1

ProspectusProspectus

Joint Stock Company

“Evex Hospitals“

(Identification Code: 404476205)

Preliminary Prospectus

GEL 50,000,000 (fifty million) Bonds with floating interest (coupon) rate. The Bonds mature in 5 years from the date

of their issue and placement. The issuer has an option to redeem bonds completely (but not partially) at any “date of

option to redemption”. (For details please refer to “Terms and conditions of the Bonds” subchapter 6 “Redemption and

Purchase”) The nominal value of each Bond is GEL 100,000 (one hundred thousand). Issue price: 100% of the nominal

value. Interest on the Bonds is payable quarterly in arrears at the rate of 310 basis points premium over the National

Bank of Georgia (the “NBG”) Monetary Policy (refinancing) Rate published on the following website:

https://www.nbg.gov.ge/index.php?m=554&lng=eng. In case any “Rating Agency” decreases Evex Hospitals’ rating

below B+ (“Base Rating”), the coupon rate shall increase by 25 basis points. (For details please refer to “Terms and

conditions of the Bonds” subchapter 5 “Interest”) The additional basis points on the refinancing rate will be determined

from book building and will be reflected in the final Prospectus.

The Bonds constitute unsecured and unsubordinated obligations of the Company

JSC “Evex Hospitals” (hereafter the “Company” or “Evex Hospitals” or the “Issuer”) accepts responsibility for the

information contained in this Prospectus. To the best of the knowledge and belief of the Company (which has taken all

reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the

facts and does not omit anything likely to significantly affect the accuracy and completeness of such information. In

addition, attached prospectus (the “Prospectus”) contains all the material information known to the Company and there

has not been intentionally omitted information, which could affect the content of the prospect.

Approval of this Prospectus by the National Bank of Georgia relates to its form only and may not be viewed as a

conclusion on the accuracy of the content of the Prospectus or value of the investment described herein.

Persons responsible for preparation of the document:

CEO Giorgi Mindiashvili

CFO Giorgi Lominadze

https://www.nbg.gov.ge/index.php?m=554&lng=eng

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Signed on behalf of JSC Evex Hospitals:

Signatory:

Name, surname:

Position:

signature:

Date:

Signatory:

Name, surname:

Position:

signature:

Date:

Signed on behalf of JSC Galt and Taggart:

Signatory:

Name, surname: Otar Sharikadze

Position: Managing Director

signature:

Date:

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IMPORTANT INFORMATION FOR THE INVESTORS:

Prospective investor must read the following disclaimer before continuing. The following disclaimer applies to the

attached prospectus (the "Prospectus") and prospective investor is therefore advised to read this carefully before

reading, accessing or making any other use of the attached Prospectus. By accessing and using the Prospectus (including

for investment purposes), prospective investor agrees to be bound by the following terms and conditions (modified from

time to time). If the prospective investor receives the Prospectus via electronic means, he acknowledges that this

electronic transmission (with attached Prospectus) is confidential and intended only for him. Therefore the investor

agrees that he will not forward, reproduce or publish this electronic transmission or the attached Prospectus to any other

person.

Responsible body for approval of this Prospectus:

National Bank of Georgia - Address. Sanapiro str. N2, Tbilisi 0114, Georgia, Tel: 2 406 406. E-mail:

info@nbg.gov.ge. Website: www.nbg.gov.ge

Limitation of the liability:

Approval of this Prospectus by the National Bank of Georgia relates to its form only and may not be viewed as a

conclusion on the accuracy of the content of the Prospectus or value of the investment described herein.

Further, to the fullest extent permitted by applicable law, no person (including without limitation the Placement Agent,

the Calculation and Paying Agent, the Registrar, other advisers to the Company, nor any of their affiliates, directors,

advisers or agents), other than the Issuer, accepts any responsibility whatsoever for the contents of this Prospectus, the

accuracy or completeness of the information contained in this Prospectus or for any other statement, made or purported

to be made by any of them or on its/their behalf in connection with the Company or the issue and offering of the securities

described herein. Placement Agent and the advisers to the Company accordingly disclaim all and any liability they might

otherwise have in respect of this Prospectus or any such statement.

Placement Agent is acting exclusively for the Issuer and no one else in connection with the offer. It will not regard any

other person (whether or not a recipient of this Prospectus) as its client in relation to the offer. Therefore, the Placement

Agent will not be responsible to anyone other than the Company for providing services or for giving advice in relation

to the offer or any transaction or arrangement referred to herein.

This Prospectus does not constitute and may not be used for the purposes of an offer in any jurisdiction in which such

offer is not authorized or to any person to whom it is unlawful to make such an offer. No action is being taken to permit

an offering of the Bonds described in this Prospectus or the distribution of this Prospectus (or any other offering

materials relating to the Bonds) in any jurisdiction (other than Georgia).

The investor’s representation: The attached Prospectus is delivered to the prospective investor at his request and on

the basis that the investor has confirmed to JSC Galt & Taggart (Identification Code 211359206), Address: 79 D.

Agmashenebeli Avenue, Tbilisi 0179, Georgia, Tel: (995 32) 2444-132 (995 32) 24401-111; email: st@gt.ge (the

"Placement Agent") and the Issuer that the investor (i) is located outside United States and is not a US person (as

defined in Regulation S under the United States Securities Act of 1933, as amended, or (ii) the investor is authorized

to acquire the Notes in compliance with all the applicable law and regulation and the terms and conditions of this

Prospectus, or (iii) is a person into whose possession this Prospectus may lawfully be delivered in accordance with

the laws of the jurisdiction in which he/she/it is located.

If this Prospectus has been made available to the investor in an electronic form, neither the Company, nor the Placement

Agent or any of their respective affiliates accepts any liability or responsibility whatsoever in respect of any difference

between the Prospectus distributed to the investor in an electronic format and the hard copy version, and/or the viruses

and other destructive items arising from alterations and changes caused during the process of electronic transmission of

the Prospectus. By accessing the linked Prospectus, the investor consents to receiving it in electronic form.

For avoidance of any doubts, preference is given to the publicly issued prospectus by the company, (which is identical

to the one approved by the National Bank of Georgia).

After the submission to the approval of the prospectus, there has not been any material change in the circumstances. If

there happens to be any change the prospect will be updated respectively.

A hard copy of the Prospectus will be made available to the investor upon request made to the Placement Agent.

Restriction: If a person has gained access to this document contrary to the foregoing restrictions, he will not be

authorized to purchase any of the securities described therein.

mailto:st@gt.ge

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Approved by the National Bank of Georgia

date

Issue State Registration Number: ____________

International Securities Identification Number (ISIN):

_______________

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TABLE OF CONTENTS

Important Information For The Investors: .................................................................................................... 3 Table Of Contents ......................................................................................................................................... 5 Introduction: ................................................................................................................................................ 7

About The Issuer: ........................................................................................................................................ 9

Brief Overview Of The Georgia Healthcare Sector: ................................................................................. 10

Main Characteristics Of The Bonds: ......................................................................................................... 18

Brief Overview Of The Material Risks, That Are Specific To The Company’s Business: ...................... 19

Overview Of The Offering: ...................................................................................................................... 22

Risk Factors ................................................................................................................................................ 24 Risks Relating To The Company’s Business ................................................................................................... 24

Macroeconomic Risks And Political Risks Related To Georgia ........................................................................ 30

Risks Relating To The Bonds ........................................................................................................................ 36

Use Of Proceeds ......................................................................................................................................... 39 Registration Documents .............................................................................................................................. 40 Persons Responsible For Preparation Of The Document .......................................................................... 40

Capitalisation And Indebtedness ............................................................................................................... 43

Primary Activity........................................................................................................................................ 47

Primary Markets........................................................................................................................................ 52

Important Events For The Business Activity Of The Issuer ..................................................................... 58

Future Strategy And Goals ........................................................................................................................ 59

Competitive Environment Of The Issuer And Description Of Its Position On The Market ..................... 60

Investments ............................................................................................................................................... 64

Organizational Structure Of The Issuer .................................................................................................... 65

Operating And Financial Review Of The Company By Management ..................................................... 67

Financial Position...................................................................................................................................... 69

