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LIBERTY FINANCE
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 JSC Liberty Finance Participating Promissory Notes US$ (United States Dollar) 12 and 24 months *; principal repaid within 30 calendar days US$100 per PN GEL 0.5 mln equivalent Up to GEL 5 mln equivalent for each of the 12-month and 24-month PNs The sum of the Base Interest Rate and the Participating Interest 8% p.a. for the 12-month PNs, 10% p.a. for the 24-month PNs, payable together with principal within 30 calendar days from the relevant maturity date 20% of any distributable net income accrued monthly on a pro rata basis of the GEL equivalent (as of the relevant end-of-month date) aggregate principal of all the PNs outstanding and payable together with principal within 30 calendar days from the maturity date
GEORGIA
Vano Barbakadze served, from July 2008 through June 2013, as portfolio manager at Abbey Asset Management, a leading asset management company in Georgia, managing Aldagi Pension Fund, the largest pension fund in Georgia by AUM. 2H 08 2009 2010 2011 2012 1H 13 Gross Returns (GEL) -16.6% 81.6% 17.1% 17.2% 15.4% 7.8% Net Returns (GEL) -18.1% 68.8% 13.2% 13.4% 11.7% 5.9% Gross Returns (US$) -29.0% 79.6% 11.4% 24.4% 16.4% 8.1% Net Returns (US$) -30.3% 66.9% 7.6% 20.3% 12.6% 6.2% AUM2, US$ mln 1.0 2.2 2.8 4.1 4.9 5.5 Georgian CPI 1.0% 3.0% 11.2% 2.0% -1.4% 0.3% JPM EMBI+ -9.1% 25.9% 11.8% 9.2% 18.0% -9.4% MSCI FM 100 -55.2% 4.2% 21.1% -22.5% 4.1% 7.2% S&P Frontier BMI -52.4% 9.1% 18.9% -18.7% 5.4% 7.6% FTSE Frontier 50 -51.7% 2.2% 12.6% -27.1% 12.4% 6.4% MSCI EM -47.8% 74.5% 16.4% -20.4% 15.1% -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 for new subscriptions), which has an investment mandate similar to that of Liberty Finance, with the same list of the Permissible Investments and portfolio construction principles.
HIGH YIELD
GEORGIA
Dec-13
Feb-14
Mar-14
Contact Details
Liberty Securities Ltd The Liberty Tower, 74 I. Chavchavadze Ave., Tbilisi 0162 Georgia www.libertysecurities.ge
Sales
Temur Iremashvili
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 Manager
Vano Barbakadze
1. Gross annualised yield 2. As at period end 3. The current yield (6.83%) of the 12-month Georgian Treasury Bills used as the risk-free rate 4. The notional IAS Investment Units are set out for illustrative purposes only for the ease of
tracking and assessing the historical performance of the Individual Account Strategy. The NAV per notional IAS Investment Unit is calculated on a daily basis and equals the aggregate NAV of the Individual Account Strategy divided by the total number of the notional IAS Investment Units
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). Georgias economic openness, attractive location, and liberal visa and trade regime have contributed to Georgias 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 is currently at 3.5%, 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 rate 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$400 mln in 2013 (up from less than US$30 mln in 2006). The non-bank lending sector comprises over 70 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 teams 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
LIBERTY FINANCE
HIGH YIELD
LIBERTY FINANCE
Not a bank deposit or a regulated investment product | Not insured | May lose value 5/4/2014
LIBERTY FINANCE
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
GEORGIA
Governance
Director: Makes all decisions (investments/disposals) of up to the lower of (i) GEL 250K or (ii) 10% of LFs assets as of the end of the previous fiscal quarter Supervisory Board: Decides on all investments/disposals exceeding in size the Directors thresholds and up to the lower of (i) GEL 500,000 and (ii) 20% of LFs 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 LFs assets as of the end of the previous fiscal quarter Issuance of any debt instruments
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.
Not a bank deposit or a regulated investment product | Not insured | May lose value 5/4/2014