Turkish sovereign wealth fund reportedly considering taking stake in Turk Telekom

Turkish telecommunications giant Turk Telekom – sold for $ 6.55 billion in 2005 in what was the largest privatization ever in Ankara – again appears poised to be controlled by the government via a sovereign wealth fund in the part of a potential agreement that would mark a new stage of renationalization in the country. telecommunications sector.

The privatization of Turk Telekom ended in a mess when the buyer of the majority 55% stake – OTAS, a subsidiary of Oger Telecom, owned by the Lebanese family Hariri and Saudi Telecom – defaulted on a loan of several billion dollars issued by a consortium of Turks and foreigners. banks. The saga, which left Turk Telekom gutted and riddled with debt, resulted in creditor banks taking over OTAS ‘55% stake in 2018.

The Turkey Wealth Fund, chaired by President Recep Tayyip Erdogan, sees telecommunications as a strategic sector and appears determined to acquire the 55% stake in now reshuffled Turk Telekom, banking sources told Al-Monitor, adding as price negotiations happen between the fund and the banks. A possible deal would restore the public sector as the largest player in the telecommunications industry after a similar acquisition by the fund last year. Of the remaining Turk Telekom shares, 30% are already state-owned and 15% are floating.

The banks, which reluctantly took over Turk Telekom, set up an ad hoc structure to restructure the company and then sell their shares. For the banks, Turk Telekom was a risky burden with potential repercussions on the entire Turkish banking system. The boom in online communications during the COVID-19 pandemic is said to have helped the company’s regeneration efforts. The Wealth Fund reportedly decided to acquire the controlling stake against the prospect of foreign buyers.

The special purpose vehicle company called Levent Yapilandirma Yonetimi (LYY) was started by Akbank, Isbank and Garanti, all major Turkish banks. While trying to rehabilitate Turk Telekom, the banks are also looking for potential foreign buyers. The Wealth Fund’s decision to acquire majority stake appears likely to succeed and preclude foreign ownership. Turk Telekom’s license expires in 2026.

When OTAS took control in 2005, the Turkish Treasury held the remaining 45% of Turk Telekom. In 2008, a 15% share of the treasury was offered to the public. In 2017, cash transferred an additional 6.68% to the Wealth Fund.

The privatization deal was based on a license for Turk Telekom to use public networks, equipment and real estate for 21 years and three months. In other words, OTAS was supposed to return all those resources and a debt-free Turk Telekom to the government in 2026.

Following the call for tenders, OTAS paid the deposit and the first of the five installments of the remaining sum. In 2007, she announced that she wanted to pay off all of her debt at once. The company secured a large loan from an international consortium, using cash and real estate from Turk Telekom to meet its obligations.

To maintain its competitiveness, Turk Telekom also had to make new investments. Additionally, it paid $ 500 million for a 40% stake in mobile phone company Avea in 2006. Nine years later, it acquired the remaining 20% ​​of Avea from Isbank for $ 340 million. .

As a result of borrowings to finance acquisitions and investments, Turk Telekom’s debt ratio increased sixfold between 2007 and 2016. In May 2013, OTAS took out another loan worth approximately 4 , 5 billion dollars and 212,000 euros, using all its shares in Turk Telekom as collateral. It was on this loan that she defaulted in September 2016.

The company, which was once profitable in previous years, was 724 million Turkish lira in the red in 2016 amid rising borrowing costs due to the gradual collapse of the pound.

The Chamber of Electrical Engineers deplored the privatization of Turk Telekom as a “fiasco”. A chamber publication said: “The country’s economy has been deprived [of] tax revenue generated by a giant entity such as Turk Telekom. But not only that. Our country has retreated in terms of communication and computer technologies, which have become the backbone of the world economy. Turk Telekom employees considered to be laid off were made redundant, becoming an inactive workforce in the public sector pool. And where have the savings from the layoffs gone? To the Hariri family.

Ultimately, Turk Telekom announced in August 2018 that the Treasury and Finance Ministry had approved the creation of a special purpose vehicle by the creditor banks to take over OTAS ‘55% stake in the company.

The three banks – Akbank, Isbank and Garanti – appointed Morgan Stanley as financial advisor in what they described as a process to transfer shares of Turk Telekom to a “competent” investor.

Meanwhile, Turk Telekom has started to recover. It posted net profits of 554 million lire in 2019 and 1.1 billion lire in 2020. According to market analysts, the company’s profits are mainly due to “robust growth in the fixed Internet business and solid operational performance, supported by savings in personnel costs “. as well as a reduction in effective tax rates in 2020.

In a statement in August, Turk Telekom CEO Umit Onal called the company’s performance an “incredible transformation” and painted an optimistic picture for 2021. Capital spending stands at 8.5 billion by TL. I’m really excited to discover the post-pandemic world, ”he said.

For example, the Turkey Wealth Fund – often embroiled in controversies since its inception in 2016 – decided to acquire the 55% stake in Turk Telekom after the company began to regain its appeal and its executives hoped to attract investors. foreign investors. Last year, the fund took control of Turkcell, the country’s largest mobile operator, after taking over the stake from the company’s largest shareholder, Sweden’s Telia, for $ 530 million. Its eventual acquisition of the majority stake in Turk Telekom would make it the owner of Turkey’s two largest telecommunications companies. The fund also owns all the shares of satellite provider Turksat.

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