ONE DAY LAST summer an official of Cukurova, once Turkey's largest privately owned company, had a bizarre meeting. He was visited by representatives of a company he had not heard of called Northway Petroleum Services, which offered to pay Cukurova's $5 billion debt to the Turkish government over a period of two years. "I gave them a long hard look and told them they were either spooks or crooks," says the Cukurova official.
As security, financially hard pressed Cukurova was expected to give Northway Petroleum Services its holdings in two of the most valuable companies in Turkey: its 42% of Turkcell, the country's largest cellular telephone operator, and 58% of Yapi Kredi (YKB), one of the top three private banks. On repayment of the loan Cukurova would get these shares back. The scheme needed approval from the government because Cukurova's Turkcell and YKB shares are being held by state agencies as security for the company's debt.
In 2000, Cukurova was Turkey's largest privately owned company. It had $17 billion in assets and $4.5 billion in debt, according to Cukurova board member Osman Berkmen.
Mehmet Emin Karamehmet, who owns the Istanbul-based conglomerate, became one of the world's wealthiest men by investing in 1994 in a little-known new product – cellular phones.
The company started on a profit-sharing basis with the government in 1994. Four years later everyone thought that Karamehmet was mad to pay a $500 million fee to terminate the profit-sharing agreement and buy the cellular licence.
Karamehmet ignored a fair-value analysis commissioned by Swedish mobile phone maker Ericsson, which put a $35 million price tag on the licence.
Turkcell became one of the fastest-growing cellular companies in Europe. When it was listed in New York and Istanbul in July 2000, it was valued at $17 billion.
The following year Turkey was struck by its worst economic crisis since World War II and Cukurova's fortunes were reversed.
The group had borrowed heavily from its own banks, Pamukbank and YKB. During the crisis almost all Turkey's banks found themselves on the verge of collapse. Some 20 banks were seized by the state. One of these was Cukurova's Pamukbank, which was taken over by the BDDK, Turkey's banking regulation and supervision board, which also placed the YKB management under its tutelage by appointing BDDK people to the board. Cukurova challenged the seizure of Pamuk and successfully petitioned the supreme administrative court, Danistay, to annul the BDDK decision.
BDDK and Cukurova decided to settle the matter amicably and a plan was made for Karamehmet to pay his debts in an orderly manner. It was agreed that Pamukbank would revert to the BDDK. Cukurova would repay its $3 billion debt to Pamukbank and $2 billion debt to YKB over a period of 15 years. In the meantime, Cukurova's shares in YKB and Turkcell would be held by BDDK until the debt was repaid. The first instalment of $99 million was due on December 30 2003.
Mehmet Emin Karamehmet has never given an interview and is rarely seen in public. He does not socialize. He does not give to charity. Although he owns an Ottoman palace set in beautiful grounds on the Asian side of Istanbul he lives in a small house owned by his wife at Eliyesil Houses in Bebek, a wooded compound in the exclusive Bebek district with a magnificent view of the Bosphorus. "We never see him," says a neighbour.
This mystery man has now been made the most mysterious offer in recent years.
Although initially Northway Petroleum Service's offer was dismissed by Cukurova, the suitor persisted in its proposal. "In the end it convinced both us and the government, strapped for cash, that its offer was genuine and serious," says a senior Cukurova official who spoke on the condition of anonymity.
But what is Northway Petroleum Services?
"When the government decided to take the company's offer seriously we decided to investigate," says a senior official at BDDK. "We could find no trace of it anywhere. So we decided to call its representative and ask. 'It's a shell company,' we were told. 'If our offer is accepted the investors who will put up the money will make themselves known.'"
That both BDDK and Cukurova are tight-lipped about the identity of Northway Petroleum Services representatives deepens the mystery. "They spoke English so I guess they were English, Scottish or American," says the senior Cukurova executive.
"I though they were Irish," says the BDDK official.
Northway Petroleum Service's scheme was first leaked at the beginning of October 2003 at a get-together of businessmen and foreign investors organized by Deutsche Bank at the Turkish Mediterranean resort of Gocek, where rich Turkish businessmen keep their yachts.
"This is where we first heard that some funds with a lot of cash were planning to invest $5 billion in the Cukurova group," says a Turkish banker who was present.
That day, October 3, the YKB share price rose by 12% to reach TL1.73 million and continued rising. In December, when the share price approached TL3 million, it was rumoured that some brokers were selling their cars and buying YKB shares.
Well-informed market sources say those who were hyperactive buyers of the shares were certain Turks in Istanbul who represented Northway Petroleum. But they were not amassing the shares. "They bought and sold," says a broker who knows them. "To me that seemed to be the only thing they were doing – making a lot of money."
At the beginning of January the YKB share price peaked at TL3.6 million, equating to market capitalization of $1.57 billion, before it mysteriously started falling.
At an earlier peak in 2000 the market value of YKB, which has a free float of 27%, was $8.4 billion. The bank's core strength is its commercial banking expertise and the credit card business, in which it is market leader. The following year's economic crisis devastated the undercapitalized and heavily indebted banking sector, reducing YKB's market value to $1 billion. YKB, which had announced net earnings of $410 million in 2000, reported a loss of $1.37 billion in 2001. The bank's access to foreign loans fell to $255 million at the end of the last quarter of 2003 from $1.5 billion in 2000.