OFFICIAL USE TERMS OF REFERENCE. Development of Corporate Strategy and Business Plan for Georgian Stock Exchange

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1 TERMS OF REFERENCE Development of Corporate Strategy and Business Plan for Georgian Stock Exchange 1. BACKGROUND The technical cooperation (TC) project is taking place within the European Bank for Reconstruction and Development (the EBRD or the Bank) initiative on Local Currency and Capital Markets Development (LC2). This Bank-wide strategic initiative aims to identify and support sequenced reforms and policies in EBRD s countries of operations (CoOs) that contribute to local currency and local capital market development. The Bank supports this role by producing focused studies and providing TC projects to increase the access to local currency and to strengthen the functioning of capital markets. In October 2016, the EBRD signed a Memorandum of Understanding (MOU) with the Ministry of Finance of Georgia (MOF) and the National Bank of Georgia (NBG) under the EBRD SME local Currency Programme in Georgia. The MOU includes an action plan for the further development of the local capital markets and improvement of financial intermediation in local currency. One of the actions listed in the MOU is the development of the capital market infrastructure. As a core element of the capital market infrastructure, a well-established stock exchange can contribute to mobilising financial resources for sustainable economic growth and development and promoting good governance in business practices. There are also opportunities to build on this financing function by enhancing access of Small and Medium-sized Enterprises (SMEs) to capital market financing, and to enable the mobilisation of capital to address significant long-term sustainability challenges. In an international comparison, the Georgian securities market is still relatively underdeveloped. The local securities market has very limited market liquidity and trading volumes. It is characterised by a high degree of fragmentation, no reliable price formation and lack of transparency in execution of trades. This is especially true for local equities market, where more than 99 per cent of all trades are done over the counter. The Capital Market Infrastructure (CMI) consists of the two stock exchanges, namely the Georgian Stock Exchange (GSE) and the Tbilisi Stock Exchange (TSE) 1, and one central securities depository (GCSD). The local banks are the main investors in the corporate bond market. To develop the local capital market it is important to prepare a comprehensive and actionable capital markets plan, consolidate the local CMI and deepen the sources of financing. 2 Additionally, issuers are also concerned in regard to the relatively high cost of equity financing and local investors hesitate to invest in securities which they perceive as highrisk investment options. 1 The TSE was founded on May 2015 by Georgian Stock Exchange. The purpose of founding was to obtain funds for business development through the sales of the shares of the TSE. The GSE owns 35.22% of the TSE shares after the TSE increased its shares in December The TSE and GSE own 75.06% and 24.65% of the GCSD shares, respectively 2 P22, Strategy for Georgia as approved by the Board of Directors on 14 December 2016

2 Thus, the EBRD wishes to engage a consulting firm (the Consultant) to support the MOF, the NBG and the Georgian CMIs to develop the corporate strategy and business plan of the CMIs, including the consolidation of the local CMIs and potential regional integration of the stock exchanges. 2. OBJECTIVE Overall Objective The overall objective of the assignment is to support the consolidation of the local CMI and the strategic development of the stock exchange especially in a regional context. Specific Objective The specific objectives of the assignment are to (a) review of the current status of the CMI and identify barriers for the further development of the CMI and the Georgian capital market, and (b) develop a corporate strategy and business plan for the GSE, the TSE and the GCSD with the aim of making them commercially viable businesses so that they continue serving local capital market needs for the foreseeable future. 3. SCOPE OF SERVICES In order to fulfil the objective outlined above, the Consultant will be required to carry out the below activities. Activity 1: Assessment of the local capital market with focus on areas impacting the development of Georgian CMIs The aim of the Activity 1 is to assess the local capital market and to identify barriers and potential improvement levers which will impact development of the CMI locally as well as in a regional context. The Consultant will carry out the following tasks: (a) Diagnostic review of the Georgian capital market and the traded instruments as well as CMI with focus on the stock exchanges, CSDs, securities registrars and their potential consolidation. The Consultant will analyse the current market set-up, the traded products and the role of the key capital market institutions as well as the current legal and regulatory framework, which may impact the development of CMI. The Consultant will especially analyse the business operations of the CMI in Georgia and the feasibility of their consolidation and potential regional integration. (b) Identification of the current challenges and barriers that prevent the development of the Georgian CMI based on the diagnostic review. (c) Organise explanatory workshop focusing on capital market objective and structures to the MOF, the NBG and local market participants. (d) The Consultant will conduct desk research as well as on-site interviews with relevant key stakeholders. An interview list should be agreed with the MOF, the NBG, the GSE and the EBRD beforehand. (e) The Consultant will prepare a Diagnostic Review Report summarising the findings and

