Georgia Capital PLC (CGEO) Earnings Call Transcript & Summary

[Audio Gap] We'll talk about the company results and valuation of portfolio companies. And then [indiscernible] As usual, we'll have a Q&A session in the end. [Operator Instructions] So to give you some key highlights of the quarter. NAV per share is up 8.2% in Q3. In pound terms is up 25.5%. That's due to the pound weakness and large strength that was a result of the large increase in NAV per share in sterling terms. We continue to receive the regular dividends from our portfolio companies. We received about GEL 32 million in Q3. In total, year-to-date, we received nearly GEL 85 million. So it's nice to see a continuation of the dividend inflows after the pause we had during the COVID times and dividends have been flowing pretty steadily to Georgia Capital. We also did, in Q3, buyback of our Eurobonds. We bought back around more than $100 million of bonds, $65 million of which we have canceled. We are pleased with the final purchase of our bonds where we bought 0.88 on a dollar in the Dutch auction -- Modified Dutch Auction, which we have done in the end of the quarter. Then what is probably most pleasing is that an NCC ratio, our net capital commitment ratio, has decreased by 2.6 percentage points. And actually, after the end of the quarter, it's decreasing even further. So right now, we are at 22.2% of NCC ratio. It has been decreased substantially in more than 10 percent point since we started to track. We had the end of the last year, debt ratio was around 32%, and we have a substantial decrease there. As you know, our target is around 15% where we would be able to more step up our capital return efforts. So let me turn now the presentation to Nino, who will talk about the macro update.

