Georgia Capital PLC ("GCAP") today announces that its wholly-owned subsidiary JSC Georgia Capital ("JSC GCAP"), which is the owner of Georgia Global Utilities JSC ("GGU"), a holding company for the GCAP group's ("Group") water utility business and the operational assets of its renewable energy business, has agreed to sell an initial 80% of its equity interest in the water utility business to FCC Aqualia ("Aqualia"), by way of a two-stage transaction. In addition, Aqualia has granted JSC GCAP a put option, exercisable in 2025 or 2026, and JSC GCAP has granted Aqualia a call option, exercisable on the date of expiry of the put option in 2026 and expiring six months thereafter, over JSC GCAP's remaining 20% interest in the water utility business.
Aqualia is a leading water company, with a global presence extending across Europe, America and the MENA region. The disposal is consistent with GCAP's key stated strategic objective of realising the value of one of its large portfolio companies through a trade sale, in order to demonstrate the value and attractiveness of the Group's investment portfolio.
The disposal will be implemented via a two-staged process that, after completion, will lead to Aqualia, through its acquisition vehicle Aqualia SPV, acquiring an 80% equity interest in the water utility business (through the initial purchase of a 65% equity interest in GGU), for a cash consideration of USD 180 million. This values the entire water utility business at USD 225 million, a substantial premium to its latest independent investment value, at 30 June 2021.
For GCAP, the disposal represents a key strategic milestone. We have, for the first time, completed the full investment cycle for one of our main assets: to invest, to grow, and finally to monetise out investment via a cash exit. In addition. The disposal will:
* realise material cash proceeds over and above the needs for re-financing the renewable energy business, which are intended to be deployed in a combination of share buybacks, deleveraging, lending to portfolio companies, and potential further investments;
* create significant value for GCAP shareholders, translating into a substantial premium to the latest independent investment value and a 2.2% uplift to GCAP's net asset value as at 30 September 2021;
* have a positive impact on the Group's leverage profile, reducing the market value leverage from 25.4% as at 30 September 2021 to approximately 19.6%, assuming cash settlement as at 30 September 2021, and a USD 95.4 million shareholder loan to GGU for the Renewable Energy Bond Redemption Financing;
* bring an important international investment and significant industry expertise into Georgia, that will strengthen the water utility business to the benefit of its customers, employees and other stakeholders; and
* form a strategic partnership between JSC GCAP and Aqualia that will support the business at least until such time as either the put option or call option is exercised.
The proposed disposal is a Class 1 transaction and, in accordance with the UK Listing Rules, is conditional upon the approval of GCAP's shareholders, with a shareholder circular to be posted in due course, including a timetable for a General Meeting, expected to be held in late January 2022. The circular will also seek shareholder approval for a break fee, that will be payable to Aqualia to the extent that JSC GCAP fails to transfer the GGU shares to Aqualia at completion of the first stage of the disposal, which is planned to occur promptly after the General Meeting.
The second stage of the transaction will follow the planned redemption in July 2022 of an existing bond issued by GGU that will be financed pro-rata to their interests in GGU by Aqualia and GCAP. Following the bond redemption, GCAP will recover full ownership of GGU's renewable energy assets, and Aqualia's ownership in the water utility business will increase to 80%.
"I am delighted to report to our shareholders that we have delivered on our key strategic priority, announced a year ago, to dispose of one of our large portfolio companies. This is an important milestone for Georgia Capital that marks the achievement of a key strategic priority with the successful completion of the full investment cycle of our strategy: to invest, grow and monetise via a cash exit,” said Irakli Gilauri, Chairman and CEO of GCAP.
“Our Board believes that the price for the disposal represents a strong valuation for the Water Utility Business, and by monetising this asset at a value in excess of its investment value within GCAP's latest net asset value statement, we hope to set a further marker for the value of our entire investment portfolio,” said Gilauri, adding “I am also delighted to have agreed the sale of the water utility business to such a high quality strategic purchaser, Aqualia. The strong Aqualia management team can add substantial value to the water utility business in its new period of ownership, and can count fully on our support as a minority shareholder.”
In Gilauri’s words, GCAP has been working on this transaction with Aqualia's management team for some time, and they have managed to get to know them well. “I have been extremely impressed with their depth of knowledge of the industry and their professionalism, and we are delighted to form a partnership with such strong strategic investors. Going forward, we believe this partnership will further enhance the value of the water business. In addition, I believe it will be highly beneficial for Georgia, and for the local population in the capital city Tbilisi, to have such a knowledgeable strategic investor. When exiting businesses, finding such a strong future owner for our businesses is a key priority for GCAP, and I am pleased to report that, in Aqualia, we have found one.”
“We intend to deploy the net cash proceeds via a combination of: share buybacks, investments in marketable securities, increased cash balance, consideration for further potential business investments, and lending to our portfolio companies, including USD 95.4 million towards the refinancing of the outstanding GGU green bond, payable in respect of the renewable energy business. Immediately after completion of the sale, surplus proceeds will be held in cash and cash equivalents, and yield-bearing marketable securities, pending a review by our Board to determine the appropriate investment, deleveraging and capital return policies in the light of the prevailing economic outlook, the share price and discount to net asset value, and investment opportunities available at the time. This Board review is expected to take place in the first quarter of 2022, when a further announcement with regard to our updated strategic priorities," said Gilauri.
Félix Parra, CEO of FCC Aqualia said: "Georgia is a country that has clearly bet on transparency in governance and ease of foreign investment by offering clear and stable regulatory frameworks in different areas and especially in that of water and energy utilities, as evidenced by the assessment made by independent international organizations and observers.
Aqualia's interest in Georgia and in the Tbilisi water system comes from afar, since it participated in the first privatization process of the water supply and sanitation system of Tbilisi in 2008, and has been following closely and with interest its evolution to date.
The Aqualia and GCAP teams have been working for months on an agreement that creates value for both parties. In the case of Aqualia, this deal represents another milestone on its outstanding growth in management of the integral water cycle in recent years, either by the acquisition of regulated assets, owned, as is the case of GGU, or by the award of long-term concessions.
The agreement reached involves the acquisition of 80% of the water activity and associated hydro power generation assets of GGU, maintaining GCAP a 20% stake in GGU in the coming years. In this way, the combination of its deep knowledge of the country's regulatory framework and the professionalism of its team, together with Aqualia's technology and expertise in the water sector, guarantees continuity in the company's successes, high standards of performance and quality of services.
