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10 | May 2010 | ifr special report PRIVATISATION

The privatisation imperative

Turkey’s government mixes a philosophical belief in the need for private ownership with a practical imperative of raising money. The resulting privatisation spree has already created quite a buzz, and will continue to drive most of the activity in Turkey’s capital markets for many years to come. Nick Lord reports.

“We expect the vast majority of capital market deals to come out of Turkey in the next few years will be in the energy and financial services sectors.”

urkey’s privatisation agenda is one of the boldest of any country in the world. The government has a deep seated belief in the need to remove the state from the ownership and running of most sectors of the economy. It also needs the money to finance its on-going budget deficit. As a result, the government has honed a process that works effectively in transferring operating rights, as well as outright sales of assets. However, the high profile deals of the past, such as the privatisation of Turk Telecom into a bull market, will be hard to repeat in the future. The global recession is limiting the appetite of strategic buyers and stemming the flow of international finance, needed to pay for the huge numbers of assets on the block. That means that if the government really wants to sell these

T 2009 implementations Contract date Block sale Total block sale Asset sale

Baskent Electricity Distribution Com Sakarya Electricity Distribution Com Meram Electricity Distribution Com TEKEL Real Estate TEDAS Real Estate T SEKER

Sümer Holding real estate DMO

Total asset sale

Public offering Total public offering General total

Source: Republic of Turkey Prime Ministry Privatization Administration

28/1/2009 11/2/2009 30/10/2009 2009 2009 2009 2009 2009

1,225,000,000 600,000,000 440,000,000 3,640,097 3,678,567 1,314,125 138,188

1,214,182 2,274,985,159 0 2,274,985,159 0 Sales (US$)

assets, it will have to develop the local capital markets. Only this will allow local buyers and their financiers to raise the sums required.

Everything but the kitchen sink Looking at what is for sale, the scope of the government’s ambitions becomes clear. Everything is seemingly for sale. On its website the Privatisation Authority (PA) lists whole industries such as electricity generation and distribution as well as gas distribution that are being entirely sold off. All the country’s motorways and toll bridges are also being sold, as are its ports and ferry services. All told, bankers estimate that assets worth in excess of US$20bn are for sale in a process that will take some four to five years. “We expect the vast majority of capital market deals to come out of Turkey in the next few years will be in the energy and financial services sectors.” says Murat Demirel, head of Citi’s banking business in Turkey. “In the energy sector, for instance, the volume of deals in the pipeline cannot be funded entirely by the bank market. The privatisations, upgrades and new builds in the sector will be the main driver of the debt and equity capital markets in coming years.”

The deals that the government has mentioned recently include secondary public offerings of already part- privatised companies such as Turkish Airlines or Turk Telecom. The government needs to be very careful about what it says about these deals as both are already listed, but bankers in Istanbul all say activity underway.

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