Decides on all investments/disposals exceeding in size the Director’s thresholds and up to the lower of (i) GEL 500,000 and (ii) 20% of LF’s assets as of the end of the previous fiscal quarter Simple majority decisions on all issues AGM: Decides on all investments/disposals exceeding the lower of (i) GEL 500,000 or (ii) 20% of LF’s assets as of the end of the previous fiscal quarter Issuance of any debt instruments GEORGIA LIBERTY FINANCE Investment Strategy/Permissible Investments Investment Strategy/Permissible Investments may be changed (as to the maximum permissible limits of any instruments/securities classes, as well as with regard to the geography) by the AGM; such changes may not occur more frequently than once a year. Fees & Expenses Investors in the PNs pay no fees of any kind. Annual expenses of LF will be capped at the greater of GEL 3,600 and 0.1% of the aggregate principal amount of the PNs outstanding as at the year-end. The shareholders of LF expect to subsidise the annual expenses in 2013-2014 or until such time when the aggregate principal amount of the PNs outstanding exceeds GEL 3.6 mln equivalent. Taxation Interest received by the holders of the PNs is subject to a 5% tax withheld at the source. However, as the payment of variable income in addition to the fixed annual interest rate of the PNs is unprecedented in Georgia, the Participating Interest payable to the PN holders may be taxable, through withholding at the source, as follows: Resident individuals Resident legal entities 20% 15% Non-resident individuals Non-resident legal entities 10% 10% Liberty Securities will withhold the relevant tax amounts at the source. Accordingly, there is no need for the PN holder to make any tax filings in Georgia. As a joint stock company registered in Georgia, LF is subject to a 15% corporate profit tax. The Calculation Of The Participating Interest The distributable net income shall be equal to the interest income accrued or received from the underlying investments, less the sum of (i) Base Interest expense, (ii) any provisions for the impairment of the underlying assets, (iii) accrued annual expenses set at the estimated annual cap, and (iv) accrued corporate profit tax of LF. 20% of the distributable net income so calculated shall be accrued on a monthly basis for the benefit of the PN holders. LIBERTY FINANCE HIGH YIELD Statements and Disclosures The PNs are transferable to any third party by their holders, subject to the registration of the transfer by Liberty Securities. The PNs are not regulated by the Law of Georgia on Securities, and, therefore, may not be listed or admitted to trading on the Georgian Stock Exchange or any other organised exchange. There may be no assurance that the over-the-counter secondary market in the PNs will develop. The Georgian Lari is freely convertible and there are no restrictions whatsoever on the transfer abroad of either the interest income received by the PN holder or the principal amount of the PN once it is repaid by the issuer. LF does not intend to be audited by a Big Four accounting firm, but intends to publish audited annual results. Additionally, LF has committed to issuing to all the PN holders its summary quarterly unaudited financial results and the portfolio disclosure/analysis. Holders of the PNs with the principal amount exceeding US$100,000 (or its GEL equivalent) may inspect the books and records of LF at any time at their own cost and upon reasonable notice. Liberty Securities intends to update and publish this document monthly or more frequently if deemed necessary. This document has been produced by Liberty Securities Ltd (“Liberty Securities”). Liberty Securities and/or persons connected with it may effect or may have effected a transaction or transactions for their own account in the securities or instruments or strategies (collectively, the “Instruments”) referred to in this document or any related investment before the material is published to Liberty Securities’ clients, may have a position in the securities and/or any related investment and may make a purchase and/or sale, or offer to make a purchase and/or sale, of the Instruments and/or any related investment from time to time, in the open market or otherwise, in each case either as principal or as agent. Persons connected with Liberty Securities may provide or have provided corporate finance and other services to the issuer(s) of the Instruments and may seek to do so in the future. Accordingly, information may be available to Liberty Securities and/or persons connected with it which is not reflected in this document. This document is not, and should not be construed as an offer to sell or solicitation of an offer to buy any securities. The information and opinions contained in this document have been compiled or arrived at by Liberty Securities from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. All opinions and estimates contained in this document constitute Liberty Securities’ judgment as of the date hereof and are subject to change without notice. The information contained in this document is published for the assistance of the intended recipients, but is not to be relied upon as authoritative or be the basis for an investment decision. Liberty Securities accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its contents. This document may include estimates, projections and other forward-looking statements. Due to numerous factors, actual events may differ substantially from those presented. Liberty Securities assumes no duty to update any such statements. Any holdings of a particular Instrument discussed herein are under periodic review by the investment team and are subject to change at any time, without notice. Nothing contained herein should be considered a recommendation or advice to purchase or sell any security. This document may not be reproduced, distributed or published for any purpose. It is not intended for and must not be distributed to private customers. Further information may be obtained and for this purpose the intended recipients hereof should contact Liberty Securities at the address given above. This document is not to be distributed in the United States and the United Kingdom, and in any other jurisdiction where such distribution is unlawful. An investment in the Instruments has risks, including the risk of losing some or all of the invested capital. Performance includes reinvestment of all distributions. Past performance is not indicative of future results. Prior to investing, a prospective investor should carefully consider the risks and suitability of the Instruments based on his/her own investment objectives and financial position. Some of the Instruments described herein may not be a regulated financial instrument and, as such, may not require the publication of a prospectus or similar document. An investor should carefully review all the relevant information and factors and consult with his/her financial, legal and tax advisors. Not a bank deposit or a regulated investment product | Not insured | May lose value 6/3/2014

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