Hello, everyone. As usual, I will do the brief macroeconomic overview of the country. And of course, we will be more than glad to answer your questions during our Q&A session. So despite the fact that we have significant uncertainty in the world, driven by the hawkish central banks and the tightening financial conditions, causing the recession probabilities to accelerate, Georgian GDP is increasing by double digits. It's for the second year, last year, we had about 10% growth. And now this year, in 9 months, we have according to the preliminary estimates, we have 10.2% growth. So the growth is mainly driven by the external and domestic factors. From the external side, we have recovery in our fixed inflows partially driven by the migration impact. Like we have remittances, which surged by 65%. Excluding Russia, the remittances was still up by 16%, and then we have tourism revenues, which, in 9 months, recovered to 97.5% of 2019 levels. But during the July, September, the recovery was above 100%. And we have exports, which is growing quite nicely. In nominal terms, it increased 37%, but there are the significant drivers, that's copper, alloys and fertilizer prices, so we are up, which drove the nominal terms growth to be high, but in real terms, also exports continue to increase, supporting our economic activity. From the domestic side, we have significant credit expansion. In the first half, loan growth increased by more than 18%, excluding exchange rate impact. And now as of September, loan growth is up by 13.7%. The growth rate kind of moderate on the back of tightened financial conditions but still a quite significant number and drove and helping domestic activity. From the fiscal side, our fiscal policy, kind of moderate, but still supportive as capital expenditure and current expenditure, we are up in 9 months compared to last year. So we have current expenditure which is by 9% and capital expenditure by 15%. From the revenue side, the tax revenues increased by 27%, which is driven by the significant economic activity. But due to the fact that fiscal policy intends to return the fiscal deficit below 3%, so they are moderating this. And of course, we have strong consumer and business sentiment, which supports our economic activity. And in the below chart, you can see the -- our nominal GDP in GEL and in USD terms. So in GEL terms, we expect nominal GDP to exceed GEL 70 billion. And in dollar terms, we expect to be close to USD 25 billion, which is quite positive development these 2 years on the back of double-digit growth of real GDP as well as the significant exchange rate appreciation. So in dollar terms also, GDP is looking quite attractive and the trend is quite significant. On the next slide, we have some comparisons. So recently, during -- yes. So in September, international monetary fund update their outlook. According to their projections, Georgia's GDP is expected to increase by 9%, which is the eighth highest real GDP growth -- forecasted real GDP growth in the world. So -- and looking at the countries, which are above Georgia in terms of GDP growth, those are the countries which are likely mainly Caribbean region countries, small islands or Guyana, which recently discovered oil reserves and they are enjoying like double -- on average, 30% growth in 2020 and 2021. And like the Fiji, which had the 3 year of recession [indiscernible], which enjoying high energy prices. So -- and we are here in the top 10 and mainly the Georgia's growth is driven from the external sector recovery from net inflows and, of course, supported by the migration impact. So -- but just on the next chart, we have the GDP per capita in dollar in purchasing power parity terms. To highlight the fact that we have a sound macro framework and the business-friendly environment, and this solid growth is not kind of temporary. Just to highlight that fact, we are showing the chart. So in terms of comparing to our regional countries and the Baltic states, in level terms, we are still below to the Baltic states, for example, but we have highest growth in GDP per capita in PPP dollar terms, which is, of course, supported by the sound macro policies as well as business-friendly environment of the country. On the next slide, so we have the -- now we can talk about the exchange rate. So GEL is back to the prepandemic level, despite the fact that dollar strengthened significantly on the back of hawkish Fed and increased appetite for the safe haven assets. The dollar appreciated by almost 15% year-to-date but still appreciated against the dollar by more than 13% on the back of recovered FX inflows, rebounding tourism revenues, migration impact. From the domestic side, we should highlight the tight monetary policy. National Bank of Georgia start to tighten since spring 2021. There was significant supply side pressures. We're motivated by the weak demand, and so they start to increase their rate in order to curb the inflation expectations and the total cycle up to date is like 300 basis points. And we expect National Bank of Georgia to keep the rate until they will see significant easing of the inflation expectations. So this tight monetary policy and significant interest rate differential was supportive for the loan growth -- in FX loan growth, which was also supportive for the exchange rate from the domestic side. And then we have also, of course, rebounding economic activity, which supports itself, lending -- and in terms of lending, this interest rate differential, net FX lending to be more attractive and from [indiscernible] mostly the monetary policy and [indiscernible]. From the external side, again, we have the significant FX inflows, like supported by migration impact, which, of course, all of the sectors supporting Georgian GEL, which is back to the prepandemic level. On the next slide, just we want to give you some sense about Russian migrants. According to the National Bank of Georgia, as of September 13, we had -- there were more than [ 100,000 ] Russian residents in Georgia. Of course, we don't know the share intending to stay for medium to long term in Georgia, but there other data, which kind of give us more clarity about the migrants, which intend to stay for medium to the long-term period. Like the total amount of new accounts from Russia, Ukraine and Belarusian resident was 83,500 since war. So there are 83,500 additional banking accounts in our system opened by Russians, Ukrainians and Belarusians, and you can see on the chart with the flows. In September, there was like a second wave of inflation after mobilization were announced by Vladimir Putin. And then we also have the data for the total amount they deposited in our banking sector. And since war, there are additional $635 million deposited by Russian, Ukrainian and Belarusian residents. So in the next slide, we have inflation trends like, as you know, inflation is like a very hot topic and the key variable affecting the central bank decisions around the [indiscernible] capital flows and [indiscernible] capital market. So Georgia inflation, you can see the chart, it's kind since December 2021 started to decelerate, but modestly and slowly. We are still -- we are -- the inflation is still double digits. September -- sorry, October inflation, which 10.6%. And you can see that core inflation is on upward trend. So it is the same factors we are [indiscernible] inflation [indiscernible] oil and utility prices, we are very significant contributor in our inflation, but we see in the international market that is kind of eased, which have a positive impact at least to the base effect, and we expect inflation to kind of soften in 2023. So on the next slide, we have this debt chart, which we want to share that we think that is very important. So the public debt is expected to fall below COVID level -- COVID time levels like below 2019. So according to the current budget, the government expects public debt to decline to 39.5%. And we have -- so there was a 40% debt in 2019. And in terms of the external debt, external debt is also expected to fall below 2019 level, which is very important for Georgia and its resilience to external shocks and its like strength of the external balance sheet. So mainly the debt level declined on the back of double-digit growth of the gross domestic product as well as the positive trend and the significant appreciation of USD, GEL. On the other side, so fiscal -- the government expects fiscal deficit to fall 3.2% this year and below 3% from the next year. So this was the key kind of main slide we wanted to share with you. So we are -- we will be very happy to answer your questions during our Q&A session. So I will hand over to Giorgi for the next presentation.

