Turkey: Wind Of Privatization Continues

The block sales of 56.67% shares of Başak Sigorta and 41% shares of Başak Emeklilik were finalized on 16 May 2006, following the execution of the share transfer agreement between the PA and Groupama International. The share sale price under this agreement was $ 268 million.

The Competition Board rejected the transfer of the operation rights of Iskenderun Port to the PSA (Singapore) - Akfen (Turkish) Consortium on the ground that such transfer would create a dominant position for the group in the same market since they already held the operational rights to Mersin Port. This decision of the Competition Board has been brought before the Council of State by both the winning bidder and the employees of the Port Union with different claims. The PA will need to wait until the disputes are resolved before accepting the second bid. As for the privatization of Samsun Port, the PA has not yet decided upon the winning bidder after receiving two offers, in June 2006, from two Turkish companies.

The privatization of THY through offering its shares to the public has been completed with great success, where the issuers sold an additional 15% of the shares over the intended 25% of THY shares. Accordingly, 53.57% of the shares of THY are currently held by public, and the total revenue obtained from this sale reached an aggregate amount of 310.6 million YTL, which is of the sum of 117.6 million YTL obtained from foreign investors and 193 million YTL obtained from local investors. Very recently, together with Do&Co, an Austrian Company, THY purchased the food and beverage services company (USAŞ) that catered airlines for a sum $ 45 million. It is expected that approximately 1400 employees of USAŞ will be transferred to the joint venture of THY / Do&Co.

In the mining area, the PA completed its negotiations with Kollin İnşaat Turizm Sanayi ve Ticaret A.Ş on 12 September 2006. Kollin offered to pay $ 21.5 million for the privatization of the Deveci Mining area owned by Türkiye Demir ve Çelik İşletmeleri A.Ş. The PA also signed a sale and transfer of rights agreement with Eti Bakır A.Ş on 6 July 2006 for the transfer of the operation rights of the Murgul Mining area to Eti Bakır A.Ş, together with all of its licenses, previously owned by Karadeniz Bakır İşletmeleri A.Ş. The said mining area included a hydro-electric power plant on its premises, which was also transferred to the winning bidder within the same privatization package to operate it for a period of 36 years and the real property in the Samsun area owned by Murgul Mining. The total price paid by Eti Bakır A.Ş for the above transactions was announced by the PA as $ 37.6 million.

Currently, the PA is busy with the proposed privatizations of Halkbank, and Petkim, while setting the deadlines for the final bidding of Izmir Port and the Bor, Ereğli, Ilgın and Kayseri Şeker Fabrikası (sugar processing factories) owned by Sümer Holding A.Ş.

Halkbank, being one of the largest banks in Turkey, has been included into the privatization portfolio upon the decision of the Privatization High Council ("PHC"), dated 11 August 2006. Pursuant to the PHC’s decision, the shares of Halkbank owned by the Treasury, which is almost equivalent to 99% of Halkbank’s shares, will be privatized through block sales until 25 May 2008. A number of foreign players are expected to be interested in buying Halkbank, Turkey’s sixth largest by assets. Investors from the Gulf, as well as from Europe and America, are said to be interested, including the Dubai Investment Group as well as Citigroup.

Halkbank is Turkey’s leading finance provider to small and medium-size enterprises, and has more than 550 branches. Beyond the shares owned by the Treasury, a few shares are split between other banks, certain chambers of commerce and local administrations. The government has used Halkbank as a vehicle to bring about reorganization of the banking sector in recent years. In 2004, Halkbank acquired Pamukbank, which had been managed by the Savings Deposit Insurance Fund since it collapsed in June 2002, giving it extra corporate and retail exposure. Halkbank also acquired Turkiye Emlak Bankası in 2001, Etibank in 1998, Sumerbank in 1993 and Tobank in 1992.

The current government and the PA have taken advantage of the foreign appetite for Turkish banks by approving the privatization plan. In April, Citigroup and the National Bank of Greece fought over a stake in Finansbank, with the National Bank of Greece paying 2.3 billion for 46% of Finansbank’s shares, valuing it at about 3.6 times its book price, setting a new benchmark for Turkish bank acquisitions. Belgium’s Dexia also agreed to a deal earlier this year, paying $2.44 billion for a 75% stake in DenizBank, Turkey’s 10th largest bank, valuing the bank at $3.25 billion. Despite this appetite, there has been a negative response from Turkish public opinion especially from the minority shareholders of Halkbank.

The Ankara Chamber of Commerce, a minority shareholder in Halkbank, has filed a lawsuit against the PA before the 13th Chamber of the Council of State, requesting cancellation of the PHC’s decision in connection with the privatization of Halkbank and obtained a suspension order in this regard.

Following the suspension order, an amendment was made by the Parliament on Law No. 403 on Ziraat Bankası, Halkbank and Emlak Bank. With this amendment, the restructuring period (which was the basis of the suspension order) was increased to ten years. Consequently, the suspension order is likely to be lifted. Following the said amendment, the PHC has adopted its resolution regarding the privatization strategy to be followed in the privatization of Halkbank.

With regards to Petkim, the PA has recently signed a consultancy services agreement with AK Yatırım Menkul Değerler A.Ş / Raiffeisen Inv. AG consortium to act as the consultants to the PA in determining the privatization method and process for Petkim. As our readers may know, this privatization was previously attempted on two occasions, in 2001 and 2003. Petkim is a petrochemical giant located in İzmir Aliağa.

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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