Tethys Investments


21 Jan. 2019

Attractive Asset Values Generate Some PE Interest in Turkey

Attractive Asset Values Generate Some PE Interest in Turkey

The main drivers of the PE interest to Turkey are reasonable asset values and declining cost of doing business, which are the outcome of devaluations and serious macro challenges the country has experienced in recent year. One of the major macro economic challenges is significant short term FX liabilities of financial and non-financial corporations in Turkey amounting to $158B, of which public lenders account for $28B, private lenders account for $64B and non-financial private companies account for $65.5B. Due to the credit crunch, many corporations with FX debts find it hard to access refinancing options.

So far foreign investors are mainly interested in exporting companies in Turkey, which provides the shield to exchange rate instabilities and devaluations. According to the Central Bank data, net FDI inflows to Turkey rose by 2% y/y to $10.3bn, including $4.44B in real estate investments in 2018. Equity capital inflows to Turkey declined by 2% y/y to $7.4bn in 2017, the lowest level since 2010, while equity capital outflows jumped by 201% y/y to a record high of $1.87B.

According to data of Turkey Competition Board, the value of a of 223 M&A deals in Turkey rose by 35% to $5.6B in 2018. Ernst & Young estimates that M&A volume in Turkey reached $12B. It projects that the M&A market would reach $10-12B in 2019 as reported by Reuters. Despite positive trends and developments, M&A activity is yet to reach its potential level, which peaked in 2012 amounting to $23.2B. The M&A activity reached its bottom in 2016 making $4.6B due to geopolitical risks and macro challenges.

Turkey’s Deposit Insurance Fund (TMSF) is planning to start the sale of problematic assets under management. TMSF is managing 955 companies that operate with assets of TRY56.5B (roughly $10B) and total equity of TRY19.8B. It is close to finalizing the sale of the property developer Dumankaya to a German firm. It is also planning to exit two other companies, plastic producer Naksan Plastik and carpet manufacturer Royal Hali.

In another positive development, a special purpose vehicle, Levent Yapılandırma Yönetimi (LYY) acquired 55% stake in TurkTelekom. VTB Capital upgraded Turk Telekom to Hold from Sell as lira stabilisation had improved its investment case, although the telecom’s balance sheet remains problematic due to $4.1bn of FX debts.

Go back to News
Newsletter BG

Subscribe to
Tethys Investments' updates