Banking on Telecoms

Turkey

Economic News

22 Jul 2010
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The fortunes of Turkey's troubled Cukurova Group were once more in the headlines this week, as a deal was announced that leaves their major bank in another's hands. Yet this result not only has implications for the country's banking sector, but also for telecoms, as GSM giant Turkcell looks likely now to remain in Cukurova's grasp.



On January 31, Cukurova announced that it had agreed to sell a 57.4% stake in Yapi Kredi Bank (YKB) to Koc Finansal, a 50-50 partnership between Koc Holding and Italy's UniCredito.



The deal - also worked out with banking authorities - includes a 12-month option for Cukurova to buy shares in market-leading GSM operator Turkcell. A 13.5% stake in this telecoms company, owned by YKB, was up for sale, with Cukurova previously given until January 31 to buy the stake or lose the option.



If it had lost this opportunity, in all likelihood, market watchers say, Nordic telecoms group TeliaSonera would have moved in to buy the shares. This would have given TeliaSonera - which currently has a 37.1% stake in Turkcell - a controlling interest. With Turkcell a vital part of Cukurova's operations, such a loss would have been deeply damaging to it.



But, with an apparent closing of the question marks over Yapi Kredi and Turkcell, YKB shares soared 11% after trading resumed on February 2. Trading in the bank and Turkcell - which is also listed in New York - had been suspended the previous day pending announcements from the companies. YKB share prices then fell, but still finished the day 4% up.



Cukurova now has 12 months to come up with the funds to buy the Turkcell shares - although Koc also announced that if Cukurova took up the option within six months, it would get a maximum $71.7m reduction in the price tag. Thereafter, it would have to pay a proportional monthly amount of the $71.7m up to the end of the 12-month
period.



The YKB sell off had been forced on the Cukurova Group as part of a deal with banking regulators struck back in 2003. This followed the collapse of YKB's sister operation, Pamukbank, in 2002. Under the terms of the deal, Cukurova agreed to lower its then-45% stake in YKB to less than 10% by the January 31 deadline. The 57.4% sold to Koc Finansal thus included shares remaining plus a 5.5% stake held by Cukurova's Genel Sigorta insurance company and a 12.9% stake held by the Savings Deposit Insurance Fund (TMSF).



The sale also now creates the possibility for a merger between YKB and Koc's own Koc Bank. If such a move were to take place, this would make the merged entity the third-largest bank in Turkey, in terms of assets. However, as yet, Koc has made no announcement over its future plans on this score.



Naturally enough, the announcement is something of a disappointment for TeliaSonera, which has ambitious expansion plans, mainly centred on Turkey and Russia, analysts told OBG. Confusion over whether or not Cukurova had lost its option on the Turkcell shares by missing the January 31 deadline - or whether this could simply be amended by the authorities - may also have added a certain sense of aggravation to the affair for the Nordics. It remains to be seen what action - if any - they might chose to take over this.



Whatever the case though, there are plenty more opportunities ahead for anyone wishing to become more deeply involved in the Turkish telecoms sector. Last month saw interested parties come forward for the planned sell off of a 55% stake in state telecoms giant Turk Telekom (TT), with a May 31 deadline set for bids. Six domestic and seven foreign companies have passed the pre-qualification stage, including Spain's Telefonica and Telecom Italia. TT also has a 40% stake in AVEA, Turkey's third ranking GSM company, in which Telecom Italia also has a 40% share.



Market watchers see the outlook for a successful conclusion of this sale as good, although there remain some outstanding issues and potential legal challenges. First and foremost is the lack of any clear valuation. TT has been up for sell off more than once already, with initial valuations back in 1998 putting it at around $5bn. However, changing market conditions are likely to reduce this somewhat this time around. TT has also since lost its landline monopoly - although due to delays in the issuing of licenses, no other company has yet been able to take up the challenge in this field.



Once this sale is completed, the government has announced that it then plans to sell off Telsim, the country's second-largest GSM outfit, which came under state control last year following the collapse of the Uzan family business empire in dubious circumstances. There is therefore likely to be a legal challenge to resolve here too.



Yet the telecoms sector is therefore facing a crucial year ahead, with plenty of potential changes and opportunities. Meanwhile, banking too could be in for a remake, with the long drawn out process of consolidation forced upon the sector some years ago continuing its inexorable logic.

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