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November 2001

Army advances on the investment front


Oyak, the armed forces pension fund, is one of Turkey's largest conglomerates and has joint ventures in multinationals such as Renault, Axa, Elf and Goodyear. But most people do not know of its military origins. Now, Oyak seeks to come into the open, emerging among the top five companies in Turkey.




       
Caner Oner
One of the best-kept secrets of the Turkish army is that it controls one of the country's largest conglomerates. Oyak, the armed forces pension fund, operates as a holding company for investments in 26 companies, including joint ventures with such multinationals as Renault, Axa, Elf and Goodyear. Many Oyak ventures are household names in Turkey but even locally few people know that they are part of the military's commercial empire.
Oyak is commemorating its 40th year but it still does not publish accounts. But it is committed to embracing modernity. It is gradually coming into the open and has plans for a major overhaul that aims to place it among the top five companies in Turkey.
"We have nothing to hide," says Coskun Ulusoy, a 50-year-old American-educated ex-Citibanker named as chief executive officer and president just over a year ago to bring about this transformation. "We are like any other private company and we intend to act like any other private company," he says.
Oyak, an acronym for the fund's Turkish name, is already a powerful player. According to the Istanbul Industry Chamber's list of Turkey's largest 500 companies, Oyak Renault, in which the Fund has a 50% stake, was Turkey's largest and most profitable company last year. Oyak Axa is the largest insurer. Oyak owns seven cement companies, which makes it the biggest producer in the sector. It has also substantial interests in retail, food packing, transport and banking.
"They [the generals] understand that both the world and Turkey are changing fast and they want Oyak to keep pace," says Ulusoy. "They asked me whether I could do it. I said I could. We shook hands and that was that."
A degree of scepticism is inevitable about the ability of the management to reinvent a hidebound institution with military roots as a thrusting commercially focused company. However, Neslihan Tombul, Turkey representative of the Bank of New York and a friend of Coskun, says: "Coskun is very driven, very success motivated. He has the personality and the professional experience to do it. He will put them into one of the top slots. Oyak has a sound infrastructure and financially they are strong and very liquid. But it was an under-utilised franchise, a sleeping giant."
Ulusoy wants investments from now on to be directed into five areas: telecommunications, energy, banking, finance and housing. Companies that don't fit into the new corporate strategy will be closed. "We have to be in the front position in everything we do," says the top man. "If any of our companies is not in the top five, we'll sell it."
John Benson, an ex-Citibank general manager in Turkey, says that Oyak has got the resources to achieve what it has set out to do. "It is unique in being cash rich in a country which is dominated by scarce and expensive cash," he says. "It also has a reputation for probity and competence."
Though Oyak does not publish its accounts it will soon adopt globally accepted methods of accounting and is planning to appoint an outside auditor for the first time. Last year turnover was in the region of $4 billion on which Oyak made a net profit of $400 million, according to a senior executive who recently left the group.
The army pension fund was founded after the 1960 coup, which was partly caused by grievances of the ill-paid officer corps. Oyak offers officers mortgage, subsidized loans and beefed-up pensions. Subsidies have played an important role in Oyak's existence: its income is exempt from corporation tax at holding level (individual companies are taxed) and its coffers are constantly replenished with 10% contributions from the salaries of its 180,000 members.
Oyak also benefits from the power and prestige of the army, which has a unique role in Turkish life. Bureaucratic red tape and corruption, the bane of Turkish corporate life, is not a big problem.
When it was launched 40 years ago, Oyak was the classic institutional investor with one major difference: it had nothing much to invest in. There was no stock market, foreign exchange laws prohibited investment overseas and there was hardly any local industry to speak of. So Oyak created its own, pumping money into then-fashionable sectors such as car manufacturing and cement.
But the old guard has now departed. Ulusoy has fired almost all of the top and middle management and replaced them with young foreign-trained professionals. Dinc Kizildemir, the former director of McDonald's Turkey, is running the retail company, Oypa. Fatma Can, who had opted for a mid-career retirement from JPMorgan's Moscow office, has been lured from her Aegean farm to manage Oyak Portfolio Management.
Ulusoy's first step was to buy 135-branch Sumerbank, one of the many banks under government administration. That has proved controversial. He is planning to merge Sumerbank - which is an umbrella for five failed banks - with the 11-branch Oyakbank. He might also buy Etibank, another medium-size bank under government administration.
Ulusoy has entrusted the merger, which has to be completed by mid-January, to long-time lieutenants Caner Oner and Oyakbank CEO Mehmet Ozdeniz. "The choice that faced the group in banking was to close down or grow big," explains Oner. "Ulusoy decided on big. Once that decision was made we had to make an acquisition since at the rate of 10 to 15 new branches a year you need 10 years to create the network Sumerbank has given us."
The acquisition has not been a conspicuous success. It is estimated that the pension fund will need in excess of $300 million to get the new bank on its feet. And money alone will not solve the problems. "You cannot run a 150-branch bank with an 11-branch bank," said one senior Turkish banker. "Sumerbank was never an important player. It has no market penetration and no corporate customer base, and neither does Oyakbank. Oyak did not buy a balance sheet. It bought a network."
Was it possible that Oyakbank would go into a joint venture with one of the French banks sniffing around, since the group seemed to be favouring French companies? "We don't speak any French, quips Oner.






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