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Recommendations

Objectives to be Achieved

Performance Indicators

Responsible Agencies

Duration

Comment

• Conduct the 2^nd round of the privatization process through GSE;

• Involve the Investment Funds into the privatization process.

• Privatization process is improved (Objective 13);

• Potential of the capital market is increased (Objective 2).

• The companies included in the privatization list of the 2^nd round should be privatized through GSE;

• A number of (at least 3-5) Investment Funds take part into the privatization process.

DSPM

NSCG

GSE

• 1-2 years

• With the technical assistance of the WB.

• About 80% of the leading Georgian companies, which currently are not traded at GSE, have to be included into the list of the securities traded at GSE;

• Government of Georgia (GoG) must introduce some incentives (e.g. simplified tax regime) for those corporations that decide to be listed at GSE.

• Majority of leading companies are traded at GSE (Objective 4);

• Potential of the capital market is increased (Objective 2).

• Majority of leading Georgian companies are listed at GSE;

• Simplified tax regime is introduced for the corporations traded at GSE.

PoG

MoF

NSCG

GSE

• 1-2 years

• With the technical assistance of the WB

• Prepare and adopt the amendments into the Tax Code of Georgia (TCG);

• Conduct the tax administration reform.

• The tax system is simplified (Objective 7);

• There is an adequate tax code (Objective 6);

• Incentives for paying bribes/Hiding profits are reduced (Objective 11);

• The level of corruption is reduced (Objective 10);

• Transparency of corporate disclosure is increased (Objective 12);

• Reliability of financial disclosure is increased (Objective 28);

• Corporate governance practice is improved (Objective 17).

• Business-friendly tax code is in place;

• Simplified tax regime for securities and corporations are established;

• No frequent changes into the tax code are made;

• Collection of taxes is increased;

• Companies file more reliable information about their profits;

• Companies increase the transparency and quality of corporate disclosure.

PoG

MoF

STD

• 6 months

• Ongoing

• With the technical assistance of the WB;

• In consultations with NSCG.

• Make amendments into Law on Audit Activity (LAA) to adopt International Standards on Auditing (ISA);

• Ministry of Finances (MoF), together with Parliamentary Council on Audit Activity (PCAA), requires audit companies to conduct audits in compliance with the International Standards on Auditing (ISA).

• ISA is adopted into the law (Objective 34);

• There are adequate auditing standards (Objective 33);

• Incentives for paying bribes/Hiding profits are reduced (Objective 11);

• The level of corruption is reduced (Objective 10);

• Transparency of corporate disclosure is increased (Objective 12);

• Reliability of financial disclosure is increased (Objective 28);

• Corporate governance practice is improved (Objective 17).

• International Standards on Auditing is adopted into law;

• Audits are conducted in compliance with International Standards on Auditing;

• Companies file more reliable information about their profits;

• Companies increase the transparency and quality of corporate disclosure.

PoG

PCAA

MoF

• 6 months

• Ongoing

• With the technical assistance of the WB;

• In consultations with NSCG and GSIA.

• National Securities commission of Georgia (NSCG) requires reporting companies to prepare their financial accounts in compliance with the International Accounting Standards (IAS).

• IAS is enforced (Objective 9);

• There are adequate accounting standards (Objective 8);

• Incentives for paying bribes/Hiding profits are reduced (Objective 11);

• The level of corruption is reduced (Objective 10);

• Transparency of corporate disclosure is increased (Objective 12);

• Reliability of financial disclosure is increased (Objective 28);

• Corporate governance practice is improved (Objective 17).

• Reporting companies prepare their financial accounts in compliance with the International Accounting Standards;

• Companies file more reliable information about their profits;

• Companies increase the transparency and quality of corporate disclosure.

NSCG

MoF

• 3 months

• Ongoing

• In consultations with GSIA.

• National Anti-Corruption Bureau of Georgia (NACB) conducts the assessment of the activities carried out by the tax administrations.

• The level of corruption is reduced (Objective 10);

• Transparency of corporate disclosure is increased (Objective 12);

• Reliability of financial disclosure is increased (Objective 28);

• Corporate governance practice is improved (Objective 17).

• Index of corruption is lowered;

• Companies file more reliable information about their profits;

• Companies increase the transparency and quality of corporate disclosure.

NACB

• Ongoing

• With the technical assistance of the WB.

• Georgian Securities Industry Association (GSIA) should conduct training courses, seminars, workshops, etc. amongst shareholders, company directors and members of supervisory boards on the best practices of corporate governance;

• NSCG enforces the corporate governance standards.

• Educational campaign is conducted (Objective 27);

• Shareholders have sufficient knowledge about their rights (Objective 26);

• Entrenched culture of abusive self-dealing is lessened (Objective 16);

• Shareholders' meetings are held regularly (Objective 29);

• The role of supervisory boards is increased (Objective 35);

• Corporate governance practice is improved (Objective 17).

