Bank of Georgia Group PLC (LON:BGEO) has announced the proposed acquisition of 100 per cent of a leading bank in Armenia, Ameriabank CJSC, for approximately $303.6 million. This acquisition will significantly enhance the Group’s presence and growth opportunities within a fast-growing and attractive market.
The Board and Management of Bank of Georgia Group PLC has announce that conditional agreement has been reached to acquire 100% of the total issued share capital of Ameriabank CJSC. BOGG believes that significant value can be derived from capitalising on opportunities within Armenia through this acquisition of a leading Armenian bank and by leveraging BOGG’s experience and expertise as it integrates Ameriabank into the wider Group. The Acquisition is conditional upon the approval of the Group’s shareholders and regulatory approvals.
Key highlights:
· The Group is set to acquire Ameriabank, a leading universal bank in Armenia, which has an attractive franchise, in an attractive market, with similar characteristics to Georgia.
· Significant upside potential from leveraging the Group’s existing customer focus and digital/payments capabilities.
· Approximately $303.6 million cash transaction fully financed by surplus capital of the Group at an attractive valuation; maximising shareholder return while preserving the strong capital ratios of JSC Bank of Georgia. Acquisition price of 0.65x net asset value as at 31 October 2023 and 2.6x P/E 2023.
· 90% of Ameriabank will be acquired upon completion of the Acquisition, with a 10% shareholding to be retained by the European Bank for Reconstruction & Development subject to a Shareholders’ (Put and Call Option) Agreement.
· No shareholder dilution expected for existing shareholders.[1] The Board and Management believe the Acquisition will be immediately EPS and RoAE accretive, with JSC BOG maintaining a strong capital position.
· It is intended that the BOGG Dividend and Capital Distribution Policy for the Enlarged Group, subject to trading and prospects being satisfactory, will remain unchanged with a target pay-out ratio in the range of 30-50% of annual profits
Mel Carvill, Chairman of the Board of Directors of Bank of Georgia Group PLC commented:
“This transaction is a significant milestone for the Group and a new chapter in our strategic development. Through Ameriabank we are set to enter Armenia, one of the fastest-growing economies in the region. Ameriabank has a well-regarded and experienced management team, and I am delighted that they will stay on after the transaction is closed.
The Board believes this transaction will enable the Group to substantially increase scale and unlock additional growth opportunities as our impressive results in digitalisation, payments and customer franchise growth can be applied to Ameriabank’s further development. This transaction is immediately earnings enhancing, using the Group’s existing cash resources, with no dilution for existing shareholders. The Board unanimously views it as an excellent opportunity to create more value for our shareholders.”
Archil Gachechiladze, Chief Executive Officer of BOGG commented:
“Today we announced the proposed conditional purchase of 100% of the shares in a leading universal bank in Armenia. Ameriabank is a growing and profitable bank, that is top of mind locally, with a strong customer franchise. We see Ameriabank as an attractive platform to increase scale and further grow our business by translating some of the successes that the Group has already delivered in the Georgian market. I would like to thank Ameriabank’s team for their cooperation, and I look forward to working with them to unlock growth opportunities in one of the best-performing economies in the region.”
Following the closing of the transaction and with Ameriabank on board, the Group also intends to change its name, marking a new chapter in its development, with two leading universal banks in attractive high-growth markets.
The Investor Presentation relating to the proposed Acquisition will be available shortly on the Group’s website at https://bankofgeorgiagroup.com/reports/presentations.
The Circular will be published by the Group in connection with the Acquisition in due course and any capitalised terms used in this Announcement and not otherwise defined shall have the meaning given to them in the Circular. The Circular will also be available in electronic form on the Group’s website at https://bankofgeorgiagroup.com/information/meetings.
BOGG’s Preliminary Results for the year-ended 31 December 2023 are expected to be published shortly after the BOGG General Meeting of Shareholders, to be held on 14 March 2024.
Analysts and Investors
A presentation and Q&A session for analysts and investors will take place at 11:00 am GMT on 19 February 2024 via conference call. To participate in the call please use the following dial-in details:
Webinar instructions:
Please click the link below to join the webinar:
https://bankofgeorgia.zoom.us/j/95898719653?pwd=MG96UitWM1pZU05jcmJ6aWt4MWRvdz09
International dial-in numbers are available at: https://bankofgeorgia.zoom.us/u/aee4LLgZFN
Webinar ID: 958 9871 9653
Passcode: 816902
Background to and reasons for the Acquisition
The Board believes there is a compelling rationale for the Acquisition. The Board believes that Ameriabank is a good strategic fit to the Group and that the Acquisition is attractive as it is expected to provide significant commercial and financial benefits to the Group as outlined below:
The Armenian economy and banking sector have certain attractive characteristics similar to those in the Group’s current principal operating country, Georgia, and the Board considers this as an attractive market for expansion that fits very well with BOGG’s current footprint.