Thanks, Nino. Let me start the Q3 performance overview and basically, 2 probably highlights of the quarter on top of the -- what I have already mentioned, is that our portfolio companies issued new debt in this difficult market, basically, Renewable Energy business printed $80 million bond for a 7% yield, let's say, 5 years. And importantly, it's callable after year 2. We also have a housing development business, which rolled over $35 million successful -- rolled over $35 million bond at 8.5% coupon, maturing in 2 years' time. That's also a very successful transaction. I'd like to thank our management teams at Renewable Energy and Housing Development business for this achievement of getting these bonds printed. One thing to add, that Renewable Energy business, by printing $80 million bond, we have fully completed our Phase 2 of our Water Utility sales. But as you know, we had a bond attached to Water Utility and the Renewable Energy business, and we have successfully repaid that bond, and we have emerged the Water Utility and Renewable Energy businesses to complete this transaction with sale of the 80% of Water Utility business. So that bond was critical to finish off the full cycle of our transaction. So the next one, actually, I mentioned this one already at buyback, what we have been doing. We still -- gross amount of bond after the buybacks we've done, is around $263 million. $37 million worth of bonds is in our treasuries. We will be buying back here and there as we see the pricing of our bonds going forward. So on the next slide, our -- next slide is our -- the NCC ratio. As you see, we are down to 22%. As I mentioned, we are targeting 15% NCC ratio. However, with increased interest rates in the world, we are not -- we do not have a big appetite for debt. So we'll be aggressively reducing debt even further as we go along. Now on this slide, we have a development of the NCC of our time, and you see we have significantly decreased the ratio over the -- during the past 9 months, nearly 10 percentage points, as I mentioned before. And again, is -- the 15% NCC ratio, what we have the target in this high interest rate environment, we really want the -- part of the debt to be smaller in these ratios. Now looking at revenues of our portfolio companies on a 9-month basis, you see a 35% growth of the revenue year-over-year, I guess, 2020 and year-over-year around 10% growth. One thing to mention that hospitals and clinics did underperform massively due to the COVID revenues gone, and we are basically loading the -- our hospitals and clinics from scratch, some of our hospitals and clinics from scratch that had an effect, a big effect in Q3. The growth is compared to 2020 is 34%, year-over-year is nearly 10% -- so near 11%. On the next slide, we have EBITDA development. As you see on a 9-month basis, EBITDA is down year-over-year by 7.4% to GEL 186 million. And this is mainly, again, about hospital and clinics. That's where we have a bit underperformance, and unfortunately, October continued like that. Year-over-year, we are still down in October. So we actually are expecting -- we expected the recovery to happen in Q3 and Q4, but unfortunately, it's not happening. So it's more like a next year thing to see the recovery of the patient inflows. Q3, again, we have a small growth in EBITDA, around 2% growth year-over-year and 7.6% growth compared to 2020. On the next slide. So the cash flow generation is strong. Our cash balance has increased by nearly GEL 40 million in the quarter to GEL 300 million. Operating cash continues to be strong. We expect, for full year, the strong cash flow, net operating other than in our health care services across our portfolio companies will be [indiscernible] stronger cash flow generation. On the next slide, we see NAV share breakdown. The growth was, as we mentioned, 8.2%. The operating performance negatively contributed to the NAV growth. It was negative 4.7%. And again, the hospitals and clinics was the main cause here. There was some multiple and FX change, which contributed positively around 6%. And the good thing is the Bank of Georgia share price has increased quite significantly and also Water Utility continues to perform well. And therefore, our observable and listed portfolio has grown -- contributed 6.1 percentage point in growth in our NAV per share. The rest, 1% is the buybacks, which we did in Q3, had a positive impact and operating expenses and the liquidity management basically offset each other negative 0.4% and positive 0.4%. What is worth mentioning that, after the end of the quarter, if you look at the Bank of Georgia price appreciation and lari strength, our NAV per share grew even further, grew GEL 60.36, which is nearly -- which is more than GBP 19.3, which is pretty far away from our share price. It is getting further and further away from the share price. On the next one is basically, I'll let the -- I'll let Giorgi to talk about the -- our portfolio companies and the valuation. And in the end, we do the wrap-up and Q&A. Giorgi, please.