Additional Financing Needs ..................................................................................................................... 75

Operating Results ...................................................................................................................................... 76

Regulation Of Healthcare Activities In Georgia ......................................................................................... 87 Management And Governance.................................................................................................................. 90

Related Party Transactions ....................................................................................................................... 93

Statement Of Financial Position ............................................................................................................... 95

Statement Of Profit Or Loss ..................................................................................................................... 96

Cash Flow Statement ................................................................................................................................ 97

Dividends Policy ....................................................................................................................................... 98

Important Litigation Cases ........................................................................................................................ 99

Description Of Significant Changes In The Financial Or Commercial Condition Of The Issuer .......... 100

Charter Capital ........................................................................................................................................ 101

The List Of Documents That Are Mentioned / Indicated In The Registration Document ...................... 103

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Overview Of The Financial Securities ...................................................................................................... 104 Working Capital Statement ..................................................................................................................... 104

Conflicts Of Interest ................................................................................................................................ 105

Offering Conditions, Expected Schedule And Procedures For Participation In The Offering ................. 106 Terms And Conditions Of The Bonds ...................................................................................................... 106 Governing Law And Jurisdiction ............................................................................................................. 120 Price Setting .............................................................................................................................................. 121 Placement Of The Bonds .......................................................................................................................... 121 Listing And Admission To Trading .......................................................................................................... 123 Taxation Of The Bonds In Georgia ..................................................................................................................... 124

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GENERAL OVERVIEW OF THE PROSPECTUS

Introduction:

Name of the Security JSC “Evex Hospitals” Bonds

Name of the Issuer, legal form, identification

number and contact information

JSC “Evex Hospitals” (Identification Code: 404476205)

Georgia, Tbilisi, Didube district, Didi Digomi, Gldani

connecting highway and Beliashvili Street (Plot 4/77) / Akaki

Beliashvili str., N142.); Tel: (995 32) 255-550505 ; E-mail:

gmindiashvili@ghg.com.ge lominadzeg@evex.ge

Name and contact informaion of the Placement

Agent

JSC Galt & Taggart (Identification Code 211359206),

Address: 79 D. Agmashenebeli Avenue, Tbilisi 0179, Georgia,

Tel: (995 32) 2444-132 (995 32) 24401-111; email: st@gt.ge

Name and contact information of the body

responsible for approving the Prospectus

National Bank of Georgia - Address. Sanapiro str. N2, Tbilisi

0114, Georgia, Tel: 2 406 406. E-mail: info@nbg.gov.ge.

Website: www.nbg.gov.ge

Prospectus approval Date ●

Important references:

The general overview is an integral part of this Prospectus;

Any investment decision made by the investor should be based on the entire prospectus and not only on the information

presented in the general overview;

The Issuer may become liable if the information represented in the general overview is misleading or inaccurate or is not

relevant to the main prospect or does not provide the basic information to help the investors to make investment decisions

with regard to the Bonds;

An investment in Bonds involves high risk. Any prospective investor, who will purchase the Bonds, should be

prepared to face the economic risk of his investment and take into account the fact that the repayment of the

principal amount of the Bonds and accrued interest will depend on the Issuer's solvency. See "Risk Factors of the

Prospectus regarding the types of the risk factors related to investment in the Bonds. Neither this Prospectus nor

any other information supplied by the Company or the Placement Agent in connection with the Bonds is intended

to provide an evaluation of the risks involved in investing in Bonds. Each investor is advised to make his own

evaluation of the potential risks involved. In addition, the investor may lose all or part of the total invested amount.

Preliminary Prospectus and information provided therein may be subject to alteration and addition in case of change of

circumstances, which is reflected in the final Prospectus (e.g. fixing the interest rate, correction of technical deficiencies,

clarification of the issue size, etc.). The Issuer will notify the investors about such alterations and additions in accordance

with the legislation. Sale or public offering of the Bonds described herein is prohibited until the Prospectus is approved

by the National Bank of Georgia.

Offering of the Bonds described in this Prospectus is made within the jurisdiction of Georgia as allowed by the applicable

laws of Georgia. This Prospectus does not constitute an offer of securities for sale in any jurisdiction in which such offer

is unlawful.

Neither the Company nor the Placement Agent make any representation to any potential or actual purchaser of the Bonds

regarding the legality of an investment in the Bonds by such purchaser under appropriate investment or similar laws

applicable to such purchaser.

No person is authorised to give any information or to make any representation not contained in this Prospectus and any

information or representation not so contained must not be relied upon as having been authorised by or on behalf of the

Company or the Placement Agent. Neither the delivery of this Prospectus nor any sale made in connection herewith shall,

under any circumstances, create any implication that there has been no change in the affairs of the Company since the

date hereof.

mailto:st@gt.ge

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Investors should not construe anything in this Prospectus as legal, business or tax advice. Each investor should consult its

own advisers as needed to make its investment decision and to determine whether it is legally permitted to purchase the

securities under applicable legal investment or similar laws or regulations.

Warning

Bond Prospectus is not a simple document and it can be difficult for the investors to thoroughly understand and evaluate

the product offered by this Prospectus. In making any investment decision, investors must rely on their own examination

of the Company, the Bonds and the terms of this offering, including the merits and risks involved. See "Risk Factors".

Each potential investor must determine the suitability of an investment in the Bonds in light of such investor's own

circumstances. In particular, each potential investor should:

have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the merits and risks of

investing in the Bonds and the information contained in this Prospectus or any applicable supplement;

have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial

situation, an investment in the Bonds and the impact such investment will have on its overall investment portfolio;

have sufficient financial resources and liquidity to bear all of the risks of an investment in the Bonds, including where

the currency for principal and interest payments (the Georgian Lari) is different from the potential investor's currency;

understand thoroughly the terms of the Bonds and be familiar with the behaviour of the financial markets in which

they participate; and

be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate

and other factors that may affect its investment and its ability to bear the applicable risks.

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About the Issuer:

JSC “Evex Hospitals” (hereafter the “Company” or “Evex Hospitals”, “Group”) was established after

reorganization (demerger) of JSC Insurance Company Aldagi as “Evex Medical Corporation” in 2014 and in April

of 2019 as a result of demerger (described below) formed as JSC “Evex Hospitals”.

In 2019 the Company updated the business structure of it’s healthcare services that had previously consisted of the

polyclinics segment under separate management and the hospitals segment, including community clinics and

referral hospitals under common control but managed separately from the polyclinics. According to the new legal

structure, starting from 2019, the healthcare services business is divided into the following two legal entities: referral

hospitals under JSC “Evex Hospitals” and the clinics, which include polyclinics and community clinics – under JSC

“Evex Clinics”.

The Company is a member of Georgia Healthcare Group. Ultimate parent (holder of 57% of shares) of Georgia

Healthcare Group is Georgia Capital PLC.

Legal address of the company: Georgia, Tbilisi, Didube district, Didi Digomi, Gldani connecting highway and

Beliashvili Street (Plot 4/77) / Akaki Beliashvili str., N142.)

Group’s vertical organizational structure as of 31 June 2019 is as follows:

The issuer is JSC “Evex Hospitals”.

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The primary activity of “Evex Hospitals” is operation of referral hospitals. As of June 2019, the Company operates

with 18 referral hospitals, six located in Tbilisi and other 12 in other major cities in the regions. Referral hospitals

provide comprehensive range of complex and specialist services, including secondary or tertiary level outpatient

and inpatient diagnostic, surgical and treatment services.

Brief overview of the Georgia healthcare sector:

Georgia has significantly developed its healthcare sector over the last decade, thanks to the improved infrastructure,

stronger legal framework, massive privatization and universal healthcare program (UHC) introduced by the

government in 2013. The share of new and privately owned hospital beds increased to over 75% and c.90% of the

current nationwide hospital bed capacity. Additionally, UHC provided state-sponsored basic health insurance to all

uninsured citizens of Georgia, which in turn increased the demand on healthcare. Starting from May 2017, UHC

model became more targeted to socially disadvantaged groups. Citizens with more than GEL 40,000 annual income

(c. 32,000 persons) are completely excluded from UHC coverage, while citizens with annual GEL 12,000-40,000

income can only use limited services under universal healthcare. This enabled to finance medicines for chronic

diseases for socially vulnerable families.

