Research Update:

Investment Holding Company Georgia Capital

Affirmed At 'B'; Outlook Stable
June 29, 2020

Rating Action Overview

PRIMARY CREDIT ANALYST
- Earlier in May, Georgia Capital (GC) launched a tender offer to acquire the remaining 29% of Anton Geyze
Georgia Healthcare Group (GHG) through an equity swap, with the intention of delisting GHG. Moscow
(7) 495-783-4134
- Although this transaction will increase the share of unlisted assets in GC's portfolio to about
anton.geyze
80%, we believe it will slightly reduce leverage and provide GC with room to better adjust the @spglobal.com
portfolio in the medium term.
SECONDARY CONTACT
- Our adjusted loan-to-value (LTV) ratio for GC, including the equity swap and a haircut on Marta Bevilacqua
unlisted investee companies' value to reflect the impact of the COVID-19 pandemic, declined to Milan
37% from more than 40% in March 2020 but is still much higher than 25% in July 2019. + (39)0272111298
marta.bevilacqua
- We are therefore affirming our 'B' rating on Georgia Capital. @spglobal.com

- The stable outlook reflects our view that Georgia Capital's liquidity will remain adequate, its LTV ADDITIONAL CONTACT

ratio below 45%, and the cash flow adequacy ratio higher than 0.7x for 2020 before slightly Industrial Ratings Europe
improving in 2021. Corporate_Admin_London
@spglobal.com

Rating Action Rationale

We expect GC's proposed full acquisition of GHG to be neutral for the rating. GC proposes to
buy out the holders of GHG's remaining shares in exchange for shares in GC, in a transaction
motivated by low liquidity of the currently listed GHG shares. After the transaction closes, which
we expect to occur at the end of July 2020, GHG is expected to be delisted. With that, the share of
listed assets in GC's portfolio will reduce to about 20%, which is in line with the company's policy
to retain about 80% of its portfolio in unlisted assets. Although we foresee asset liquidity
reducing, we consider positive that the transaction will solidify GC's control over GHG. It will also
provide GC with better opportunities to find a strategic buyer for this asset and support GC's
dividend stream. The equity swap also slightly increases GC's portfolio value and marginally
improves its LTV ratio. We therefore see the proposed transaction as broadly neutral for our rating
on GC.

www.spglobal.com/ratingsdirect June 29, 2020 1

Research Update: Investment Holding Company Georgia Capital Affirmed At 'B'; Outlook Stable

GC's current LTV ratio of about 37% remains consistent with the current rating albeit indicating
limited ability to deleverage. The current economic downturn caused by the COVID-19 pandemic
has hurt global equity markets, which remain weak and volatile despite showing some recovery
from the low observed in March 2020. Since then, the Georgian lari (GEL) has gained ground
against the U.S. dollar, with the current exchange rate at GEL3 to $1 versus GEL3.3 to $1 on March
31, 2020. This, together with the impact of the equity-funded minority buyout of GHG results in
GC's LTV reaching 37% compared with more than 40% in March, although still much higher than
the 25% recorded in July 2019. The company is actively involved in evaluating potential exits,
which could support deleveraging over the next two years. However, given the current market
conditions, we believe there won't be any disposals this year. In assessing the value of the
company's unlisted assets, we applied a 10% haircut to values reported in March 2020, since they
already factored in some COVID-19-related devaluation. We note that, despite the spike in LTV, the
company still has some headroom under the 45% threshold for the current rating.

The portfolio includes a high share of defensive assets, which should provide resilience from
the impact of COVID-19. The travel and hospitality sectors are among the most affected by
COVID-19, since the pandemic has brought international travel and tourism to a halt. However,
these sectors represent only a small share of GC's asset portfolio, namely less than 10% of our
adjusted portfolio value. In addition, more than 50% of the portfolio consists of stakes in water
utility, property/casualty insurance, and renewable energy businesses, as well as GHG, which in
our view are less susceptible to volatility risks. That said, for 2020, we foresee GC's dividend
income reducing to only GEL30 million in 2020 from a net dividend of GEL70 million in 2019. This
leads to a decline in our cash adequacy ratio to 0.8x from more than 1.5x in 2019.