3 outcomes of the Activity 1. Activity 2: Development of the Corporate Strategy and Business Plan for the Georgian CMIs Based on the findings of Activity 1, the Consultant will develop the corporate strategy and business plan for the GSE, the TSE and the GCSD to support the development of the Georgian capital market infrastructure. The Consultant will carry out the following tasks to develop the recommended corporate strategy and business plan; (a) Definition of the strategic direction and business priorities for GSE, TSE and GCSD. (b) Recommendation for the optimal set-up of the CMI. (c) Definition of measure to develop the demand and supply side; including strategies for promoting listings and trading on regulated trading venues. (d) Identification of exchange-traded financial instruments which can be introduced by the GSE. (e) Identification of measures to improve market transparency, price discovery and investor protection. (f) High-level IT system road map covering trading, information distribution (including timely market data dissemination), clearing/settlement and other relevant functions applicable to the CMI. (g) Strategic direction to improve corporate governance of the CMI. (h) Implementation roadmap for each CMI for the identified issues above. (i) Preparation of a detailed 5-year business plan for the GSE, the TSE and the GCSD based on the recommended corporate strategy. It should include detailed roadmap for making the GSE, the TSE and the GCSD commercially viable and investible businesses, supported by roadmap-based financial analysis and projections. (j) High-level analysis of the potential impact of implementation of EU Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) on local capital market and CMI. It should include recommendation on which EU MiFID II/MiFIR should be implemented/adopted by Georgia first, prioritising them in terms of their relevance to Georgia, taking into account the current state of development of local capital market and CMI and the roadmap for implementation of the proposed business plan. The Consultant must pay close attention to timing and sequencing, factoring in priorities, time required and feasibility of implementation. In addition, the Consultant should take into account the structural legal framework, as well as financial and operational impediments and challenges faced by the GSE, the TSE and the GCSD as going concern entities. The GSE, the TSE and the GCSD are expected to cooperate with the EBRD and provide necessary inputs and support. The Consultant will prepare a report Corporate Strategy and Business Plan for Georgian Capital Market Infrastructure summarising the findings and outcomes of the Activity 2.

4 Activity 3: Organising the final workshop to present the findings and proposed recommendations to the stakeholders The Consultant will organise a final workshop with stakeholders to present the results of the Assignment for a final review before publishing the final document. The consultant will incorporate comments related to the final document. The participants list should be pre-agreed with the MOF, the NBG, the GSE and the EBRD. The final document has to be made available to all involved stakeholders at once. 4. IMPLEMENTATION ARRANGEMENT The Consultant will be contracted by the EBRD and project oversight will be provided by EBRD s Operation Leader (OL). The Consultant will report directly to OL and will work closely with the OL. The Consultant will have overall responsibility for delivering the Assignment according to the agreed work plan and will, as such manage the project implementation and actively monitor the progress achieved. The Consultant shall carry out the tasks stated herein through coordination and management provided by the EBRD s OL and any other person explicitly authorised by the OL. The MOF, the NBG and the GSE will nominate a project manager who will work with the Consultant on a day-to-day basis. The MOF, the NBG and the GSE will provide the Consultant with available information during the Assignment implementation. The Consultant together with the MOF, the NBG and the GSE will organise a workshop under Activity 3. The Consultant will nominate a Consultant Team Leader (CTL), who will manage the project for the Consultant, monitor the quality of the work produced and have overall responsibility for delivering the Assignment in accordance with the agreed work plan. The CTL is furthermore responsible for communication between the MOF, the NBG, the GSE, the EBRD and the Consultant. the MOF, the NBG, the GSE and the Consultant are expected to cooperate closely, while the Consultant should also liaise regularly with the EBRD s OL. The Project will take place both in-country and off-site, and the Consultant will be required to have the necessary administrative capacity for the implementation of this Assignment. The Consultant should not expect that the EBRD will provide logistical support and, therefore, the Consultant should provide their own office, communications, interpretation/translation, and other Assignment-related logistical support. The duration of the Assignment is 6 months. 5. REPORTS AND DELIVERABLES The Consultant shall deliver all tasks set out in Section 3. Scope of Services. All deliverables should be in English and Georgian languages, and must be satisfactory to OL. All deliverables will be produced in hard copies and electronic format as requested by the EBRD. The disbursement of payment will be contingent upon timely submission and approval of the agreed deliverables.