Thank you, Irakli. Hello, everyone. I'll start discussing with the portfolio valuations. This quarter, in the third quarter, we performed valuations internally based on the similar methodology that our external valuation company applies every 6 months. So on this slide, you see the breakout of our valuations. The portfolio value was GEL 2.8 billion, which is around $1 billion, and 26% of our portfolio was concentrated in listed and observable portfolio. Around 48% was within the large portfolio companies, 16% in investment stage, and the rest was the other portfolio around 10%. Our largest investment continues to be retail pharmacy as of the end of June, which made up 24% of our portfolio, and that was valued at 8.6x last 12 months EV/EBITDA multiple. We had hospitals business value at above GEL 400 million. And the [indiscernible] insurance businesses together made up slightly less than 10% or GEL 255 million. You see all the multiples here for the key businesses. We will walk through each valuation on the next few slides for our key businesses. But at the end of this slide, I would highlight that Bank of Georgia was valued here at close to GBP 20, which it was trading at the end of the third quarter versus it's trading at GBP 24 by now, and it made up around GEL 600 million value on our balance sheet, and it was 21% of our gross asset value. During the third quarter, the water valuation -- the Water Utility valuation had not changed materially. It remained around GEL 153 million that we had in the previous quarter. We update our Water Utility valuations more deeply every 6 months. With that, on the next slide, you see how the portfolio value changed during this quarter. So we had around GEL 150 million increase in the portfolio value, vast majority of which came from the appreciation in Bank of Georgia's share price that contributed around GEL 142 million to the portfolio growth. Large portfolio companies declined by GEL 25 million. That's due to the hospitals business that we'll see later. Investment stage portfolio companies increased by GEL 11 million, where we had a strong performance in Renewable Energy and the Education businesses. Other portfolio companies also increased by GEL 24 million, largely due to the strong performance within the beer business and the auto services businesses. Now we will look at the -- some key businesses, looking at their operating performance as well as the valuations. And starting with the retail pharmacy business that continued to grow its pharma chain during the fourth quarter. We opened 2 new pharmacies and 2 new franchise stores actually in the third quarter. We opened the first franchise store in Azerbaijan, which is a body shop store that was opened in Baku. This business continued to grow, but it is still ongoing the price recalibration that happened as the result of the large depreciation against dollar. So that's impacting the gross amount of revenue. However, the lari depreciation is still positive for the business as it means that they are also generating FX gains within this business. And also, they had the transition of the wholesale business that moved from this -- from the pharmacy business to the hospital business last year. So it's still ongoing through that transition. However, EBITDA was down here by 12%, but that was largely because of the operating expenses that the expansion has been impacting the operating expenses temporarily, and we expect that impact to go away in the next few quarters. But overall, this business continued to grow in this quarter and has a very strong outlook, which means that, on the valuations, as you see on the next slide, there was a slight increase in the enterprise value for this business. But overall, we saw that the equity value increased by GEL 6 million. So largely the value of this business has not changed materially during this quarter, only GEL 6 million gain that was supported by higher cash generation, for example, net debt decreased but also because of the strong outlook that goes into the DCF. Next is the hospitals business. And as Irakli discussed earlier, the transition away from COVID and the termination of the agreement with the government earlier in March, has continued to impact this business during the transition. So that meant the revenues were down by 18% during this quarter year-over-year, and EBITDA was down even higher by 45%. As a result -- this has been as a result of the lower number of admissions and the lower occupancy rate during the third quarter. And the third quarter tends to be the slowest quarter for this business generally given the way the people elect not to have too many elective surgeries or elective care in the third quarter. As a result and because of the drop in the EBITDA, we have a decrease in the valuation of this business that you see on the following slide. The enterprise value decreased by 5% and net debt was also -- were negatively impacted. So overall, we have a 10% reduction in the equity value of this business. It came down to GEL 432 million and because of the drop in the LTM EBITDA, when we recalculate the value using DCF, we see that the multiple has actually increased from 10.5x to 11.4x. Overall, we have a value -- equity value reduction from this business of GEL 45 million. Next, we have the insurance businesses, where both medical and the P&C insurances had a strong quarter. They had a double-digit growth in the -- in revenues. They also grew double digits on a 9-month basis in revenues. And when it comes to their net profit, medical business had a very strong quarter. The net income grew to GEL 2.3 million but the P&C insurance also benefited from lower combined ratio from the growth in the economy, which was also supported by the growth in the