Georgia’s healthcare sector (hospitals, polyclinics and pharma) experienced a strong growth of 14% CAGR over

2012-17 reaching GEL 3.5bn in 2017. Moreover, healthcare services market was forecasted to expand at a compound

annual growth rate of 8% over 2018-21 reaching GEL 4.8bn by 2021, according to Frost & Sullivan estimates.

Company Shareholders:

JSC Georgia Healthcare Group (GHG, the Parent Company) is 100% shareholder of JSC Evex Hospitals.

GHG combines a whole variety of medical services, it’s core branches are: healthcare services (which include

referral hospitals (“Evex Hospitals”), clinics and polyclinics.), pharmacy & distribution, diagnostics and medical

insurance. The main financial information of GHG’s core branches as at 31 December 2018 is given in the table

below.

Total Amount Healthcare Services

(% of total)

Pharmacy &

Distribution

(% of total)

Medical

Insurance

(% of total)

Intergroup

Transactions &

Consolidation

(% of total)

Total Assets 1,240.51 74% 25% 5% -5%

Total Liabilities 665.48 67% 33% 6% -7%

Revenue 846.31 36% 61% 7% -3%

EBITDA 132.27 57% 39% 3% 0%

Company Management

Giorgi Mindiashvili - Chief Operating Officer (COO)

Prior to his appointment to the COO position at Evex Hospitals, Giorgi Mindiashvili served as Chief Financial Officer

at JSC Insurance Company Aldagi BCI since September 2009. In 2012 Giorgi Mindiashvili was CEO at the Insurance

Company Imedi L International. Mr. Giorgi Mindiashvili started his career in 2003 at the British Caucasian insurance

company.

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Mr. Mindiashvili graduated from Tbilisi Technical University and the European School of Management, specializing

in the fields of financial mathematics, management systems, financial management and corporate finance.

Ekaterine Kavtaradze - Deputy Operational Excellence

Before joining “Evex Medical Corporation”, Ekaterine Kavtaradze was Deputy General Director of LEPL “National

Center for Disease Control and Public Health”, in 2012-2013 she was the Head of this Center, in 2010-2012 she was

General Director of the hospital network “Medalpha”, and in 2004 2010 she was holding various positions in the

Ministry of Labor, Health and Social Affairs of Georgia.

In 2003 Ekaterine graduated from Tbilisi State Medial University, Therapeutic faculty; in 2008 she received Master’s

Degree in Pharmacy, in 2013-2016 she finished Caucasus Business School and Grenoble Management School and

has double Master’s Degree in Business Administration.

She is engaged in academic activities, is the author of publications, and cooperates with various universities.

Giorgi Lominadze - Deputy Finance Giorgi Lominadze was appointed as Deputy Finance of JSC Evex Hospitals in 2019, prior to which he served as a

director of commercial analysis department in Evex Medical Corporation for two years. In 2013-2016 he was project

manager in EMSC (Emergency medical service center), also 2007-2013 he was holding various position in several

insurance companies.

Mr. Lominadze received his undergraduate degree in Mathematics from the Georgian Technical University.

Mamuka Chkhaidze - Deputy Clinical

Mamuka Chkhaidze was appointed as Deputy Clinical of JSC Evex Hospitals in 2019. He has over 22 year experience

of working on managerial positions in medical sector.

Mr. Chkhaidze received his undergraduate degree in Paediatrics from the Tbilisi State Medical Institute. He is engaged

in academic activities, is the author of many publications. Also, he is Associate professor in Tbilisi state university.

Nika Songhulashvili - Deputy Legal & Risks

Nika Songhulashvili joined Evex Hospitals in 2017. He was appointed as Deputy Legal & Risks of JSC Evex Hospitals

in 2019, prior to joining Evex Hospitals he served as Assurance Manager at Ernst &Young in 2009-2017.

Mr. Songhulashvili received his undergraduate degree in Business administration from the European School of

Management in Georgia and MBA from Ilia State University

Financial Auditor of the Issuer

The Consolidated Financial Statements (Financial Statements of JSC Medical Corporation EVEX ) were audited by

the Company's independent auditors, EY Georgia LLC. Identification number: 204441158. Adress: 44 Kote Apkhazi

Str., Tbilisi, Georgia. E-mail: info@ge.ey.com

Standalone Financial Statements (Financial Statements of JSC Evex Hospitals) were audited by auditor Giorgi Lejava.

Registration number: SARAS-A-173449. Adress: 5/12 Onashvili Str., Tbilisi, Georgia. Giorgi Lejava is the director

of “Georgian Valuation Company” which, as described below, has performed valuation of Fixed Assets of the

company.

After issuing the bonds the company shall become Public Interest Entity, hence Evex Hospitals’ financial statements

for 2019 shall be audited according to the standards imposed by the Service for Accounting, Reporting and Auditing

Suprevision. Auditor Giorgi Lejava does not satisfy the abovementioned demands as at 30 June 2019.

Financial Auditor was not changed during the presented periods.

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Third parties or experts

Fixed Assets of the Company have been valued by “Georgian Valuation Company” Ltd. Identification code:

205187251. Legal address: Georgia, Tbilisi, Vake-Saburtalo district, Pekini st. N 41. Director of the Georgian

Valuation Company is Giorgi Lejava. Valuation is planned and carried out by an Auditor-Valuer Giorgi Lezhava

(the certificate Z#5/343, license Z#243, issued by the Auditing Board of the Georgian Parliament, audit international

standards certificate #238, certificate #21, issued by “Caucasus Academy of Real Estate”) and Besik Diakonidze

(the certificate Z#4/455, issued by the Auditing Board of the Georgian Parliament). Valuation is conducted

according to requirements of International Valuation Standards (IVS 2013).

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Main Financial Indicators

Evex Hospitals is a member of Georgia Healthcare Group PLC (“Group”), and was established after demerging JSC

Medical Corporation Evex into two companies: JSC Evex Hospitals and JSC Evex Clinics on 1st of April 2019.

Because the demerger of JSC Medical Corporation Evex JSC happened after most recent balance sheet date, this

Prospectus presents both the audited financial figures for pre-demerger JSC Medical Corporation Evex (labelled

“Consolidated”) and audited carve-out figures for JSC Evex Hospitals (labelled “Standalone”) for 2018 and 2019.

This Prospectus also contains unaudited stand-alone figures for HY 2018 and HY 2019 for JSC Evex Hospitals

(labelled “Standalone HY”).

Company consolidated and standalone (condensed) Financial Statements for the full 2018 and 2017 year and HY

for 2019 are presented below:

Balance Sheet Statement

(Condensed) ('000 GEL)

Standalone

HY 2019

Standalone

HY 2018

Standalone

31 Dec

2018

Standalone

31 Dec

2017

Consolidated

31 Dec 2018

Consolidated

31 Dec 2017

Assets

Cash and cash equivalents 1,999 4,217 14,404 28,790 15,051 29,203

Receivables from healthcare services 129,397 111,406 109,006 101,002 111,894 104,083

Investment in associate 7,800 7,106 7,483 7,104 7,483 7,104

Property and equipment 539,294 527,821 539,790 502,645 654,112 610,683

Goodwill and other intangible assets 48,608 45,438 49,664 42,643 63,372 57,193

Other assets 65,945 58,828 62,042 68,223 44,959 66,847

Total assets 793,043 754,816 782,389 750,407 896,871 875,113

Liabilities

Accruals for employee compensation 18,170 17,511 17,954 16,852 19,843 18,154

Accounts payable 30,436 26,974 33,280 49,581 37,441 52,801

Payables for share acquisitions 736 3,312 2,938 3,312 2,938 5,850

Borrowings 165,228 152,660 161,107 158,491 173,211 167,829

Debt securities issued 92,840 93,370 93,573 93,493 93,573 93,493

Other liabilities 4,378 4,516 6,760 4,211 4,862 4,604

Total liabilities 311,788 298,343 315,645 326,012 340,585 351,637

Equity

Share capital 47,828 47,828 47,828 45,437 56,345 53,954

Additional paid-in capital 249,373 248,073 248,173 230,313 302,753 282,260

Other reserves (8,215) (8,215) (8,215) (8,215) (175) (209)