· High-growth economy with similar size and growth to Georgia: Armenia is a neighbouring country to Georgia of a similar size having a population of 3.0 million and nominal GDP of USD 20 billion as of 2022 according to the IMF compared to the 3.7 million population and USD 25 billion nominal GDP of Georgia in the same time period. According to the World Bank, the Armenian economic environment enjoys sound macroeconomic policies, including active inflation targeting, adherence to a fiscal rule, and sound financial sector oversight. The IMF also notes that the flexible exchange rate has served Armenia well in absorbing external shocks, while building reserve buffers. The foregoing has contributed to the Armenian economy demonstrating attractive growth rates, with real GDP having grown at c.5% on average per annum since 2018, which is in line with the real GDP growth rates reported by Georgia during the same period as per IMF. Similar to Georgia, Armenia is expected to continue delivering strong economic growth with expected real GDP growth rates of c.5% per annum over the next few years, according to the IMF World Economic Outlook October 2023.
· Supportive environment for further growth due to low banking sector penetration: The overall Armenian economy is generally less leveraged when compared with the Georgian economy, with loans to households at 23.7% of GDP and loans to legal entities at 23.4% of GDP as at 31 December 2022, according to the estimates based on the Armenian Central Bank and Statistical Committee data (compared with 33.3% and 28.2%, respectively, in Georgia, according to the National Bank of Georgia and the National Statistics Office of Georgia), creating a supportive environment for further banking sector growth in coming years as the economic and banking sector growth would potentially converge to the levels of Georgia.
· Financially prudent banking sector with low market share concentration levels offering scope for further consolidation: The Armenian banking sector demonstrates broadly strong indicators of financial soundness, including capital adequacy and non-performing loan ratios, according to IMF 2022 data. This resembles the Georgian banking sector from a financial soundness perspective, but at the same time the banking sector in Armenia is significantly more fragmented with 18 commercial banks operating in the country. The top three Armenian banks (including Ameriabank) held a market share of 43.1% of total assets as at 31 December 2022 according to CBA. This presents further consolidation opportunities for the Group in addition to the organic growth of the market.
Ameriabank is one of the leading universal banks in Armenia and has an attractive franchise with significant upside potential from leveraging BOGG’s customer focus and digital capabilities.
· Market leading position in corporate segment and increasing market share in retail segment boosted by improving digital offerings: Ameriabank is a highly attractive franchise displaying many complementary characteristics to the Group. It has a leading #1 market position in Armenia based on loan portfolio size (19.6% market share) and #2 market position based on the deposit portfolio[2] size (17.3% market share) as at 31 December 2023. The strength of its deposit franchise is demonstrated by the continuous growth of its customer deposits, with a CAGR of 19.6% during 2020-2022. Ameriabank also has a particularly strong foothold in the corporate segment, being a market leader with #1 market position (22.5% market share) in loans to legal entities as at 31 December 2023. Further, Ameriabank has been very successful in growing its retail franchise in recent years supported by continued developments in its digitalisation, which allowed it to grow its market share in loans to individuals from 9.8% in 2018 to 15.6% as at 31 December 2023.
· Well-managed bank with prudent risk policies and strong profitability track record: Ameriabank has a strong financial profile, with capital and liquidity ratios above their minimum regulatory requirements. Its LCR and NSFR ratios are also significantly above their minimum regulatory requirements. Ameriabank has also adopted adequate credit risk management policies with suitable coverage ratios.
· Significant additional growth potential of Ameriabank within BOGG by using the Group’s experience and know-how in retail products, digitalisation and payment business: The Board believes that Ameriabank has significant growth potential and further scope to improve commercial performance, particularly in retail. This is expected to be achieved by combining Ameriabank’s existing franchise strengths with the Group’s expertise, stemming from BOGG’s proven track record and leading digital products and payments capabilities. Although Ameriabank is a leading player in its own market, it had fewer than 420,000 individual customers as at 31 December 2023 (out of a population of approximately 3.0 million). The Board believes that there is a significant scope for growth in this area, and that the Group’s existing assets and infrastructure will enable it to realise these potential growth benefits, as the Group has already proven in Georgia. Ameriabank is also one of the leading payments acquirers in Armenia, with further potential upside on the back of the Group’s strong expertise in this area, as well as supported by favourable market fundamentals, as the Armenian economy is predicted to become increasingly cashless over the next few years.