credit life insurance -- issuances and the agriculture insurance lines. And that meant that they had a record amount of profit in the third quarter, which was GEL 6.6 million. Until before, the record number was around good GEL 5 million. So they had a very strong performance, [indiscernible] of this business, we see in the net [indiscernible] business. The value of business grew by close to 7% as the LTM net income for this business also grew by close to 10%, from GEL 18 million close to GEL 20 million. So we had around GEL 14 million gain from this business within our NAV. On the next slide, you see the strong performance of the Renewable Energy business. As we said on the previous call, we are now presenting on dollar terms, which is pretty much the functional currency of this business. So for the Renewable Energy, you see that we had a very strong electricity generation in third quarter. The generation was up by 19%, and on top of the average sale price during the third quarter, was up by around 9% versus last year. So these 2 contributors resulted in a 24% growth in the revenues in dollar terms in the third quarter versus last year's third quarter, and the EBITDA growth was even higher. It increased by 30% in the third quarter. So very strong performance of the Renewable Energy business, which is also the case over the 9 months as well. And on top, this business paid us around $1 million dividends in the third quarter. On the next slide, you see that this strong performance resulted in a higher valuation for this business, although it was higher by about 5%. So the total value of this business is now $61 million, where $47 million is in the operational assets, and about $14 million is in the pipelines. On the following slide, we have a performance for the Education business, which had a stellar quarter. So 1 key highlight here is that, in the third quarter, this business signed up 1,000 -- close to 966 new learners, which we took within our schools and they will be learning for the next year, and we will be recognizing these new revenues over the next 9 to 12 months. Usually, the third quarter is low on the revenue generation because there's only a few days in September when the revenue gets recognized given the summer holidays. But even with that, the business revenues were up by more than 100%, you see in the third quarter, the growth over last year. And in the EBITDA terms, even though it was breakeven, it was still GEL 1 million higher than the GEL 1 million negative EBITDA that we had in this business. So with this new intake, which makes up about 30% growth over last year, the number of learners we have in these schools is now in excess 4,000. The aggregated utilization rate for this business increased by 10 basis points to 73%. And when you look at the capacity utilization of the existing schools without the additional growth that we have this year, end of last year, the capacity utilization is already 100% there. So we expect these new intakes to have continued impact on the revenues in the following quarters and continue to grow this business remarkably in the coming quarters as well. These new additions and the strong performance also had a positive impact on the valuations. And as a result of that, we have about 6.5% growth in the enterprise value of this business. We also have a reduction in net debt as the new sign-up, new intakes meant that people usually in our schools, most of the schools prepaid for the full year tuition. So the net debt was down by 17%, and when we look at this in aggregate, our value in this business increased by close to GEL 12 million, and the multiple was actually down from 15.3 to 14.8. And overall, the equity value was up by 8%. Next and the last one is the clinics and diagnostics business, which is a similar story as the hospitals that continues to be impacted by the transition from COVID world to non-COVID, especially on the back of the termination of the COVID services agreements by the government. So here, aggregated revenues were down by 30%, and the EBITDA was down by 78%, which also had a negative impact on the valuations that you see on the following slide. And the valuations were down by GEL 5 million in the enterprise value and around similar amount in the equity value. So -- and the multiple increased here, more significantly than in other businesses on the back of the temporary decrease in the LTM EBITDA. With that, I think we complete the individual portfolio results and valuations and slightly about the liquidity and the dividend income outlook. Our dividends, so to date, are around GEL 85 million. Our now guidance for the full year is GEL 94 million. We expect to collect from which GEL 85 billion has already come in. There is GEL 9.5 million that we expect to collect in the fourth quarter from Renewable Energy primarily and the insurance -- P&C insurance business. The growth over last year would be around 26%. We also look at dividend income per share. As you know, we have bought back and canceled around 6.5% of our share capital over the last 13 months. So the growth on a per share basis is even higher and it's around 31%. Now in terms of the liquidity, we have a strong liquidity. Our liquidity increased on the back of receipt of $180 million from the Water Utility business. So at the end of September, we had $134 million. That does not include the $90 million worth of loan that we had issued through the Renewable Energy business, where we got back $80 million in October. So if you look at the adjusted number for that, we have $152 million liquidity now, and the gross amount of debt has decreased from $365 million to $300 million as we canceled $65 million worth of our debt issued. With that, I go back to Irakli for the wrap-up.

