Chemical Reaction

Turkey

Economic News

22 Jul 2010
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A Russian-Kazakh consortium has gained control of Turkey's largest petrochemicals company, bidding more than $2bn to win a 51% stake in formerly state-owned corporation Petkim.



The previously unknown Trans Central Asia Petrochemical Holding consortium beat out seven other groups in the privatisation auction, held in Ankara on July 5. With the elimination of five of the contenders, the final round of bidding came down to Trans Central Asia and a partnership between Azerbaijan's state oil company SOCAR, Turkish firm Turcas and Injaz Projects of Saudi Arabia.



Having gone to $2.04bn, the SOCAR-Turcas-Injaz representatives balked at topping Trans Central Asia's final offer of $2.05bn. The bid was well above both Petkim's total valuation of $1.4bn, let alone the amount expected to be offered for the 51% stake.



Interestingly, it was only after the auction that the identity of the consortium's members was revealed, when Trans Central Asia issued a statement outlining its intentions for Petkim. Having said it wanted to invest in refining, ports and energy activities after the transfer of shares goes through, the consortium also declared its main partners: Russian investment bank the Troika Dialogue Group, Investment Production Group Eurasia, a Russia-based but majority Kazakh owned real-estate development company, and Kazakh oil exploration firm Caspi Neft JSC.



The consortium's statement said it had bought into Petkim, which is responsible for around 30% of Turkey's petrochemicals production, due to its potential and successful performance in the region.



"Such an investment shows the confidence of Kazakh and Russian investors in the Turkish economy," it said. "We also hope such investment will contribute to the improvement of relations between Turkey, Kazakhstan and Russia."



However, the final transfer of Petkim's shares still has a number of hurdles to be overcome before it becomes a done deal. The winning bid has to be approved by Turkey's Competition Board, following which the Tender Commission will present the result to the Supreme Board of Privatisation (OYK). If the OYK ratifies the outcome, a contract will be signed and Petkim shares will be transferred to the winning consortium.



Away from the official process, the sale faces other challenges. Following the auction, Petrol-Is, the labour union representing workers in the petroleum industry, announced that it would appeal to the courts to have the sale overturned, partly on the grounds that it was contrary to the interests of its members and the country.



Deniz Baykal, the leader of the opposition Republican People's Party (CHP), was another who was unhappy with the sale, saying he was disturbed by the privatisation of Petkim only 15 days before the general July 22 general election.



The CHP, which was long an opponent of selling off state assets, considered Petkim was an important part of the Turkish economy and had great potential, Baykal said. However, Baykal did not say whether his party would also challenge the sale through the courts, as it has done in other privatisation tenders.



If the sale does run into trouble, it will not be the first time that the company's privatisation has been mired in controversy. The July 5 auction was the third attempt by the state to divest itself of Petkim.



In June 2003, a company owned by the Uzans, a high profile business family in Turkey, bid $605m for an 88% block share of Petkim's shares. However, the sale fell through after Uzan firm Standart Kimya, failed to make the payment for the shares, and the Uzan group of companies collapsed after investigations revealed massive debts. Late in 2003, another attempt to sell the 88% share block failed to attract a high enough bid. In 2005, the state held a secondary public offering of just under 40% of Petkim's shares, the sale being fully subscribed.



Turkey's Economy Minister Ali Babacan brushed aside concerns the sale could end up in the courts, saying the successful privatisation showed that foreign investors still had their eye on Turkey.



"Such international interest in Turkey is quite pleasing," Babacan said during an interview with the media.



Should the sale get the all clear, Trans Central Asia will also have to work out an accommodation with Petkim's minority shareholders, including the state, which retains a 10.32% stake through the Privatisation Administration, and the owners of the shares sold during the 2005 public offering.



By international standards, Petkim is not a major player in the petrochemicals industry. Last year, on the back of an output of 3.2m tonnes, more than half of which was exported, the company earned a profit of $136m, with first quarter profits this year coming in at $38.5m.



Some experts have questioned why Trans Central Asia paid so much above the odds for the moderately performing company, which only three years ago was making a loss. However, with the vast resources of Kazakhstan at hand and the expanding Russian market just across the Black Sea, the consortium appears to have big plans for the long term future, just as long as it can get past the litigation that is coming its way.

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