The side-by-side comparison of the number of customers and the levels of digitalisation of BOGG and Ameriabank based on management data as at and for the nine months ended 30 September 2023 is presented below:
| BOGG1 | Ameriabank CJSC | |
| Number of customers, individuals, thousands (Sep-23)…………………………………………………………………………………… | 1,7392 | 392 |
| Number of customers as % of population3, (Sep-23) .. | 47% | 15% |
| Digital MAU as % of total customers, individuals (Sep-23)…………………………………………………………………………………… | 73%2 | 34% |
| Share of digital banking4 transactions in total transactions, (for the 9 months ended September 2023).. | 63% | 48% |
Notes:
(1) Includes the Georgian banking subsidiary only
(2) Monthly active clients are stated
(3) Based on population data provided by the IMF as of December 2022. 2.96 million in Armenia and 3.67 million in Georgia
(4) Including transactions via mobile / internet banking
· Well-regarded and experienced management team to stay on after the Acquisition: Ameriabank has been run by a professional and experienced management team. It has also operated with well-established corporate governance practices and a well-defined focus on ESG principles. The management team, including the Chairman of the Ameriabank Board, has agreed to remain in the business and run Ameriabank for at least 18 months following the closing of the Acquisition.
The Acquisition offers multiple strategic benefits to BOGG allowing it to diversify its revenue streams, unlock further growth potential and increase scale. The Acquisition also has a strong financial rationale that fulfils strict internal financial criteria set by BOGG and is expected to result in significant value creation for Shareholders.
· Following years of dynamic growth, the Group has achieved leading market share in Georgia and an expansion geographically unlocks further growth potential beyond the local Georgian market: By focusing on its strategic priorities, BOGG has already achieved significant customer franchise growth and strong results and currently operates with c.40% market share in Georgia. While Georgia continues to offer an attractive growth profile with further benefits and potential revenue streams to be unlocked with increasing digitalisation and economic development, BOGG operates in a market where its market leadership is already well-established, and the Board believes that the Acquisition will offer the opportunity for the Enlarged Group to grow further with Ameriabank’s market share opportunities still not fully realised and where BOGG’s experience could help it boost its market position going forward.
· Acquisition would significantly increase the scale of the Group and diversify its business: The Acquisition would facilitate a significant increase in the scale of the Group and, as a result, Ameriabank would represent a meaningful part of the Enlarged Group after the transaction completes. The following table sets forth certain financial information for BOGG and Ameriabank side by side as at and for the nine months ended 30 September 2023:
| As at and for the nine months ended 30 September 2023 | ||
| BOGG | Ameriabank CJSC | |
| GEL million | ||
| Net loans………………………………………………………………. | 19,011 | 6,085 |
| Assets……………………………………………………………………. | 30,850 | 8,973 |
| Deposits………………………………………………………………… | 21,744 | 6,012 |
| Net Income…………………………………………………………… | 1,067 | 230 |
Notes:
Financial information for BOGG is taken from the 9 months ended September 2023 IFRS results as reported by BOGG and the financial information for Ameriabank is taken from the 9 months ended September 2023 IFRS results as reported by Ameriabank. The NBG’s official exchange rate of AMD/1000:GEL 6.7049/6.7446 (avg/eop) for the nine months ended 30 September 2023 was used for conversion
· Acquisition expected to have an immediate accretive impact on BOGG’s EPS and to boost RoAE: In addition to the standalone financial strengths of Ameriabank, the Board and Management expect the Acquisition to have an immediately positive impact on BOGG’s financial profile and outlook.
· Ameriabank has been a profitable franchise throughout the cycle: Ameriabank represents a profitable franchise that has reported positive net income throughout the cycle (including during COVID-19 and in the aftermath of the Russian invasion of Ukraine), has delivered double-digit RoAE in four out of five prior years and reported RoAE of 29.6% in 2022.