The portfolio's small size, foreign currency exposure, weak weighted average credit quality,
and high concentration of assets are rating constraints. The weighted average creditworthiness
of investee companies is in the 'B' rating category. GC's portfolio is valued at about $700 million,
which is smaller than that of many other investment holding companies we rate globally. Also,
there is some concentration since the three largest assets form 62% of the total portfolio. All of
GC's debt is denominated in U.S. dollars, while most of its portfolio companies are focused on the
domestic market and derive revenues in Georgian lari. The above factors alongside GC's sole
concentration in the Georgian economy constrain our assessment of the company's business risk.

Outlook
The stable outlook reflects our view that GC's LTV ratio will remain below 45% in the next 12
months, due to management's proactive measures to maintain leverage commensurate with the
current rating. We also expect GC to maintain its liquidity buffers and refrain from lending and
making capital contributions to investee companies until dividend inflow increases to previous
levels and cash flow adequacy ratio recovers to more than 1x.

Downside scenario
We could lower the rating if there are any signs that GC's liquidity is deteriorating, for example if
cash balances decrease and dividend and interest cash inflows remain insufficient to cover
operating and interest cash outflows. This could also happen if the lari depreciates substantially
against the U.S. dollar, squeezing GC's available cash sources to pay interest. We could also lower
the rating if GC's LTV remains above 45% or the cash flow adequacy ratio declines to less than

www.spglobal.com/ratingsdirect June 29, 2020 2

Research Update: Investment Holding Company Georgia Capital Affirmed At 'B'; Outlook Stable

0.7x and the company does not take immediate action to restore its credit metrics. Rating
pressure could also result from a material deterioration of the credit quality of any of GC's core
investments, which would erode valuations and increase the likelihood of GC having to inject fresh
capital for support.

Upside scenario
We could raise the ratings if GC's portfolio characteristics--such as liquidity, asset quality, and
portfolio diversification--materially improve. In addition, portfolio valuation increases or use of
potential exit proceeds for deleveraging, resulting in LTV ratios staying well below 30%, and
management's strong commitment to a more stringent financial policy could prompt a positive
rating action. An upgrade would depend on liquidity remaining adequate.

Company Description
GC is an investment holding company based in Georgia. Its parent Georgia Capital PLC is listed on
the London Stock Exchange and as of June 25, 2020, had a market value of £171 million. Pro form
the buyout of the remaining GHG minority stake and delisting of GHG, about 19% of GC's portfolio
will consist of listed shares and the remainder unlisted equity participations in investee
companies in Georgia, in banking, pharmaceuticals, health care, utilities, real estate, hospitality,
private education, insurance, beverages, auto services, and renewable energy generation. Its key
investments include 19.9% of U.K.-listed Bank of Georgia; 70.6% of U.K.-listed Georgia Healthcare
Group (we assume ownership increases to 100% followed by delisting); 100% of Georgian Global
Utilities, a water utility business; 100% of M2, a real estate and hospitality business; 100% of
Georgian Renewable Power Company; 100% of Aldagi, a property and casualty insurance
company; 100% of Greenway, a periodic technical inspection business; majority stakes of
70%-90% in three leading private schools; and an 87% stake in Georgia Beverages.

Our Base-Case Scenario

Assumptions
- Decline of real GDP in Georgia of 4.0% in 2020, followed by real GDP growth of 4% in 2021.

- Georgian lari exchange rate of GEL3 per $1 in 2020 and GEL3.07 in 2021.

- Interest income of GEL20 million-GEL25 million annually.

- Dividend income of GEL30million-GEL40 million annually.

- Operating expenses at the holding company of about GEL20 million and interest expenses of
GEL54 million per year.

- No further material debt incurred at GC.

- No dividends in 2020-2021.

- No capital contribution or additional loans to investee companies in 2020.

www.spglobal.com/ratingsdirect June 29, 2020 3

Research Update: Investment Holding Company Georgia Capital Affirmed At 'B'; Outlook Stable

Key metrics
Based on these assumptions, we arrive at the following credit measures:

- An LTV ratio below 40% from less than 25% in July 2019.

- Cash flow adequacy ratio declining to 0.8x in 2020 from more than 1.5x in 2019 and slightly
improving in 2021.