Retained earnings 125,251 102,848 113,558 93,102 131,040 122,755

Total equity attributable to shareholders of

the Company 414,237 390,534 401,344 360,637 489,963 458,760

Non-controlling interests 67,018 65,939 65,400 63,758 66,323 64,716

Total equity 481,255 456,473 466,744 424,395 556,286 523,476

Total equity and liabilities 793,043 754,816 782,389 750,407 896,871 875,113

Statement of Profit or Loss

(Condenced), ('000 GEL)

Standalone

HY 2019

Standalone

HY 2018

Standalone

31 Dec

2018

Standalone

31 Dec

2017

Consolidated

31 Dec 2018

Consolidated

31 Dec 2017

Healthcare services revenue 147,998 130,618 262,703 233,334 301,988 262,688

Cost of healthcare services (85,661) (75,358) (151,135) (132,785) (174,073) (150,243)

Gross profit 62,337 55,260 111,568 100,549 127,915 112,445

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Other operating income 3,076 3,773 7,558 4,601 12,478 11,149

Other operating expenses (23,424) (21,626) (45,170) (42,862) (66,521) (60,356)

EBITDA 41,989 37,407 73,956 62,288 73,872 63,238

Depreciation and amortization (13,244) (12,342) (24,785) (18,381) (30,768) (23,177)

Other non-operating expenses (14,302) (8,309) 3,532 1,007 1,233 3,845

Profit before income tax expense 14,443 16,756 29,018 25,398 17,684 18,531

Income tax expense 0 (74) (37) (11) (37) (11)

Profit for the year 14,443 16,682 28,981 25,387 17,647 18,520

Other important Information

As per audit opinion, the consolidated financial statements present fairly, in all material respects, the consolidated

financial position of the Company as at 31 December 2018 and its consolidated financial performance and its

consolidated cash flows for the year ended in accordance with International Financial Reporting Standards (IFRS).

No significant event has occurred after last reporting period before prospectus presentation date that would cast

significant doubt over company’s ability to continue as a going-concern.

The company has been awarded a credit rating by Scope Ratings, a credit rating agency recognized by NBG in July

2019. Company credit rating according to Scope Ratings is BB/Stable. The Company may additionally get the rating

from the same or the other credit rating agency recognized by the National Bank of Georgia.

The following table shows selected key financial ratios of the Company.

Financial Leverage

Ratios

Standalone

HY 2019

Standalone

HY 2019

Standalone

2018

Standalone

2017

Consolidated

2018

Consolidated

2017

Long-term Debt to

equity 0.45 0.45 0.50 0.55 0.39 0.45

Return on Capital

employed 8% 8% 7% 6% 5% 5%

Interest Coverage ratio 2.53 2.53 2.25 2.37 1.62 2.33

Total Debt Ratio 0.33 0.33 0.33 0.34 0.30 0.30

Debt Service Coverage

Ratio 2.08 2,08 1.46 0.82 2.05 0.81

Total Debt/EBITDA 3.07 3.07 3.44 4.05 3.61 4.13

(EBITDA- CAPEX)/Interest

Expense1

2.28 2,28 0.72 -0.46 -0.05 -1.04

Profitability Ratios Standalone

HY 2019

Standalone

HY 2019

Standalone

2018

Standalone

2017

Consolidated

2018

Consolidated

2017

ROA 3.7% 3.7% 3.8% 3.4% 2.0% 2.3%

ROE 6.1% 6.1% 6.5% 6.0% 3.3% 3.6%

Gross profit margin 42.1% 42.1% 42.5% 43.1% 42.4% 42.8%

Operating profit margin 19.4% 19.4% 18.7% 18.8% 14.3% 15.3%

Net profit margin 9.8% 9.8% 11.0% 10.9% 5.8% 7.1%

EPS 0.604 0.604 0.621 0.559 0.313 0.343

1 The ratio is negative in several periods, which has been caused by the fact that the company finances it’s capital expenses with debt rather than

operating income.

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Liquidity Ratios Standalone

HY 20192

Standalone

HY 2019

Standalone

2018

Standalone

2017

Consolidated

2018

Consolidated

2017

Liquid Assets/Total

Assets 0.15 0.15 0.14 0.17 0.12 0.15

Liquid Assets/Current Liabilities

1.51 1.51 1.45 1.47 0.97 1.17

Working Capital

turnover 3.11 3.11 2.84 2.46 8.21 3.73

Current Ratio 2.24 2.24 2.23 2.07 1.32 1.62

Operating Cash Flow Ratio

56% 56% 75% 53% 52% 38%

Operating Ratios Standalone

HY 2019

Standalone

HY 2019

Standalone

2018

Standalone

2017

Consolidated

2018

Consolidated

2017

Fixed Asset turnover 0.55 0.55 0.50 0.46 0.48 0.45

Days of Inventory

outstanding (DIO) 35.82 35.82 42.36 47.01 39.96 42.01

Days of Receivables

outstanding (DRO) 144.98 144.98 145.89 158.00 130.52 132.47

Days of Payables outstanding (DPO)

68.43 68.43 99.48 136.29 95.51 100.81

Cash conversion cycle 112.36 112.36 88.77 68.71 74.97 73.67

FCF3 5,514 5,514 (1,622) (23,636) (15,636) (37,953)

Other ratios related to the company operations:

Standalone

HY 2019

Standalone

HY 2018

Standalone

2018

Direct Salary rate 34.5% 34.9% 35.3%

Materials Rate 17% 16.4% 16.6%

Administrative salary rate 10.8% 10.6% 8.1%

Number of hospitals 18 184 18

Number of hospital beds 2,967 2,967 2,967

Hospital Bed occupancy rate 60.9% 56.1% 54.7%

Average length of stay in hospital 5.4 5.5 5.4

Note:

Long-term Debt to equity - Long-term debt divided by equity

Return on Capital employed – Operating income divided by equity plus long-term borrowings; when calculating the

ratio for Half Year, the operating income is extrapolated – HY figure is multiplied by 2.

Interest Coverage ratio – Operating income divided by interest expense

Total Debt Ratio – Long-term borrowings divided by total assets

Debt Service Coverage Ratio – Operating income divided by interest expense plus principal repayment

Total Debt/EBITDA – total debt divided by EBITDA

2 Adjusted with regard to the assumption that the company will issue GEL 50m bonds and refinance part of its liabilities.

3 In some periods the FCF figures are negative, which can be explained by the fact that the company finances it’s capital expenses with debt rather

than operating profit.

4 After the division of “Evex Medical Corporation” and formation of “Evex Hospitals”, the number of hospitals has been changed retrospectively.

The reason for this was retrospective reclassification of 3 clinics to hospitals due to their considerable size and reclassification of 1 hospital to

clinic, which happened at the time of formation of “Evex Hospitals”.

16

(EBITDA – CAPEX)/Interest Expense – EBITDA minus total capital expenses, divided by interest expense.

Return on Assets - Net Income divided by average assets of the most recent past 2 years. In case of inexistence of

prior year figures, assets’ balance of the same year is used.

Return on Equity – Net Income divided by average equity of the most recent past 2 years. In case of inexistence of

prior year figures, assets’ balance of the same year is used.

Gross profit margin – Gross profit divided by Healthcare services revenue

Operating profit margin – Operating income divided by Healthcare services revenue

Net profit margin -Net income divided by Healthcare services revenue

Earnings per Share - Net income divided by average shares outstanding. In case of inexistence of prior year figures,

shares outstanding in current year are used.

Liquid Assets/Total Assets – Cash and cash equivalents plus Receivables with less than 1 year maturity divided by

total assets

Liquid Assets/Current Liabilities – Cash and cash equivalents plus Receivables with less than 1 year divided by

current liabilities

Working Capital turnover – Healthcare services revenue divided by current assets minus current liabilities; When

calculating the HY ratio, half year revenue is extrapolated (multiplied by 2)

Current Ratio -Currents assets divided by current liabilities

Operating Cash Flow Ratio – Operating cash flow divided by current liabilities

Fixed Asset turnover – Healthcare services revenue divided by the average balance of Property and equipment. In

case of inexistence of prior year figures, balance of current year is used.