Thanks, Giorgi. And you see a very good performance across the portfolio of companies other than in the health care and clinics businesses. So only just to reiterate, NAV per share is up more than 25% in sterling terms. Dividends continue to flow, as Giorgi mentioned. We did nice buyback of the Eurobonds and we canceled some of the bonds as well. Most importantly, our NCC ratio has decreased this beginning of the year by 10 percentage points to 22%, and we have a strong momentum there. We will continue to focus on our strategic priority, which is basically further decreasing the -- our NCC ratio. That is our top priority. Especially in the high interest rate environment, the debt is not good for us. So we would be aggressive there for sure. So we expect a significant value creation to continue out of the post COVID, especially we have expectations to our health care business and the clinic business to turn the corner. And especially, I think it's important that the macro is strong, and we expect that, on the back of the strong macro, to benefit our portfolio companies even further. So with this, let me turn into the Q&A session. And Shalva, maybe you going to give [indiscernible] or if somebody who is raising their hand.

Yes. We have a couple of questions. [Operator Instructions] We have a question from [indiscernible].

Just 2 questions from me if you don't mind, a couple of them I guess I'm asking. Why [indiscernible] your bonds yield [indiscernible], but why do you keep selling these bonds [indiscernible]. And second question [indiscernible] about the 1 million shares, I just wonder about the logic behind it. And the third is, if I'm getting the press release correctly, and please correct me if I'm wrong, but you extended a loan to the renewable business in September and then post the issuance of the new debt in October, the renewable business basically paid you back. Is that right? And if that is right, why such transaction in September to October in a such a short period of time?

On canceling the -- first one, why we did not cancel more. So we wanted to keep the bonds $300 million because the bond is an index. So if we would cancel more than $65 million, bond would come out from the index, which our bond investors would suffer with that one. So this is purely to keep our bondholders happy.

Yes, makes sense. Which index is it part of, do you happen to know?

Sorry?

Which index this bond is a part of? Do you happen to know?

I wouldn't know, but...

It'll be same index. It will be a same JPMorgan index. But it makes it more liquid, which is what investors in the bonds like.

Maybe a little bit changed, but basically, we saw that index, why would we cause it to come out on index. That's one. On the -- how we calculate the treasury shares, why we aren't including, so the management shares, which we are talking about is not -- it is awarded but not vested. So we have not worked for it. So when we work for it, we hope to make more money with that for the investors. So you would have more per share -- NAV per share growth. So that is the logic. So we -- it's not the management's yet. But we work for it. So I like to -- we cannot really include something, which we're going to vest in the future. That is the logic. And on the third one was the -- what was...

The renewable business ...

Renewable, this is basically we had to repay with the agreement with the buyer of the Water Utility company. We had to repay the bond, which was outstanding. The Water Utility and Renewable Energy business, which were together around total of $250 million bond. So we had to repay that one. So we bridged the GCAP, gave the bridge to the Renewable Energy business, which next month they printed their own bond, they repaid back.

It's just timing mismatch...

It's basically a mismatch, yes. I mean we could not have pretty -- to be honest, in September because the company was not ours, we didn't have full control of the company. Anyway, this is -- technically it's a bridge we provided and then it was repaid.

Thank you. We have [ Al ] raising hand.

Yes. Good numbers as ever. I've got 2 questions. One, could you talk about how your businesses are being affected by the Russian immigrants coming in and whether you see opportunities there additional to what you have or anything along those lines? And then secondly, obviously, Bank of Georgia stock have been doing well. But can you just talk about what your thoughts are on your medium-term strategy of your 20 plus percent stake there?

Thanks, Al. I mean, on the Russians coming over, we had [indiscernible] impact across the whole portfolio companies as you can see. So the opportunities are [indiscernible] we are really present. But if you look at the across-the-board in [indiscernible] the growth in [indiscernible] business, the consumption has increased dramatically [indiscernible] has a positive, has increased quite significantly. [indiscernible] businesses or consumer-driven business [indiscernible] more impact, immediate impact. And [indiscernible] some more proportionate, as you know, is [Technical Difficulty] Regarding the Bank of Georgia stake, it's been moving in the right direction. Share price [indiscernible] and we don't have any plans [indiscernible] as we see analysts coming out with a very big target price than it sold before, GBP 40 plus, and I think it's even more -- should be more than that. Let's wait and see results, but I think that the Bank of Georgia is -- plans for us is, in medium term is basically holding, enjoy the dividend inflows.

We have a couple of questions in the Q&A panel. The first 1 is on [ Brent ]. Regarding your comment about NCC ratio and higher rate environment, did I understand correctly, you aim to reduce the net debt below the total of planned investments plus liquidity buffer or investments plus buffer plus buyback commitments. So for a sizable buyback, should we expect an NCC ratio of 50% before the buyback commitment or including the buyback commitment?

