The investment bank that won the mandate to sell GE Capital’s 20.85% stake in Turkish bank Garanti will be working hard for its fees (it is rumoured to be JPMorgan).
Garanti is one of the best-managed financial institutions in the emerging markets. Like other Turkish banks it has weathered the global financial crisis fairly well. As Turkey secures its place as one of the most favoured investment destinations in the region, Garanti is set to benefit.
For GE Capital, now is a better time to sell than any other since the collapse of Lehman Brothers. Garanti’s earnings performance this year is unlikely to beat last year’s, when falling local interest rates boosted gains from Turkish treasury bill portfolios. As interest rates are likely to rise later this year, Garanti will probably earn less and pay smaller dividends, and its share price could be affected.
In early 2010 Garanti’s stock price came back to the peak it reached at the end of 2007 and far above its level in 2005, when GE gained joint control of the bank. With the 20.85% stake worth about $3.3 billion, GE could get double the $1.6 billion it paid for a 25.5% stake in 2005.
However, it is unfortunate that GE sold 6% of its stake in Garanti to local group Dogus after the sub-prime crisis in 2007. With 30.5% Dogus has strengthened its hold on the bank far beyond the joint control it previously shared with GE. Now GE is stuck trying to sell a non-controlling stake.
Russia’s Sberbank and Spain’s Santander have been mooted as potential buyers. Both have played down their involvement. Italy’s Intesa, as well as Spanish banks La Caixa and BBVA and UK banks Standard Chartered and HSBC, have all been mentioned as alternatives.
However, the prospect of these banks deploying such a large amount of capital while being unable to take the bank where they want after the purchase might be doubtful. Dogus and the Turkish regulator will want a long-term buyer and will discourage private equity. Yet it is too much to hope for the kind of technological transfer that GE gave.
A far more likely option is that a sovereign wealth fund, probably from the Middle East, will gain a stake – but probably not the whole 20.85%. A sovereign wealth fund would be better for the bank, as these funds tend to be long-term investors. There is a precedent for such an acquisition: Kuwait Investment Authority bought 10% of Halkbank when that Turkish lender was privatized in 2007.
There has been talk of another 5% in Garanti being offered to the stock market – a probable option. Dogus cannot afford to take much more but might end up buying another 5%. That would leave 10% for a sovereign wealth fund.
The question will then turn back to the other foreign stakes in Turkish banks. Citi has denied that its 20% stake in Akbank is for sale, even while the date passed this January after which Citi was no longer obliged by agreement to hold on to the stake.