Days of Inventory on hand – Average inventory (or in case of inexistence of prior year figures – period end

Inventory) divided by the daily cost of healthcare services multiplied by number of days in a given period

Days of sales outstanding – Average Receivables (or in case of inexistence of prior year figures – period end

Receivables) divided by healthcare services daily revenue multiplied by number of days in a given period

Number of days of payables – Accounts payable (or in case of inexistence of prior year figures – period end Payables)

divided by cost of healthcare services multiplied by number of days in a given period

Cash conversion cycle – Days of inventory on hand plus days of sales outstanding minus number of days of payables

Free Cash Flows – Cash flows from operating activities minus capital expenses for the same period

Direct Salary rate – Cost of salaries and other employee benefits divided by gross revenue excluding corrections and

rebates

Materials Rate - Cost of materials and supplies divided by gross revenue excluding corrections and rebates

Administrative Salary rate - Administrative Salaries and other employee benefits divided by gross revenue

excluding corrections and rebates

17

Bed Occupancy rate - Number of total inpatient nights divided by the number of bed days (number of days multiplied

by number of beds, excluding emergency beds) available during the year

Average length of stay - Number of inpatient days divided by number of patients. This calculation excludes data for

the emergency department

18

Main characteristics of the Bonds:

Interest (coupon)

Annual interest (coupon) rate for bonds is 310 basis points premium

over the National Bank of Georgia (the “NBG”) Monetary Policy

(refinancing) Rate, as reported by NBG on the following link:

https://www.nbg.gov.ge/index.php?m=554&lng=eng. This

includes any taxes applicable by the legislation.

Final interest (coupon) is determined following the book-building

Process. (see, Condition 2(a) “Bond Offering Process” – pg.106)

Interest rate is subject to international credit rating of the Company

and may be altered in accordance with the rules set in Terms and

Conditions of the Bonds (See “Terms and conditions of the Bonds”,

Condition 5 “Interest”)

Interest Accrual and Payment

The interest is accrued on the Bonds at the abovementioned rate from the date of issuance of Bonds until the maturity date.

The interest will be accrued based on actual number of days on a

365-day year. The accrued interest will be payable quarterly on February 6, May 6, August 6 and November. The first payment of

interest will be made on February 6 2019.

Maturity Date

The Bonds will be redeemed on November 6 2024 at their principal/nominal value together with accrued and unpaid

interest (if any)

Contact Information of the Registrar JSC United Securities Registrar of Georgia (Identification Code:

205156374); Address: 11 Mosashvili Str. 0162 Tbilisi, Georgia;

Tel: (995 32) 225-1560; E-mail: info@usr.ge

Listing and Admission to Trading

The Issuer intends to make applications to the Georgian Stock

Exchange for the Bonds to be admitted to listing on the official list

and to the trading system of the Georgian Stock Exchange, as soon

as practicable after the placement of the Bonds.

Status and Ranking of the Bond

The Bonds constitute unsecured and unsubordinated obligations of

the Company and shall at all times rank pari passu and without

preference amongst themselves. The Bonds shall, save for such

exceptions as may be provided by applicable legislation, at all times

rank at least pari passu in right of payment equally with all other

unsubordinated creditors of the Company

Dividend disbursement policy

The company does not have declared and written dividends policy. As a

Subsidiary of Georgia Healthcare Group, the Issuer’s dividend policy is

directed by its parent company and takes into account parent company’s

own dividend policy and financing needs.

https://www.nbg.gov.ge/index.php?m=554&lng=engmailto:info@usr.ge

19

Brief overview of the material risks, that are specific to the Company’s business:

The Company might not be able to expand its business in line with its strategy or realize its revenue and growth targets.

The Company operates in an evolving regulatory environment.

The Company competes with other providers of healthcare services across Georgia.

The Company’s significant part of the business depends on revenue from the Georgian government and a small number of private insurance providers.

The Company’s success depends to a significant degree on its senior management and its ability to attract and retain qualified personnel.

The Company depends on the strength of its reputation and brands.

Healthcare services providers such as the Company can be subject of litigation by patients, and it is possible that some of these cases will be adversely determined against the Company.

The Company’s patients may contract serious infections or communicable diseases at its facilities because of the risks typically closely associated with the operation of medical care facilities.

The Company’s operations could be impaired by a failure of its information systems.

The Company’s ability to provide the services and manage its margins profitability is in part dependent on the availability of supplies.

The Company might not be able to realize the anticipated benefits of recent acquisitions or execute further opportunistic acquisitions.

The Company is an Accountable Entity and is subject to additional regulations and reporting requirements

Anti-monopoly regulations may negatively affect the activities of the Company

The business/industry in which the company operates is capital intensive, which could be subject to risks of obtaining financing.

Rapid technological advancements in Medical industry could have negative effects on the company’s fixed assets.

The stocks of the issuer’s parent company GHG PLC are listed on the London Stock Exchange (LON : GHG), which is subject to certain limitations and demands.

The company’s fixed assets are stated at fair value, which implies valuation risks – it is sensitive towards judgement and methodologies utilized.

20

Brief overview of the Macroeconomic risks and political risks related to Georgia

Regional tensions can negatively impact local economy and company

There are additional risks associated with investing in emerging markets such as Georgia.

The Company’s business may be materially adversely affected by any depreciation of the Georgian Lari against the U.S. dollar and Euro.

Political and governmental instability in Georgia could have a material adverse effect on the local economy and the Company’s business

There may be challenges associated with legislative harmonization of the Georgian regulatory environment with the EU driven by the DCFTA.

Uncertainties in the tax system in Georgia may result in the imposition of tax adjustments or fines against the Company and there may be changes in current tax laws and policies.

Destruction of Georgia's neighbouring countries’ markets may have a negative impact on the Georgian economy

Because the Company operates solely within Georgia, it will be affected by changes in Georgian economic conditions.

The uncertainties of the judicial system in Georgia, or any arbitrary or inconsistent state action taken in Georgia in the future, may have a material adverse effect on the local economy, which could, in turn, have an adverse

effect on the Company’s business.

21

Brief overview of the material risks, that are specific to the Bonds:

The market price of the Bonds may be volatile

The bonds have variable interest rate, which is influenced by the Monetary Policy Rate of NBG and the company’s credit rating.

The Bonds constitute unsecured obligations of the Company

Any change of law in Georgia in the future may have a material adverse effect on the Bonds, including their GSE listing

Investors whose financial activities are denominated in a currency or currency unit other than Georgian Lari may receive less interest or principal than expected, as a result of fluctuations in exchange rates or changes to

exchange controls

An investment in the Bonds involves certain legal investment considerations

Transfer of the Bonds will be subject to certain restrictions

Investors in the Bonds must rely on procedures of the Registrar and in corresponding cases - Nominal Holders of the Bonds

The terms and conditions of the Bonds may be modified or waivers for breaches of the terms and conditions may be issued in the future

There may not be an active trading market for the Bonds

22

Overview of the offering:

The Offer GEL 50,000,000 debt securities (Bonds) due on 6 November 2024

Security Coupon bond (variable interest bearing security)

Nominal Value GEL 100,000 (one hundred thousand Georgian Lari)

Number of Bonds 500 (five hundred)

Total Issue Price GEL 100,000,000

Issue Price 100% of the principal amount (nominal value) of the Bonds

Bond Issuance Date The Bonds will be issued on 6 November 2019

Bond Deferred Placement Date

Any date after the Bond Initial Issuance Date until Offering

Completion Date when the Bond is issued at the Deferred Placement

Price

Offering Completion Date 31 December, 2019, when offering and issuance of the Bonds will

be completed

Maturity Date

The Bonds will be redeemed on November 6, 2024 at their

principal/nominal value together with accrued and unpaid interest (if

any)

Bonds Currency The bonds are denominated in GEL

Rights and Limitations Related to the

Bonds

There are not any special rights and limitations related to bonds

provided by the Prospectus

Any Restriction on Free Circulation of the

Bonds Circulation of the bonds is not restricted

Bond Rating The company has been awarded BB/stable rating by Scope Ratings.