• Majority of company directors and members of supervisory boards, as well as interested shareholders take part in training courses;

• NSCG conduct quarterly/annual audits of JSCs;

• Shareholders' meetings are held annually;

• Supervisory boards' meetings are held on a quarterly basis.

NSCG

GSIA

• 1 year

• Ongoing

• With the financial and technical assistance of the USAID.

• Prepare and adopt the regulations for Pension Funds;

• Prepare and adopt the regulations for Mutual Funds.

• Legislation for financial intermediaries is adopted (Objective 23);

• Financial intermediaries are well-developed (Objective 21);

• Large domestic institutional investors are present at GSE (Objective 20);

• Larger volumes of capital resources are directed to GSE (Objective 18);

• There is a competition at GSE (Objective 22);

• There is a strong market for corporate control (Objective 30).

• Private Pension Funds start functioning in the country;

• Mutual Funds start functioning in the country;

• Large domestic institutional investors take part in trading at GSE;

• Volume of trades at GSE is increased substantially;

• Number of participants in trading at GSE is increased;

• Investment funds take active role in the work of supervisory boards/shareholders meetings.

PoG

MoF

NSCG

GSE

• 1 year

• With the technical assistance of the WB.

• Adopt the investment compensation schemes;

• Strengthen the bankruptcy system;

• Adopt the rules for takeovers.

• Adequate legislation for investor protection is adopted (Objective 24);

• Financial intermediaries are well-developed (Objective 21);

• Large domestic institutional investors are present at GSE (Objective 20);

• Larger volumes of capital resources are directed to GSE (Objective 18);

• There is a competition at GSE (Objective 22);

• There is a strong market for corporate control (Objective 30).

• Investment compensation schemes are in place;

• Regulations for the bankruptcy system are in place;

• Rules for takeovers are in place;

• Large domestic institutional investors take part in trading at GSE;

• Volume of trades at GSE is increased substantially;

• Number of participants in trading at GSE is increased;

• Investment funds take active role in the work of supervisory boards/shareholders meetings.

MoF

NSCG

GSE

• 1 year

• With the technical assistance of the WB.

• Assign an adequate Inspection, Investigation and Enforcement power, including the criminal prosecution authority to the National Securities Commission of Georgia (NSCG);

• Increase the budgetary support of the NSCG;

• Make the NSCG accountable to the President of Georgia;

• Develop the code of ethics for NSCG;

• Develop the program to supervise Self‑Regulatory Organizations (SROs);

• NSCG installs the market surveillance and stock watch system.

• Power of the NSCG is increased (Objective 40);

• Budgetary support of the NSCG is increased (Objective 37);

• Accountability of the NSCG is increased (Objective 36);

• Code of ethics for the NSCG staff is developed (Objective 38);

• Program to supervise Self‑ Regulatory Organizations (SROs) is developed (Objective 39);

• The NSCG does function in an effective manner (Objective 39);

• Regulations are enforced in an effective manner (Objective 42);

• Trading transparency is enforced (Objective 43);

• Unfair trading is deterred (Objective 44);

• Fairness of Market is ensured (Objective 45).

• NSCG has the criminal prosecution authority;

• Budget allocations to NSCG is increased;

• Rules are in place that make the NSCG accountable to the President of Georgia;

• The code of ethics for NSCG is in place;

• The program to supervise SROs is in place;

• Trades are conducted in a transparent manner/information is easily available;

• Facts of unfair trading are detected and/or deterred.

PoG

NSCG

GSE

• 6 months – 1 year

• In consultation with the IOSCO.

• Special training courses are conducted for the judges dealing with corporate disputes/ protection of shareholders rights.

• Georgian court system is improved (Objective 32);

• Shareholders rights are enforced adequately (Objective 31);

• Fairness of Market is ensured (Objective 45).

• Judges have sufficient knowledge of corporate/securities laws;

• Number of complaints against judges is reduced.

MoJ

NSCG

GSIA

• 6 months

Kazbegi JSC

Sector:

Consumer Goods

GSE Ticker:

KAZB

Summary Information:

• Kazbegi JSC is the leading Georgian brewery and producer of non-alcoholic drinks, coffee, cigarettes, etc.;

• Last year the company reported an impressive 75% increase in annual sales to GEL 9.4 mln., although the sales figure fell somewhat behind the management's ambitious estimate of GEL 12 mln.;

• Net profit of the company increased by 18% to GEL 1.4 mln., translating into EPS of GEL 0.51;

• Capital expenditures amounted to GEL 1.7 mln. that were mainly used for modernizing the existing facilities;

• The company's assets grew by 21% over the year to reach GEL 7.7 mln.;

• The company's equity increased by 25% and amounted to GEL 5.6 mln.;

• The company continues to pay dividends, which amounted to GEL 240 thousand or GEL 0.086 per share. At current prices dividend yield amounts to 3%.

Source: Galt & Taggart