Tbilisi (GBC) – Investment company TBC Capital offers an optimal currency strategy for financing large businesses and claims that using only equilibrium exchange rate forecasts, the Georgian corporate sector could have received a potential benefit of GEL 6.3 billion in the last five years. The company’s researchers believe that when choosing a loan currency, not only the interest rate is decisive, but also the specifics of the business’s hedging.

The company’s researchers explain that when determining the optimal loan structure, it is first necessary to determine in which currency the business is hedged. According to them, hedging means that “exchange rate changes do not have a material impact on the company’s financial indicators.” In this context, TBC Capital emphasizes that hedging indicators vary by sector: while car prices are pegged to foreign currencies, residential real estate prices, contrary to the dominant view, are “largely denominated in GEL.”

Key factors in currency strategy:

  • A one-page summary prepared by the investment company provides several practical recommendations for businesses:
  • Multicurrency basket: According to the study, the dollar-euro-yuan basket is “40% equivalent to real GEL, with much lower costs.”
  • Business cyclicality: The researchers believe that “in contrast to current practice, the share of GEL should be higher in cyclical sectors.”
  • Interest rates: Despite its importance, the differential should not be “the only and overly important factor, as is often the case.”
  • Profitability: A properly hedged structure allows for more borrowing “even without a stress scenario.”

Global context and forecasts:

The company’s researchers focus on assessing the equilibrium levels of the GEL and EUR/USD. The publication raises the question of whether it is appropriate to borrow in a currency that strengthens during stressful episodes and how relevant the so-called “dollar smile” is today. It also analyzes the impact of the escalation in the Middle East on the dollar as a “strengthening of the status of a safe asset.”

TBC Capital notes that the framework, the idea of ​​which was published back in 2019, is becoming increasingly widespread. “Work continues on individual, company-specific approaches,” the investment company says, and partners are ready for further cooperation.