Listing and Admission to Trading

The Issuer intends to make applications to the Georgian Stock

Exchange for the Bonds to be admitted to listing on the official list

and to the trading system of the Georgian Stock Exchange, as soon

as practicable after the placement of the Bonds.

Calculation and Paying Agent JSC Galt & Taggart (Identification Code: 211359206)

Event of Default

If an Event of Default has occurred, Bondholders and/or Nominal

Holders may give notice that the Bonds are, and the Bonds shall

immediately become, due and payable at 100% of the principal

amount together with (if applicable) accrued interest. See "Terms

and Conditions of the Bonds - Condition 9 (Events of Default)".

Use of Proceeds

The net proceeds from the issuance of the bonds will be used for

refinancing existing loans. See "Use of Proceeds". pg 39

In the event of full placement of the issued bonds the net proceeds

from the bonds shall not be less than GEL 49,000,000

Selling Restrictions The offer and sale of Bonds shall only be made within the jurisdiction

of Georgia as allowed by the applicable laws of Georgia

Call option

The Bonds may be redeemed at the option of the Issuer in whole, but

not in part, on any of the Call Option Settlement Dates, on giving not

less than 30 Business Days' notice to the Bondholders and Nominal

23

Holders who are registered at the primary Register maintained by the

Registrar (which notice shall be irrevocable), at their principal

amount, together with accrued and unpaid interest to the Call Option

Settlement Date (if any) and Call Option Premium of 2% of the face

value of outstanding Bonds as of Call Option Settlement Date if the

bonds are called on November 6 2022 or Call Option Premium of 1%

of the face value of outstanding Bonds as of Call Option Settlement

Date if the bonds are called on November 6 2023 (“Call Option

Premium”).

Governing Law Georgian law

Jurisdiction

Any disputes related to the Bonds shall be resolved by submission to

the courts in Georgia or arbitration, pursuant to the rules set out in

the Prospectus

Contact Information of the Placement

Agent

JSC Galt & Taggart (Identification Code: 211359206); Address: 79

Aghmashenebeli Ave.; Tel: (+995 32) 2401111 E-mail: gt@gt.ge

Bond Placement Agreement

The Bond placement agreement obliges JSC Galt & Taggart to

underwrite the Bonds only on non-guaranteed basis. The agent’s duty

is to prepare all the necessary documents for Bond placement

purposes (including the Bond Prospectus), act as a Placement Agent

and consult the Company with regards to the issuance, sale and

settlement of the Bonds.

mailto:gt@gt.ge

24

RISK FACTORS

Investing in and holding the Bonds involves financial risk. Investors should carefully review all of the information

contained in this Prospectus and should pay particular attention to the following risks associated with an investment

in the Bonds. These risks should be considered together with all other information contained in this Prospectus.

If one or more of the events described below were to occur, The Company business, financial condition, results of

operations and prospects could be materially and adversely affected. In addition, investors could lose all or part of

their investment. The risks set out below may not be exhaustive and do not necessarily comprise all of the risks

associated with an investment in the Bonds. Additional risks and uncertainties not currently known to the Company

or which we currently deem immaterial may arise or become material in the future.

The risks identified in this section are those that The Company believes to be the most important. However, as the

risks relate to events and depend on circumstances that may or may not occur in the future, prospective investors

should consider not only the information on key risks summarized in this section but also, among other things, the

risks and uncertainties described below.

Risks Relating to The Company’s Business

The Company might not be able to expand its business in line with its strategy or realize its revenue and growth

targets.

The Company’s long-term strategy is concentrated on gaining one-third of Georgian referral hospitals market by beds, through organic growth (mainly by ramp-up of two major hospital facilities – Caucasus Medical Centre LLC and

Tbilisi referral hospital), and at the same time gradually increasing business EBITDA margin to c.28%-30% through

increased efficiency and cost control measures in 3-5 years period. The Company might not be able to expand the

healthcare services business in accordance with its plans and its expansion strategy might not generate the benefits

the Company expects.

The Company intends to continue to expand its healthcare services business in Georgia by increasing occupancy rates

at its existing healthcare facilities, full roll-out of newly opened flagship hospitals and adding/expanding in new

services. This will place significant demand on its management and operational resources. . Although the Company

assesses each organic growth project individually, each is subject to a number of assumptions concerning valuations,

profitability, growth, demand for services and interest rates. These projects are also subject to assumptions about

anticipated cost savings, synergies and revenue enhancements. The Company’s assessments might not prove to be

correct because other factors, not accounted for in its analyses, may cause actual developments to differ from the

expectations. The Company may not achieve the operating levels that it expects from future projects and may not be

able to achieve its targeted return on investment, intended benefits or operating synergies from these projects.

In addition, in order to manage organic growth effectively, the Company must expand and continue to improve its

operational systems and policies on a timely basis. If the Company fails to do so, it may not be able to service its patients’ needs, hire and retain new employees, pursue new business, , properly budget costs, accurately estimate operational

costs or otherwise operate its business effectively.

In view of the nature of the industry in which the Company operates, it may have to revise its management estimates

from time to time and, consequently, its funding requirements may also change over the longer term. This may result in

the rescheduling of project expenditures and an increase or decrease in its anticipated cash flows. Any unanticipated

increase in the cost of expansion could adversely affect the Company’s estimates of the cost and ability to implement

its organic growth plans as proposed.

The Company operates in an evolving regulatory environment.

Since 2007, there have been a number of legislative reforms and profound transformations in the Georgia healthcare

services market aimed at achieving higher standards of care, modernization of equipment and facilities, wider access to

healthcare and lower healthcare costs. The Company cannot predict what additional regulatory changes will be

introduced in the future or their effect. The Company expects that the regulatory environment will continue to evolve

25

in the advancement of these goals. Starting from 28 February 2013, the government of Georgia introduced the Universal

Healthcare Program (the UHC) to provide coverage of the basic healthcare needs of Georgian citizens. The UHC has

already been amended in 2017 and certain beneficiaries (individuals with annual income of over GEL 40,000 (c.32,000

people) and a limited UHC coverage were granted to middle-income citizens, i.e. those with an income of over GEL

1,000 per month but under GEL 40,000 per year (c.400,000 people)) were excluded from its coverage as part of the

Government’s effort to optimize costs. The UHC regulation has been significantly amended several times since its introduction and there is a risk, that it may be further amended in the future. The government may further diminish or

enhance the coverage it provides through the UHC; and it may introduce new licensing or accreditation requirements

or quality standards for healthcare providers.

Regulation may also change as Georgia harmonizes its laws with the European Union (EU) in implementing an

Association Agreement to introduce a ‘‘Deep and Comprehensive Free Trade Area’’ (DCFTA) with the potential goal

of full integration into the EU market. As part of the harmonization, the Company’s management anticipates that

Georgia will adopt equivalent EU healthcare regulations at some point in the future. It is not possible to predict the

timeframe for such adoption or the extent of such changes.

The Company competes with other providers of healthcare services across Georgia.

The Company faces competition in the healthcare services industry in Georgia from a large and mainly fragmented

group of competitors. Competition is based on factors such as reputation, clinical excellence, patient satisfaction and

price. Competition is strongest in Tbilisi, although the Company faces competition in all of the regions in which it

operates. In some cases, competing healthcare providers in certain regions are more established than the Company is,

and may have greater experience, infrastructure and brand loyalty than the Company does. The Company also faces

competition from other healthcare service providers, such as stand-alone specialty centers and laboratories, for areas

such as cardiology, oncology, urology and diagnostics. Over time, the Company may also face competition from

international healthcare companies with substantially greater resources, which may begin providing services in

Georgia in the future or attracting patients from Georgia as part of medical tourism. The Company’s competitors may

consolidate, develop alliances or adopt predatory pricing policies to capture market share.

The Company’s significant part of the business depends on revenue from the Georgian government and a small

number of private insurance providers.

The Company depends on revenue from a limited number of payers, including the Georgian government. In the half year

ended 30 June 2019, the Company received 7% of its total healthcare services revenue from insurance companies,

69% from the government under the UHC and 24% from out-of-pocket payments by patients. The Company expects

that it will continue to depend on revenues from the government and a small number of private medical insurance

providers in the future. Accordingly, the Company’s future success, and its ability to obtain favorable prices, will

depend in part on its ability to maintain good working relationships with private insurance providers and may be impacted

by any changes to state-funded healthcare programs.

