Turkey: Privatization Developments

The summer of 2005 has been a very busy period for the Privatization Administration (“PA”) and investors. Privatizations of several State-owned entities, including arguably the three largest of all, were conducted within a very short period of time.

TÜRK TELEKOM: The PA announced the tender for Türk Telekom on 25 November 2004 where 13 bidders, both local and international, including, inter alia, OYAK, Koç, Sabancı, Etisalat, Telefonica, Telecom Italia, Deutsche Telekom and Maxis Communications showed interest. However, soon after the completion of the due diligence exercise, Telefonica withdrew from the tender process. It was reported by the press that the uncertainty in the proposed shareholding structure of AVEA, the third GSM operator in Turkey controlled by Telecom Italia and Türk Telekom, after completion of the proposed sale of 55% of Türk Telekom’s shares, caused this leading telecom company to withdraw from the tender.

Among the 13 bidders that were pre-qualified for the tender, only four consortia, namely Oger Telecoms (Oger Telecoms LLC - Saudi Oger LTD), Etisalat (ÇETEL Çalık Enerji Telekomünikasyon A.Ş-Etisalat-Emirates Telecommunications Corporation - Dubai Islamic Bank -Abu Dhabi National Insurance Bank), Koç Holding (Koç Holding-Carlyle Group LLC) and Turktell (Turktell Bilişim Servisleri-Gen-Pa Telekomünikasyon ve İletişim Hizmetleri -Tekofaks Ofis ve Haberleşme Ürünleri Pazarlama and Kurtson Maden ve Sanayi İşletmeleri) - participated in the tender.

Finally, the bid was awarded to Oger Telecoms who proposed to pay USD 6,550,000,000 for 55% of Türk Telekom’s shares. The share purchase agreement was signed on 24 August 2005 and the parties are currently awaiting the final approval from the Council of State to the concession agreement of Türk Telekom. Following the approval, the share sale will be completed.

TÜPRAŞ: The tender announcement, for sale of 51% of Tüpraş’s shares was made on 29 April 2005. Turkish investors POAŞ, Opet, Koç Group and Oyak were interested in Tüpraş. Some foreign companies such as Repsol of Russia, PKN of Poland, IOC of India, Eni SPA of Italy, OMV of Austria and Shell, as well as some financial investors from the United States were also mentioned as interested parties.

The bid was awarded to the Koç Holding-Shell consortium, which offered USD 2,780,000,000 for 51% of Tüpraş shares. Recently, the Competition Board conditionally approved this sale and the share purchase agreement is expected to be signed shortly.

ERDEMİR: The tender for the privatization of Erdemir, Turkey’s largest iron and steel producing entity was concluded on 4 October 2005. The tender concerned the block sale of the PA’s 46.12% share in Erdemir, tied with the 3.17% stake of the Turkish Development Bank (Türkiye Kalkınma Bankası A.Ş. ). The world’s largest iron and steel manufacturers including Arcelor, Mittal Steel and Russian Novolipetsk participated in the tender. In addition to foreign bidders, local conglomerates also showed significant interest in the tender. Among these was a consortium lead by the Union of Chambers and Commodity Exchanges of Turkey. In addition, OYAK (Turkish Armed Forces Pension Fund) submitted a bid for Erdemir.

On 4 October 2005 the bid was awarded to OYAK, who proposed to pay USD 2,770,000,000 for 46.12% of Erdemir’s shares. The sale will be completed following the Competition Board’s approval of the acquisition of Erdemir’s shares by OYAK.

MERSİN PORT: Mersin Port is an important port, in terms of its hinterland and access to Mediterranean and North African countries owned. The Government included the port in its privatization program, whereby the bidders were offered the operation rights of the port for a period 36 years. The PSA-Akfen Group, formed of Turkish and Singaporean partners proposed USD 755,000,000 and was awarded the tender.

Following the award of the tender, the Union of Port Employees filed a lawsuit at the Mersin Administrative Court and requested a suspension order. This was recently rejected by the Regional Administrative Court. The Union declared that they would continue with their legal battle. The final approval for the sale is currently pending.

İSKENDERUN PORT: Similar to Mersin Port, İskenderun port is also one of the important ports of Turkey owned by the Turkish State Railway Institution, with access to the Mediterranean and North Africa. The final negotiations for the privatization of İskenderun port through block sale was realized on 9 September 2005, where the PSA-Akfen Group was awarded with the bid with a proposal of USD 80,000,000.

The Competition Board rejected the award of the tender to PSA-Akfen Group.1

KIBRIS TÜRK HAVA YOLLARI (“KTHY”): The Government proposed the block sale of 50% of KTHY (Cyprus Turkish Airlines) and announced the bid on 18 May 2005. The bid was awarded to Ada Havacılık ve Taşımacılık A.Ş. and the sale purchase agreement was signed on 9 September 2005. Final approval for the sale is currently pending.

ADAPAZARI ŞEKER FABRİKASI: The Government proposed the block sale of 95.37% of this sugar manufacturing company, whereby the bidding deadline was set as 14 July 2005. The highest bid of USD 45,750,000 was offered by ile S.S. Adapazarı Pancar Ekicileri Kooperatifi on 2 August 2005. Final approval for the sale is pending.

ETİ ALÜMİNYUM A.Ş.: Privatization of this aluminum manufacturing company was concluded on 17 June 2005. The tender was awarded to CE-KA İnşaat Makina Madencilik Petrolcülük Turizm Nakliyat Sanayi ve Ticaret A.Ş., who offered USD 305,000,000 for the entire shares of the company. The sale was approved by the Privatization High Council on 27 July 2005 and the sale purchase agreement was signed on 29 July 2005. Final approval for the sale is pending.

ISTANBUL HILTON HOTEL: This hotel was owned by the General Directorate of the Pension Fund. The Government proposed the sale of the hotel together with all its fixtures and attachments. On 11 August 2005, Ortadoğu Otomotiv Tic. A.Ş. offered the highest bid of USD 255,500,000 for the hotel. Final approval for the sale is currently pending.

BAŞAK SİGORTA A.Ş / BAŞAK EMEKLİLİK A.Ş.: The Government is proposing to privatize 56.67% of Başak Sigorta, the insurance company, and 41% of Başak Emeklilik, the pension fund block sale. The final bidding deadline for both companies was 11 October 2005, and six bids were received.

NATIONAL LOTTERY (“Milli Piyango”): Milli Piyango was included in the privatization program in 2003, and preparations for the tender process were expected to be finalized by the end of June 2004. However, there was a debate between the PA and the National Lottery Administration regarding the privatization method and the means to be used in collecting Milli Piyango’s revenues after privatization. This lead to a delay in realizing the necessary legislative amendments for privatizing Milli Piyango.

Turkish companies that have so far expressed their interest in the tender are Doğan Holding, Doğuş Holding, Alarko Holding, Park Holding, Özaltın Group (Ankara), Çukurova Holding and Sabancı Holding. The press has noted that many foreign companies are also interested in this privatization. These companies are G-Tech (current technical system provider for Milli Piyango), Lottomatica, Sisal, Tattersals/Snet, Intralot (current system provider for Spor Toto and runs the İddaa game with Çukurova Holding), Svenske Spel, UT Group and Austrian Lotteries. According to the press, the main reason behind the high interest of domestic and foreign investors is that the investor will have a right to arrange new lotteries and games, and will be able to run extensive advertisement campaigns. The market is expected to at least double its current size in a very short timeframe.

Footnotes

1. Please refer to our article titled Current Issues of Competition Law, for an overview of the Competition Board’s approach.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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