· Cash transaction using surplus capital of the Group at an attractive valuation; maximising shareholder return while preserving the strong capital ratios of JSC BOG: At an Acquisition price of 0.65x net asset value with reference to net asset value as at 31 October 2023, implying a 2.6x P/E[3] based on Ameriabank’s reported preliminary results for the full year 2023, the Board believes that the Acquisition has been agreed at an attractive price given the immediate earnings enhancement and potential opportunities afforded by the Acquisition. The transaction is being financed by existing cash, deploying surplus capital, while allowing JSC BOG to maintain capital ratios comfortably above the minimum requirements. No equity issuance is required and thus there is no dilution for existing Shareholders.[4]
In summary, the Board believes that the Acquisition has a strong strategic and financial rationale that meets its strict internal financial criteria.
Armenia is a neighbouring country to Georgia of a similar size and with similar culture, making it an attractive market for the Group to expand into. The Board believes that by acquiring one of the leading banks in the Armenian market the Group will add another strong revenue-generating platform with the expectation of increased earnings potential for the Group in the short, medium and long term.
The Acquisition allows BOGG to diversify its profile by obtaining a franchise with a critical mass and strong brand awareness (Ameriabank is the top-of-mind bank in Armenia[5]), operating in a market that is attractive given its relevant size, macroeconomic situation and lower banking penetration levels compared to other developing countries. Ameriabank would also further complement BOGG’s existing profile as BOGG’s market leading position in Georgia would be supported by a leading financial institution in Armenia with #1 market position, based on loan portfolio size. BOGG’s strong profitability profile would further benefit from Ameriabank’s attractive financial track-record and outlook with expected EPS accretion and a boost in RoAE of BOGG in 2024 following the Acquisition. Additionally, BOGG sees significant opportunity for growth and enhanced profitability of Ameriabank with potential to develop its retail and SME franchises, further digitalisation and improved operational efficiency which could be achieved by leveraging the extensive experience and know-how of BOGG.
Financial Effects of the Acquisition
The Group expects that the Acquisition will generate significant value for Shareholders, through enhanced growth prospects, as detailed above.
The impact of the Acquisition on the capital ratios of the Group’s current largest banking operation, JSC BOG, has been estimated as 1.0-1.1%. JSC BOG’s capital ratios are expected to remain comfortably above the minimum regulatory requirements of the National Bank of Georgia following the Acquisition.
Following the Acquisition, and subject to the Enlarged Group’s trading and prospects being satisfactory, it is intended that the BOGG Dividends and Capital Distribution Policy will remain unchanged with a target pay-out ratio in the range of 30-50% of annual profits.
As mentioned above, the Acquisition is expected to have an immediate accretive impact on BOGG’s EPS, and to boost RoAE.
Transaction Timetable and Conditionality
The Acquisition constitutes a Class 1 transaction for BOGG under the Listing Rules. Accordingly, the approval of BOGG Shareholders is required and will be sought at the General Meeting expected to take place on 14 March 2024 (see Expected Timetable of Principal Events below). The Circular containing the notice convening the General Meeting will be published in due course. In addition, the Acquisition is subject to the satisfaction of other conditions including receipt of regulatory and anti-trust approvals.
The timing of the satisfaction of certain of the conditions to Completion is uncertain given the involvement of relevant regulators, but it is currently expected that Completion will occur in the first quarter of 2024.
Expected Timetable of Principal Events
All times shown are London times unless otherwise stated. All dates and times are based on the current expectations of BOGG and are subject to change, which will depend, among other things, on the date on which the Conditions to the Acquisition are satisfied or, where applicable, waived. If any of the dates and/or times in this expected timetable change materially, the revised dates and/or times will be notified to Bank of Georgia Group Shareholders by announcement through the Regulatory Information Service of the London Stock Exchange.
| Event | Time and Date |
| Publication and posting of the Circular, the Notice of General Meeting and the Form of Proxy | 19 February 2024 |
| Latest time and date for receipt of Form of Proxy, CREST Proxy Instructions and electronic registration of proxy appointment | 11:00 a.m. on 12 March 2024 |
| Record Time for entitlement to vote at the BOGG General Meeting | 6:00 p.m. on 12 March 2024(1) |
| General Meeting | 11:00 a.m. on 14 March 2024 |
| Expected date of Completion of the Acquisition (subject to BOGG Shareholder approval) | On the third Business Day after the General Meeting(2) |
Notes:
(1) If the General Meeting is adjourned, the Record Time for the adjourned General Meeting will be 6:00 p.m. (UK time) on the date which is not later than 48 hours, excluding non-working days, before the date set for the adjourned General Meeting
(2) Subject to the satisfaction or (if capable of waiver) waiver of the Conditions