Following the launch of the UHC in 2013 the proportion of revenue from the government increased. Accordingly, the

Company’s future success will depend, in part, on the effect of any regulatory reform measures adopted by the Georgian

government, as well as on the government’s ability to maintain efficient administrative procedures, provide effective

payment authorizations and maintain adequate budgetary funding. A change in the process by which the government

reimburses healthcare providers, including the Company, could increase its administrative costs or result in delays in obtaining payment for its services.

The Company is also exposed to the risk that insurance companies may reject, delay or fail to make payments for

claims the Company submits for healthcare services that it has provided to patients claiming coverage under their

medical insurance policies. Evex Hospitals’ Revenue from insurance companies mainly consists of the following

companies : Imedi L-ს (60%), GPI (16%), Ardi (5%), PSP (3%), Irao (2%), Unison (2%), Alpha (2%).

The Company’s success depends to a significant degree on its senior management and its ability to attract and

retain qualified personnel.

The Company’s success depends to a significant degree on the skills, experience and efforts of its senior management

26

team and key members of its management staff. The Company’s success also depends on its ability to recruit, train and

retain an appropriate number of experienced physicians, nurses, technicians and other healthcare professionals at its

healthcare facilities. The factors that physicians may consider important in deciding where they will work include their

compensation package, the reputation of the hospital, the quality of equipment and facilities and the quality and number

of supporting staff. In some cases, physician recruitment and retention is affected by a shortage of physicians in certain

specialties. The Company competes with other healthcare providers located in Georgia, in neighbouring countries, and

(to a certain extent) elsewhere in Europe and Asia to recruit and retain highly-qualified physicians and other healthcare

professionals.

As a result of these factors, the Company may not be able to find adequate replacements for its senior management or

other key employees. The loss of services of one or more members of senior management or other key employees could

significantly weaken the Company’s ability to implement its strategy and to operate its business effectively. In addition,

competition for qualified managers and staff may create increasing upward pressure on the wages the Company must

pay. If the Company is unable to transfer any increase in costs to its customers effectively through the prices for its

services and products or otherwise, then such increased costs could impose downward pressure on its margins.

The Company depends on the strength of its reputation and brands.

The Company’s success depends in part upon the strength of its reputation for quality healthcare services and its “Evex

hospitals” brand. Future events that weaken or damage the Company’s reputation or brands could significantly affect

its business. For example, declines in actual or perceived service quality in the Company’s hospitals or publicity of

negative events, such as incidents of medical errors or outbreaks of infection among patients could significantly harm

its standing in the Georgia healthcare industry.

The reputation of the Company’s business depends to a great extent on its ability to provide the latest treatments and

equipment. The medical field continues to evolve rapidly with frequent technological advances. In order to compete

with other healthcare providers for physicians and patients, the Company must continually assess its equipment needs at

its facilities. Investments in medical equipment are regularly expected to be significant. If the Company is unable to

implement new technologies, it may lose patients to competing facilities and its medical practitioners may choose to

leave its hospitals for those of better equipped competitors. Rapid technological advances could also, at times, lead to

earlier-than-planned obsolescence of equipment and result in asset impairment charges, which may materially

adversely affect the Company’s results of operations.

Healthcare services providers such as the Company can be subject of litigation by patients, and it is possible that

some of these cases will be adversely determined against the Company.

Compared to Western countries, Georgia has historically experienced a very low incidence of medical malpractice claims, and the awards for successful claims have been modest. Claims have generally been made against the treating

physician, or against both the physician and the physician’s employer. Although the Company does not believe that the

risk of litigation is significant, this may change in the future. As part of the overall development of the Georgia healthcare

services market and increasing expectations as to the standards of medical care, medical error claims and awards may

increase. Consequently, these matters could require the Company to pay increased premiums for medical malpractice

insurance, or risk incurring substantial damages or amounts in judgments or settlements, harm its reputation and the

goodwill associated with its brand, require significant time and attention from the management and require the Company

to incur debt to finance any judgment or settlement.

The Company’s patients may contract serious infections or communicable diseases at its facilities because of the

risks typically closely associated with the operation of medical care facilities.

The Company’s operations involve the treatment of patients with a variety of infectious diseases. Previously healthy

or uninfected people may contract, during their stay at or visits to the Company’s facilities, serious communicable

diseases, for example, diseases associated with methicillin-resistant staphylococcus aureus (MRSA), hepatitis or

influenza.

There are relatively scarce statistical data available regarding the epidemiology of nosocomial infections or the

prevalence or incidents of multidrug resistant organisms (MDROs) in the Caucasus region due to the lack of formal

27

infection control systems in hospitals and insufficient knowledge about identification, surveillance and management

of hospital acquired infections (HAI). Hospital infections control and prevention (“ICP”) area remains a priority for

the Company and will be constantly monitored. In this regard, the Company closely cooperates with the representative

office of the Centers for Disease Control and Prevention (“CDC”) in the South Caucasus region. ICP trained nurses

are attached to each hospital and, with the help of Company’s epidemiologists, supervise the hospital infections control

and prevention activities. The Company’s staff is also engaged in developing national ICP guidelines and protocols.

However, these controls and procedures may not be adequate to counter an increasing trend of MDROs and the

prevalence of HAI in Georgia may pose risks to the Company’s healthcare facilities. HAI could infect the Company’s

patients and employees and significantly reduce the treatment and care capacity of its medical facilities in the short-,

medium- and long-term. In addition to claims for damages, any of these events may lead to limitations on the activities

of the Company’s healthcare facilities as a result of regulatory restrictions and loss of reputation.

The Company’s operations could be impaired by a failure of its information systems.

The Company’s information systems are essential to a number of critical areas of its business operations. Moreover,

customer information is subject to data protection laws. Since 2018, The Company has started to work towards a fully

integrated health information system that will store and manage patients’ full electronic medical records (EMR). The EMR system will include a platform to report quality measures and indicators, which will be important contributor to

monitoring and improving the clinical quality. Any system failure that causes an interruption in service or availability

of the Company’s systems could materially adversely affect operations or delay the collection of revenue. Although

the Company has implemented network security measures and daily back-up measures, its servers are potentially

vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering. The occurrence of

any of these events could result in interruptions, delays, the loss or corruption of data, or cessations in the availability

of systems. In addition, the Company may be subject to liability as a result of any theft or misuse of personal

information stored in its systems.

The Company’s ability to provide its services and manage its profitability is in part dependent on the availability

of supplies.

Because the Company often relies on third-party providers for pharmaceuticals (it is worth noting that as at 30 June

2019 80% of the inventory has been purchased from affiliated companies ), surgical supplies and medical equipment,

supplier bottlenecks, quality problems or the disruption of its business relationships with these providers could lead

to disruptions or deterioration in the care provided at its facilities. If the Company is not able to access high-quality

products on a cost-effective basis or if suppliers are not able to fulfil their requirements for such products, it could

face a decline in patient volumes or disruption in its relationships with physicians. In addition, the Company may face

increases in the cost of supplies that it is unable to pass through fully by way of increases in its tariffs or the Company may

be unable to obtain adequate quantities of inventory.

The Company might not be able to realize the anticipated benefits of recent acquisitions

In the past 5 years The Company has made a number of acquisitions and its goal is to capture one-third of the Georgia

healthcare market by beds for its business, through organic growth (mainly by ramp-up of two major hospital

facilities). Realization of the expected benefits of those acquisitions and further growth could be subject to many of

the risks and uncertainties, including the following:

• The Company’s valuation of acquisitions or assessment of their benefits may not be correct;

• The Company may have difficulty assimilating different corporate cultures, practices and methodologies of acquired companies;

• The Company may incur difficulties and unanticipated expenses in conforming and integrating the accounting, human resources, information technology and other internal controls, procedures and policies of the acquired

companies with its own ones;

• The Company’s due diligence may not uncover undisclosed or potential liabilities which the Company may face in connection with acquisitions; and

28

• The Company may not be able to retain key personnel of acquired hospitals and clinics.

