Uzan Sell Off Looms


Economic News

22 Jul 2010
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With the seizure by Turkish authorities of some 219 companies belonging to the Uzan Group mid-February, the final chapters in one of the country's most controversial corporate sagas appeared to be closing this week. Now, many are wondering what next, as the state's new portfolio gets examined, and prospects for a lucrative fire sale get aired.

The Uzan Group, which has interests in sectors as diverse as cement and the media, also owned Telsim, Turkey's second-largest GSM network. Estimated to have some 6m subscribers, mid-2003, it also owes some $4bn to Motorola and Nokia. This is the extent of the award made by a New York court last year, which ruled that Telsim had defrauded the two mobile phone giants.

"If there's a potential buyer for Telsim," Savings Deposit Insurance Fund (TMSF) chief Ahmet Erturk told reporters February 19, "we are going to sell it."

This seems to be the TMSF strategy for dealing with the Uzans' assets. The Fund had, after all, moved to take over the Group's companies as the Uzans had failed to come to any agreement over repaying some $6bn they currently owe state institutions. Getting this sum back is therefore the TMSF's top priority. The Fund has also made clear it is taking over management of these companies, but not taking over their debts.

This means a sell off, with Uzan companies being sold to meet the $6bn debt. What happens after that - or whether there will be anything left - is still uncertain. The Group overall owes both state and private companies some TL43.5 quadrillion ($32bn), an extraordinary amount, requiring extraordinary measures.

The other problem complicating things is the lack of any transparency in the Uzan Group's accounts. The Group began to collapse after its banks, Imar Bank and Ada Bank, were taken over by the TMSF last year, exposing a massive fraud involving double accounting and a range of other dirty tricks, if the prosecutors are to be believed. Many in the market think it highly likely that other Uzan Group companies have been managed in a similar way.

So, investors may want some rigorous checks before purchasing any Uzan Group assets. How much they are worth - and whether the TMSF will be able to get its money back from their sale - remains speculative. Thus, too, the amount that might be available afterwards for private creditors to pursue.

One thing is clear though: Turkey's corporate lawyers stand to be fully employed in the months to come. As private companies file their claims - and the Uzan family's lawyers lodge their counter-claims - the legal process is likely to be lengthy.

Meanwhile, there are implications for a number of sectors. First is telecoms, with Telsim's greatest rival, Turkcell, seeing its share price rise slightly on news of the TMSF takeover. Telsim suddenly coming on the market for a new owner also adds an extra dimension to competition within the country's GSM sector, with implications perhaps too for any new attempt to sell off Turk Telekom, the state, fixed-line company which also has a share of the merged third Turkish mobile network, Aycell-Aria.

The Uzans were also a big presence in cement and the media. Similar outcomes are also likely there, as their rivals attempt to take over assets and licenses during the expected TMSF sell off. The media assets - the newspaper and TV channel Star being the most popular - may simply be eaten up by the Uzan's existing rivals, particularly the Dogan Group. However, Dogan's already major market share may rule it out for some of these assets under Turkey's competition laws.

The other outcome of the affair appears to be a strengthening of the country's financial and business control and inspection procedures and institutions. The company takeover was conducted within the scope of the new banking law, which itself widened the scope of culpability within enterprises. Now, not only company owners must take responsibility for financial misdemeanours and mismanagement, but managers, executives and even their families.

The action against the Uzans has therefore had a salutary effect on many others who owe the government money. Reportedly, many of the banks that had previously delayed coming to any arrangement with the authorities over repayment plans for their debts to state institutions are now busy queuing at the doors of the TMSF to make a deal. This may release funds and bolster the government's financial position, in addition to the receipts it may get from selling Uzan companies.

It has also been a success - so far - for the government of Prime Minister Recip Tayyip Erdogan. He has been accused by the family scion, Cem Uzan, of everything from conducting a political campaign against Cem's hard-right Youth Party (GP) in the guise of a business clean up, to being "godless" - a claim which has now earned Cem an appearance in the courts for defaming the country's leaders.

If the campaign against the Uzans heralds a wider clean up, then many in the market would welcome this. Others, of a perhaps less transparent ilk, may, of course, have cause to start sweating in the months to come.

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