UK- GEORGIA – RUSSIA – Following a lift in their credit rating by Standard & Poor’s the Georgian Railway LLC has decided to float on the London Stock Exchange with a reported 25% share Initial Public Offering (IPO) joining Russian rail freight operators Globaltrans and Transcontainer which are already listed in the UK. Bulk cargo is by far the principal source of income for the Georgian carrier which said it accounted for almost all the near $300 million of revenue earned last year.
Figures produced by the rail group show an encouraging level of earnings for any potential investor, when announcing large across the board salary increases in January the rail company declared a reduction in operating expenses of 2.5% whilst net profit rose 43% however, unlike previous major rail deals in countries like the US, there are factors to consider outside of the normal parameters.
Principal amongst these is that the political situation in the region is far more fluid. There are always tensions between Russia and Georgia and there is competition for the expanding energy trade from places such as Azerbaijan and Kazakhstan with the two countries vying to be the principal conduit for oil and other products from these regions to Western Europe and beyond. State ownership means Georgian rail traffic is not threatened by competition from within but as such it may lack the credibility of the UK standards of governance necessary for a successful flotation.
The sale is expected next month and analysts’ predictions vary as to the final price but the consensus seems the company value currently stands at around $1 billion with the 25% stake seeing shares held in the form of Global Depositary Receipts according to the Georgian Ministry of Economy and Sustainable Development.
Photo: Gori rail freight sidings Georgia courtesy of Nicolai Bangsgaard.