Furthermore, the Company may not be able to realize the anticipated cost savings, synergies and revenue

enhancements from any such acquisitions. The costs of achieving synergies and other benefits may be higher than the

Company expects due to greater than expected expenditure on integration and implementation activities; the

Company’s inability to eliminate duplicative functions; the Company’s inability to avoid labour disruptions in

connection with any integration; and the Company’s inability to make headcount reductions due to labour laws or

other obstacles.

Although its long-term growth strategy does not depend on any further acquisitions and is concentrated on organic

growth, the Company will continue to evaluate acquisition opportunities. The Company may not be able to identify

suitable acquisition opportunities, obtain the required financing in the longer term, effectively compete with other

potential acquirers of suitable facilities or negotiate attractive terms for such acquisitions. There may be a limited

number of attractive acquisition opportunities and certain acquisition opportunities may command high valuations.

And lastly, in addition to absence of attractive acquisition opportunity, as the Company’s market share increases, its

further expansion can be restricted by the Competition Agency of Georgia, since the latter is authorized to block

certain acquisitions as part of its merger control competences.

The Company is an Accountable Entity and is subject to additional regulations and reporting requirements

The Company is an Accountable Entity within the meaning of the Law of Georgia on Securities Market ("Securities

Law"). The Securities Law sets certain approval and transparency requirements for transactions in which the members

of the governing bodies of a Reporting Company and direct or indirect owners of 20% or more of its shares are

regarded as "Interested Parties" (such cases are defined in the Securities Law). According to the Securities Law, a

transaction involving Interested Parties or transactions exceeding 10% of the value of the assets of the Company shall

be approved by the supervisory board or the general meeting of shareholders. For transactions exceeding 50% of the

value of the assets of the Company, such transactions shall be approved by the general meeting of shareholders.

Transactions with 100% subsidiaries and 100% shareholders are exempted from these requirements.

Furthermore, the Securities Law imposes specific reporting obligations on a Reporting Company. A Reporting

Company is obliged to submit to the NBG, publish or provide to the registered owners of its securities annual, semi-

annual and current reports. If the Bonds are traded on the GSE, such information must be also provided to the GSE.

The NBG is entitled to request additional information from the Reporting Companies.

Requirement of approval of transactions with Interested Parties along with the reporting requirements will pose

additional regulatory burden on the Company and may affect the efficiency of its operations. In addition, the failure

to obtain required approvals may cause invalidation of the relevant transactions in certain cases. (For ex. if the

supervisory board or partners meeting does not approve a transaction with any of the interested parties).

Anti-monopoly regulations may negatively affect the activities of the Company

In March 2014 significant amendments were made to law of Georgia on Competition ("Competition Law"). Various

restrictions were introduced in relation to concentration of economic agents, abuse of dominant position, state aid,

etc., whereas no competition regulations of general application existed in Georgia previously (except for certain

industries such as banking and telecommunications). The Competition Agency was established in April 2014 based

on the Competition Law. The Competition Agency is entitled to monitor compliance of private entities with the anti-

monopoly legislation in Georgia and has various powers including the right to impose fines for breach of the

Competition law. The Competition Agency is expected to issue various normative acts based on the Competition Law

in the nearest future. The novelty of anti-monopoly regulations and unpredictability of the process of enforcement of

such regulations by the Agency may pose additional regulatory burden on the Company and negatively affect its plans

for expansion.

As of the issue date of the bonds, the Company’s acquisitions comply with all anti-monopoly regulations.

29

The business/Industry in which the company operates is capital intensive, which could be subject to risks of

obtaining financing.

The company’s business model and the industry in which it operates are capital intensive. Throughout the past 2

years the company has undertook massive development projects by investing heavily in healthcare facilities. These

include renovation and development of recently purchased premises – Caucasus Medical Centre LLC and Tbilisi

referral hospital. Despite the fact that the issuer does not plan on purchasing new hospitals and it’s long term

strategy is focused on the increase of effectiveness of the existing facilities, the company will require financing in

order to maintain it’s fixed assets and to undertake certain capital expenses. There’s no guarantee that such financing

will be available with favourable terms and on time. Company’s inability to obtain necessary capital might have

significant negative effects on the company’s financial position, operating results or it’s ability to repay

Bondholders.

Rapid technological advancements in Medical industry could have negative effects on the company’s fixed assets.

The company’s business environment is dynamic and new technologies are often implemented on the market. If the

company fails to keep up with these tendencies and fails to renew it’s fixed assets/medical equipment frequently,

technological advancements in the industry might cause them to age/depreciate. This in turn, might weaken the

company’s competitiveness and/or negatively impact the company’s operations and financial position.

The stocks of the issuer’s parent company GHG PLC are listed on the London Stock Exchange (LON : GHG),

which is subject to certain limitations and demands.

The stocks of the issuer’s parent company “Georgian Healthcare Group” are traded on the London Stock Exchange,

which is subject to certain limitations and demands. There is a risk of the parent company being unable to fulfil the

abovementioned demands which could damage it’s reputation and have negative impact on it’s Subsidiary – the

issuer. Additionally, there is a risk that limitations imposed on GHG by the stock exchange or investors (such as :

restrictions on loans, compliance with various policies) could have impact on “Evex Hospitals’” and it’s indicators

or plans.

The GHG’s stock price trend (closing price, in GBP) for 2017, 2018 and 2019 is given below.

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

Oct

-17

No

v-1

7

Dec

-17

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

Dec

-18

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

Jul-

19

30

The company’s fixed assets are stated at fair value, which implies valuation risks – it is sensitive towards

judgement and methodologies utilized.

Evex Hospitals uses revaluation method (according to IFRS), which implies stating property, plant and equipment at

fair value in financial statements. In order to obtain fair value valuation should be performed, which, in turn, is

connected to certain risks. Valuation of fair value is performed using certain judgement. There’s a risk of erroneous

judgement which would cause misstatement in fair value. Additionally, International Valuation Standards require

valuators to use more than one valuation method, where using only one method would not yield a high degree of

confidence in the accuracy and reliability of resulting figures. There’s a risk of utilizing only one method even in

cases where high degree of confidence has not been obtained. Moreover, International Standards of Valuation

require valuators to arrive to a single figure, by analysing and reconciling the differing values produced by different

methods, without averaging. Due to the fact that different methods yield different values, arriving at a single value

includes judgement as well, which implies a risk of misstatement. As well as this, certain methods of valuation could

be omitted completely, which would have a significant impact on a final figure.

Macroeconomic risks and political risks related to Georgia

Regional tensions can negatively impact local economy and company

Georgia shares borders with Russia, Azerbaijan, Armenia and Turkey and could be adversely affected by political

unrest within its borders and in surrounding countries. In particular, Georgia has had on-going disputes in the

breakaway regions of Abkhazia and the Tskhinvali Region/South Ossetia, and with Russia, since Georgian

independence in 1991. These disputes have led to sporadic violence and breaches of peace-keeping operations. In

August 2008, the conflict in the Tskhinvali Region/South Ossetia escalated as Georgian troops engaged with local

militias and Russian forces that crossed the international border, and Georgia declared a state of war. Although Georgia

and Russia signed a French-brokered ceasefire that called for the withdrawal of Russian forces later that month, Russia

recognized the independence of the breakaway regions and tensions persist as Russian troops continue to occupy

Abkhazia and the Tskhinvali Region/South Ossetia. For example, in summer 2013 Russian border guards erected

fences along portions of the demarcation line between Georgia and South Ossetia and similar future actions could

further increase tensions. Russia is also opposed to the eastward enlargement of NATO, potentially including former

Soviet republics such as Georgia. The Georgian government has taken certain steps towards improving relations with

Russia, but these have not currently resulted in any formal or legal changes in the relationship between the two

countries.

Relations between Azerbaijan and Armenia remain tense, and there are sporadic instances of violence between these

two countries.

Georgia has close trade relations with Turkey. In recent years, the Turkish National Currency has been significantly

devalued due to political instability which will have a negative impact on the country's current account deficit and

external debt service. Consequently, ongoing political and economic instabil