Out of the ruins
International investors have gained a taste for the Turkish market since Vestel, the leading colour television manufacturer, successfully closed a $40 million secondary offering in the international market. Other Turkish companies have taken their cue from Vestel's success.
At least three others are on the way to the market:
- Sabanci Group, Turkey's second largest private conglomerate with many quoted companies, will make a primary offering of its holding company;
- Yapi Kredi Bank (YKB), Turkey's largest private sector bank, which will make a secondary offering; and
- Uzel Makina, Turkey's largest tractor manufacturer, which will be a newcomer to the stock market.
The prevailing political confusion has, however, forced some companies to shelve their plans for international offerings. They include Koç Holding, Turkey's biggest private group, which is working with Goldman Sachs, and Turkiye Ekonomi Bankasi (TEB).
CSFB and ING Barings will jointly lead the offering of about $150 million of stock in Yapi Kredi. The debut offerings for Uzel ($60 million) and Sabanci Holding ($200 million) are being prepared by Morgan Stanley. ING Barings is co-lead in both deals. In executing the Sabanci offering the US company will be joined by UBS as co-lead manager, with Schroders and Global Securities of Istanbul as co-managers.
The Vestel offering was a crucial test of the market's feelings towards Turkey. It demonstrated that, even as Turkey tosses in the turbulent waters of yet another political storm, fund managers would still buy Turkish stock - provided it came from good companies. And they would be extremely discriminating. "One-offs will be OK," says David Edgerley, general manager of Alliance Capital, Turkey. "If people see a good deal they will buy into it. But investors are unwilling to make a generic Turkish bet."
Vestel's offering surprised the market by countering the general trend of flight from Turkey. Since the advent a year ago of a coalition government led by the Islamist Refah Party, foreigners have been reducing their portfolio holdings. Since the beginning of this year foreign holdings of Turkish stocks have decreased by nearly a quarter to about $3.5 billion, according to Tuncay Artun, chairman of the Istanbul Stock Exchange. Political uncertainty has also depressed the IPO market. In 1996 there were 25 IPOs, in which shares worth $147 million, or an average of less than six million per offering, were sold.
New government
The political news is slightly better. After the forced resignation of Islamist prime minister Necmettin Erbakan there was no natural succession for his deputy and centre-right coalition partner Tansu Ciller. Instead, president Suleyman Demirel invited Ciller's arch-rival Mesut Yilmaz, leader of the Motherland Party to form a government. Since Ciller and Yilmaz don't get on, despite few ideological differences between Motherland and Ciller's True Path party, the political stalemate looked set to last some time. But, as Euromoney went to press, Yilmaz appeared successfully to have formed a minority coalition with two left-of-centre parties, and the outside support of another, effectively shutting out Ciller. A vote of confidence was expected on July 12. A Yilmaz government was welcomed as the most likely to achieve technical economic stability.
Metin Ar, vice-president of the Industrial Development Bank of Turkey (TSKB), sole lead-manager in the Vestel offering, says he has long decided to ignore the political situation: "if we waited for political stability we might have to wait forever."
Vestel's success demonstrates, he says, that political uncertainty is not an obstacle to selling a good company. "If you take the right company to the right people and tell the right story you get the right results. Vestel showed us that." There were reports that part of the offering was picked up by Vestel's majority owners but Ar says this is nonsense. The deal was oversubscribed by 30%, he says.
Buyers were offered a 15% discount, calculated by taking the three-week average of the stock's trading price on the ISE. Nearly two-thirds of the stock was sold directly by TSKB, an investment bank owned by Turkish public and private banks. The rest was sold by the agents, ING Barings and Multilateral Funding International (MFI) of New York. Mark Martin, an assistant director at ING Barings in London, admits that during the three- week roadshow the situation in Turkey was not encouraging.
"During the roadshow the amount the market moved up and down and the amount of political instability you got was very unhelpful for the issue. It helped a lot that we had a good story."
The fact that the deal was done at all at a time of maximum political confusion is a testament to TSKB as well as to Vestel. Together with Global, a privately owned Istanbul securities firm, TSKB is Turkey's biggest player in IPOs. TSKB floated 19% of the companies traded on the ISE.
"Investors made money with the TSKB in the past and they did not forget it," says an American fund manager. The Vestel deal was a vote of confidence for TSKB, he says. TSKB has assumed the role of Turkish lead in both the Uzel and Sabanci deals.
Vestel is Turkey's biggest producer of colour TV sets by volume and also manufactures PC monitors, refrigerators and other white goods. Its market capitalization is over $200 million and it ranked 74th among Turkey's top 500 companies by turnover in 1995. It had 21% of the domestic TV market and had a 60% share in total colour TV exports in 1996.
Before the secondary offering 18% of Vestel's stock was in free float. The $40 million sold represents a further 18.8%. According to TSKB's Ar this was sold to 65 institutions - including Morgan Stanley and Old Mutual. Less than a third of the shares were sold in the US; the rest were picked up by European institutions.
Unusually, the Vestel offering was also roadshowed in Hong Kong, which is not a natural market for Turkish stock. Barings hoped for buyers in Hong Kong because investors there understand the sector Vestel is in and its competitors include regional companies. In the event there were no takers.