If it should include, obviously, buybacks are going to start with. But as I said, the NCC ratio consists of 2 things -- or maybe 3 things, mainly, right? So it's a net debt. It consists of the investment commitments and it consists of the buffer. So buffer is buffer. We need to have a buffer all the time. So we are looking at now 2 parts of that. One is the investment commitment and the debt, net debt, right? So in this interest rate environment, as we have grown, we have set this NCC ratio, et cetera, in May when interest rate wasn't that high. But now with the very interest rates to where we are right now, our appetite to hold debt has been decreased substantially. So basically, the 15% is over the cycle. And we need to look at -- it's not a scientific approach here. But obviously, we will need to have a -- will need to be significantly lower, the than [ 18% ] in order to commit for the buyback, right? And plus, we need to make sure that our debt is reduced substantially so that we don't have a cash burn. Because for instance, if you take now the market price of our bond, it is trading to [indiscernible] what we have printed. So even if we have to grow debt, right now, we would be in the same state as we're [indiscernible]. So this way, I mean we need to be more aggressive in reducing this because if we're going to have the same cash leakage, I think that the banks are providing the capital return policy to the investors, we won't be there. So this high interest rate obviously is very profitable for us to step out any buybacks.

Thank you, Irakli. Next, I think [ Henry Dixon ] wants to ask a question.

So just to keep going on. My first question is going to be a little bit repetitive around the deleveraging, which, by the way, I completely approve of. But I'm just trying to think around the options of deleveraging. It seems you would have the ability to buy back your debt. And I take your comment around the bonds yielding 11, but I would sort of note that, that is -- the majority of it is clearly the interest element, but the balance is the [indiscernible] and you're only responsible for the interest rate element. And I'm thinking, is it credible in order to deleverage for you to be holding cash getting ever greater interest rates at the bank? Or do you need to delever by generating cash and buying back the bond? And then I have one more question after that. But I'm sorry that's a repetitive question, but it just seems if I look it.

Henry, sorry, the generating the cash, you mean getting more dividends out of our portfolio companies and deleveraging like that?

Yes. So I'll tell you slightly better what I mean. So let's say the bond, okay, trading at [indiscernible] maturity '24. The coupon is 6, okay, so essentially, your interest cost is 7 in year. Now I get the yield to maturity, taking the total return on the instrument to 11 or 12. But broadly speaking, you need to pay the interest and you are always going to pay the capital. And I'm just thinking about it seems to me with interest rates in Georgia, 11, that you have a very valid catalog charge to hold gross cash against gross debt and not mobilize cash to buy back debt.

Yes. I mean if you can buy back, you mobilize that. Right now, we cannot buy back more debt. But I think we will buy back more debt. But I think the point here is that, for us, it's a very simple math, right? So let's say that our -- the coupon which we will need to pay on the rollover in March '24, the bond matures, right? So we're going to roll over the bond. If you roll over the bond, our gross bond, we will need to rollover, most likely is around $175 million to $200 million. So $175 million is too low. So let's say, $200 million, we need to roll over. So we will be paying the same coupon cash amount, total cash amount as we are paying on $365 million, which means we will be so heavy in the payments that we can't really provide meaningful capital return or any capital return [indiscernible] $1 million bond as we've with $365 million bond.

Okay. Totally understand. Okay. And as I said already, I approved of your capital management on, a, on the action, b, that you turned it to the debt. I was just trying to think around, if you like interest rate arbitrage, but I completely understand now and thank you for that answer. And then I guess your comments around the bank. I was just sort of -- your view on how the disposal of the utility has gone, how your partner is responding to that and the outlook maybe for further disposals from what, I would say, is the unquoted element because I think the more that you can prove up the unquoted element with regards to third-party verification, which can come in the form of disposals, I think that will further serve to unwind the discount.

Henry, absolutely. Basically, I mean, we are -- we have done the transaction on the Water Utility, which was 30% premium to our NAV, which was basically 3x more than what market was valid at the time. So since then, we have proven to the market that our NAV is actually quite -- we are conservative in NAV. The discount has widened. On the discount, NAV has widened since then, right? So we obviously -- we would rather put the price on the unquoted portfolio and use that one for the deleveraging than the quoted one, right? So especially the quoted one is grossly undervalued in our opinion.