Liquidity
We assess GC's liquidity as adequate. We estimate that its sources of liquidity cover sources by
about 3x as of March 31, 2020. We do not assess the company's liquidity as strong because we
believe it won't be able to absorb significant external shocks without additional financing. We
believe GC has sound relationships with local banks, given its important position as a key investor
in the country.

We understand the company has decided to postpone capital contributions and lending to
investee companies to preserve liquidity in the current environment and in view of reduced
dividend inflow. Nevertheless, its ability to refinance debt could be restricted, since the domestic
capital markets are relatively shallow and GC has no committed back-up facilities. That said, the
company has a smooth debt maturity profile, with a bullet maturity in 2024 when its bond is due.
We understand that management has committed to keep at least $50 million of cash and
equivalents in foreign currency and that the company has no near-term debt maturities.

Principal liquidity sources

We estimate principal liquidity sources over the 12 months from March 31, 2020, include:

- Cash and cash equivalents (mostly sovereign and Georgian corporate bonds) of GEL170 million;
and

- Dividends from portfolio companies and interest income of about GEL48 million after a 15%
haircut to our estimate of dividend and interest inflow of more than GEL55 million.

Principal liquidity uses

We estimate that principal liquidity uses over the same period comprise:

- Operating costs of around GEL19 million;

- Interest expenses of approximately GEL54 million; and

- No dividends to shareholders or share buybacks.

Covenants
The bond documentation contains only an incurrence ratio of net debt to adjusted equity value of
below 45% and we believe the headroom is tightening. However we believe the company is putting
adequate measures in place to restore it.

www.spglobal.com/ratingsdirect June 29, 2020 4

Research Update: Investment Holding Company Georgia Capital Affirmed At 'B'; Outlook Stable

Issue Ratings--Subordination Risk Analysis

Capital structure
GC's capital structure includes the $300 million unsecured bond.

Analytical conclusions
We rate the notes in line with our issuer credit rating on GC, because no elements of subordination
risk are present in the capital structure.

Ratings Score Snapshot

Issuer Credit Rating: B/Stable/--

Business risk: Vulnerable

- Country risk: High

- Industry risk: Intermediate

- Investment position: Vulnerable

Financial risk: Aggressive

- Cash flow/Leverage: Significant

- Funding and capital structure: Negative

Anchor: b

Modifiers

- Liquidity: Adequate (no impact)

- Management and governance: Fair (no impact)

- Comparable rating analysis: Neutral (no impact)

Stand-alone credit profile: b

Related Criteria
- General Criteria: Group Rating Methodology, July 1, 2019

- Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019

- Criteria | Corporates | General: Reflecting Subordination Risk In Corporate Issue Ratings, March
28, 2018

- Criteria | Corporates | Industrials: Methodology: Investment Holding Companies, Dec. 1, 2015

- Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Dec. 16, 2014

www.spglobal.com/ratingsdirect June 29, 2020 5

Research Update: Investment Holding Company Georgia Capital Affirmed At 'B'; Outlook Stable

- General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013

- Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013

- General Criteria: Methodology: Industry Risk, Nov. 19, 2013

- General Criteria: Methodology: Management And Governance Credit Factors For Corporate
Entities, Nov. 13, 2012

- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009

Related Research
- Investment Holding Company Georgia Capital Downgraded To 'B' On Increased Leverage Ratio
Due To COVID-19; Outlook Stable, April 3, 2020

Ratings List

Ratings Affirmed

JSC Georgia Capital

Issuer Credit Rating B/Stable/--

Senior Unsecured B

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors,
have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such
criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. A description of each of
S&P Global Ratings' rating categories is contained in "S&P Global Ratings Definitions" at
https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352 Complete ratings
information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating
action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search
box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support
Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49)
69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.

www.spglobal.com/ratingsdirect June 29, 2020 6

Research Update: Investment Holding Company Georgia Capital Affirmed At 'B'; Outlook Stable

Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any
part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or
retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The
Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers,
shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the
Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results
obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is”
basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT
THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE
CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive,
special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and
opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such
damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are
expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not
recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any
security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on
and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making
investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While
S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due
diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons
that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a
credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for
certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole
discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as
well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their
respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P
has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each
analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors.
S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites,
www.standardandpoors.com (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means,
including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at
www.standardandpoors.com/usratingsfees.

STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.

www.spglobal.com/ratingsdirect June 29, 2020 7