5 # Deliverable(s) Timing Inception report The Inception report will include an overview of tasks, time allocations, To be delivered within two weeks of project 1 expected timelines and intermediate start. deliverables. Activity 1: Assessment of the local capital market with focus on areas impacting the development of Georgian CMIs 2 Explanatory workshop 3 Diagnostic Review Report To be delivered within four weeks of Project start To be delivered within six weeks of Project start and to form part of the Final report. Activity 2: Develop the Corporate Strategy and Business Plan for the Georgian CMIs 4 Report on Corporate Strategy and Business Plan for the Georgian Capital Market Infrastructure To be delivered within 18 weeks of Project start and to form part of the Final report. Activity 3: Organising the final workshop to present the findings and proposed recommendations to the stakeholders The timing will be pre-agreed with the MOF, the 5 Final stakeholder workshop NBG, the GSE and the EBRD. Consolidated Final report 6 Final Report (covering activities 1-4) and the Slides of the stakeholder workshop. 6. CONSULTANT PROFILE The Final report, with executive summary, should be a consolidated report covering all deliverables that have reflected all comments and feedback from the EBRD and other stakeholders and should be submitted within six months after the Assignment starts. Corporate services are sought: the Consultant will be a firm or a consortium of firms specialised in capital market development and especially stock exchange business. The Consultant must have a proven track record working with capital market institutions, market participants and authorities on similar consulting assignments. The Consultant will form a project team of experts to carry out the Assignment. The provided expertise should cover all areas as defined in the scope of work. Consultants who can prove local language skills within their team will have an advantage. The Consultant may associate to enhance its qualifications. As a minimum, the Consultant s team of key experts shall consist of: a. The Consultant Team Leader and Capital Markets Expert: - Preferably around 10 years of consultancy experience related to capital market development projects, especially in relation to stock exchanges. - Preferably more than five years of project management experience including acting as a team leader on similar assignments.

6 - Proven track record in capital market development projects, especially for developing corporate strategies and business plans for stock exchanges. - Experience working on a minimum of three similar projects in both emerging and developed countries. - Excellent presentation skills. - Excellent proficiency in written and spoken English. b. Pool of Capital Market Infrastructure Expert(s): - Preferably around five years of consultancy experience in the field of capital markets development with special focus on capital market infrastructure. - Good understanding of the business operations and IT functionalities of capital market infrastructure such as; stock exchanges, central securities depositories and clearing houses. - Experience on CMI level is a plus. - Proven track record of working with market participants and authorities on similar consultancy assignments. - At least one member of the team should have extensive experience in preparing corporate strategies and business plans. - High proficiency in written and spoken English. It is important that at least one expert has in-depth knowledge of the Georgian capital market and relevant contacts with market participants/stakeholders. 7. DONOR VISIBILITY Japan has generously contributed, via the Japan-EBRD Cooperation Fund, to the SME LCY Fund to support Technical Cooperation programmes in ETCs to deliver the SME LCY Programme. The Consultant will be required to ensure the visibility of the Donor. Support on these visibility aspects can be obtained from the Bank s Communications Department. Measures could include but are not be limited to: All documents produced by the Consultant should mention donor support and bear the logo of the donor, when appropriate. Donor support to the project should be acknowledged in any public communication (press releases, launch of facilities). Local representatives of donors should be invited to any public event organised to promote the project (press conferences, inaugurations, possibly stakeholder participation programmes). Some donor visibility guidelines will also be provided by the Bank to the Consultant at the start of the Assignment, if required.