So hence, my question with regards to the probability you would ascribe to third-party verification in the form of a partial sale to the unquoted element in the portfolio in, let's say, the next 12 months?

Basically, that's what market is telling us, right? I mean, we speak the language of the market. But sometimes, we don't understand the reaction. We understand them, but I don't think they understand us.

So we have a couple of questions in the Q&A. The first one is on [ Jonathan Kerry ]. Congratulations on another set of excellent results, slightly into minds over the NCC results. Whilst it shows increasing operational freedom, does it not also suggest that the business is running out of things to invest, support? Perhaps you could clarify how you see it? And the follow-up question is, I recognize this is not the company's plan, but as one of the big pieces of the Georgian investment market is not capital-intensive areas, one that you could have clear differentiation in. That's the question from Jonathan Kerry.

So basically -- thanks, Jon, for the question. I think that we can have a long discussion on that one. But I mean, right now, I mean, we have a investment pipeline in our portfolio companies in an asset-light kind of industries, which will be to enlarge our pharmacy chain, enlarge our clinic chain and enlarge our Education platform, which are the 3 growth areas, which we think we will be investing and will be growing. However, any meaningful investment in the Georgia makes no sense when our share price is 70% discount to NAV. We believe in our NAV. We value our NAV in a way that we believe it's pretty conservative. So what can we find the better investment in Georgia than Georgia Capital shares itself? And as I said, the only thing what we hold -- holds us back to make bold moves in that direction is the leverage what we have on our books, especially in the context of increased interest rates, which would result in a higher cash outflows from the GCAP. So that's where we are, and we absolutely will be delighted to see our share price discount, our NAV discount to shrink, so which would allow us to bring more interesting investment opportunities. In general, to be honest, on new investment opportunities, we don't really like to go into the new sectors. We would like more to do bolt-ons, to be honest. That's more our kind of our current thinking. I hope this answers your question.

Thanks, Irakli. The next question is from [ Dan Cartridge ]. Why do you think the trust continues to trade on a very wide discount? And what can you do to help narrow it on top of buybacks?

Dan, thanks for the question. I don't know why it has -- continues to trade on a very wide discount. To be honest, it's kind of, for me, a mystery, but many market participants would know better. What we can do to narrow this discount is other than the buybacks is what we talked with Henry, putting the price on the unquoted part of our portfolio.

Thanks, Irakli. We have a couple of questions that came through the e-mail from [ Simon Prowse ]. I think you already addressed the first one, but I'm going to still read it out. So the question is you would CGEO consider monetizing some of the BoG shareholding to take advantage of the extreme discount to NAV. With the increased market cap liquidity and interest, one, would you mention that there could be significant appetite for a decent block trade. With BoG buying back shares, our ownership of BoG is growing, could be considered at least keeping our ownership percentage static and use the proceeds to buy back CGEO shares? That is the question from Simon.

We definitely [ aren't ] going to sell Back of Georgia because we think that is grossly undervalued. I'm going to repeat that again and again.

Okay. And the next one is would CGEO consider committing to buy back enough stock to cover the management performance rights? Obviously, the right to improve alignment and [indiscernible] incentives. But when [indiscernible] such a huge discount to NAV, the cost of shareholder is much more significant.

So we are buying back. So it's not a question about we are buying back shares for the management. We are creating new shares and are fully understanding of concern, and we are doing that, and we will do that, especially on the side discount like that. If discount -- if you go into premium to NAV, then we may print and not buy.

Thank you, Irakli. I think -- there are no more questions outstanding for now. [indiscernible] wants to ask a question.

Just wanted to ask if you can provide us with an update on the disposal of the subscale businesses. Is there anything new you can you can share or if you can tell us if you're in any active discussions with this respect?

Thanks so much for the question. It's very hard for me publicly discussing what we are doing privately. It's really very hard, so I cannot really -- we are working on it. We have a full commitment. We think that you saw that the other businesses, subscale business performed well. They actually doubled the EBITDA, literally doubled year-over-year. So operating performance, we are extremely happy with that. we want to extract the maximum out of this, and we don't want to be a poor seller for sure.

I think there are no questions for now.

Thanks, everybody, for -- we'll wait for a couple of minutes. If there are no further question, thanks, Shalva and Giorgi and Nino for your presentations. Thanks, everybody, for attending our call. Please stay tuned. I think we're going to have interesting next 2 to 3 years. Bye-bye.