A Turkish Private Equity Web Log

In an effort to cover the Turkish Private Equity Industry - for the promotion of Entrepreneurship, the private equity asset-investment model, and the communication thereof.

Is Turkey's IPO Window Open on the Istanbul Stock Exchange (IMKB)? Here are the 2007 IPOs!
2007 has been a very busy year, indeed. In the first half of the year, there were 8 IPO's (including Albaraka Turk Bank) totaling $2.820 billion. This breaks a record set in 2000, when 36 companies went public for close to the same amount. Here is a breakdown of the last 8 years of IPOs on the Istanbul Stock Exchange (IMKB). Remember, there was a crisis at the beginning of 2001.

IMKB IPOs (2000-2007)
$2,809 mln
$56.5 mln
$11.3 mln
$600 mln
$1,740 mln
$930 mln
2007 (as of November)
3,313 mln

To follow, here is a list of the 2007 IPOs that have occured on the IMKB.

IMKB IPOs (As of November 2007)
Feb. 15-16 TAV Airports Holding $335 mln
Feb. 22-23 Sağlam REIT $5.59 mln
April 25-26-27 Oyak Yatırım Ortaklığı A.Ş.
(Oyak Investment Fund)
$8.31 mln
April 16-17-18 Merkez Securities INC. B Type Investment Trust $2.43 mln
May 2-3-4 Halkbank $1,837 mln
May 10-11 İş Investment Services $74.2 mln
June 14-15 Sinpaş REIT $384 mln
June 20-21-22 Albaraka Turk Bank $173 mln
Nov. 19-20 Tekfen Holding $493 mln

This information has been sourced directly from the IMKB website. In addition, Elif Batu Yener from Referens/TDN posts some of this information and ends with an interesting quote from Attila Köksal, director general of Dundas Ünlü Securities, "The sway of foreigners in the market has changed the face of IPOs. Small volume companies are not of interest anymore. An IPO of $20-30 million is harder than one of $100 million. Because it does not attract foreigners."

My question is this: What does this mean for Private Equity or VC's in Turkey?

Occasionally I've referenced Josh Lerner's Venture Capital Cycle and this situation is no different. According to Black and Gilson (1998):
"The health of the VC market depends on the existance of a vibrant public market that allows new firms to issue shares. Only with such a public market can VC's make a credible committment to entrepreneurs that they will ultimately relinquish control of the firms in which they invest."
From previous research, we also know that if there is an increase in the number of IPO's there should also follow an increase in investments as well as funds being raised. In other words (thus empirically proven) VCs and PE professionals assert that the "IPO window is open" and continue upon their work to take firms public (or rush firms to public offerings (grandstanding)), and/or raise more funds. We have seen an increase in fund raising. We could also say that in this positive environment of excess liquidity (raised funds and investments), more IPOs could also follow. This also brings up a good question: What does a bubble look like on the IMKB?

To add to that, we know that the elections are over, and the IMKB 100 has been breaking records and rocketing to heights never seen before. Two weeks ago, speculators were wondering if IMKB 100 could break 52K. Upon closing of the election, it had reached 55K, but as of this posting, the IMKB 100 now stands at 51,424.

In addition, large companies such as KVK, Digiturk (expected to raise $200-$300 mln in the 4th quarter) and Ülker Chocolate are in line to launch IPOs. We will just have to wait and see how these fall out. As to Mr. Köksal's comment, it is a shame for seed and venture investors that the companies being floated and the exit opportunities on the IMKB are a bit on the larger side and therefore somwhat reliant on buyout funds and foreign investors. By looking at the entities being floated, two are real estate investment trusts, a sector that has seen some rapid growth as of late. We also see an investment trust and financial services, not to mention the privatization of Halkbank by taking some shares public.

We must admit that the IMKB does not specialize in technology IPOs, nor is the IMKB's IPO success a resemblence to NASDAQs bubble of the late 90's and the inflated valuations that came with it. However, in its own respect, the IMKB has come of age and we can say that the IPO window is open, albeit for the more traditionalist (bricks and mortar) company. This post will be updated over the course of the year as more IPOs are floated.

Is it me, or does the IMKB's website (Turkish) just wreak of the Pre-Web 1.0 bubble and post-70's bureaucrats? Remember the days of using Prodigy or AOL and jumping off Yahoo! to see the IMKB website on your 14.4 dialup modem? That's what it feels like. Take a look at the NASDAQ or the London AIM for comparison. For a stock exchange website to not even have a ticker of symbols and quotes just seems...strange. No Flash, no CSS, not even javascript! Come on, IMKB - get with the 21st century - you are supposed to be in the business of floating and listing companies, marketing to potential IPOs and investors that you have a modern reliable trading infrastructure. Animated .GIFs just don't cut it anymore.

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A New Entry in the Turkish Venture Capital Space: Delta Capital Interested in Turkish Telecom Companies
In March 2007, Delta Capital, a Private Equity firm focused in the telecom industry in the Middle East and Africa, closed its MENA Telecom Fund, raising over 75 million USD. Conceived and headquartered in Dubai UAE, Delta Capital is part of Delta Partners - a company with strong expertise in the telecom industry.

According to the Delta Partners website, the fund will have a life of 7 years with an investment period of 3 years. In addition, unlike most VC funds that are constrained to a certain region, Delta has chosen a wide path - the MENA region. What is exciting about this is that it includes Turkey!

Over a conference call, I spoke with Delta Capital. I asked them to send me a few comments and answer a few questions about their fund. The following is a representation of that conversation according to Delta Capital's Head of Private Equity, Morten Kvammen:

"Why do you wish to invest in Turkey? Why now?"
Turkey, having a liberalised telecom industry and a continuously growing economy, is one the top priority countries for Delta Capital to invest in. With increasing competition amongst mobile operators and long distance telephony service providers, the Turkish telecom market has started to grow rapidly, proving to be one of the most thriving emerging market in the region. Thus, Delta Capital believes there is a great growth potential for companies in the Turkish telecom value chain.
"What kind of companies are you looking for?"
Delta Capital is currently looking for companies with operations in the Telecommunications value chain (from Network infrastrucure players to retail & distribution) that are looking for potential investors in order to achieve their goals. These companies should have their operations in the MENA region including Turkey, should be running a established business with demonstrated success, and with exceptional growth potential. The potential investee companies are expected to have developed an insightful and comprehensive Business Plan that describes the continuity of the high growth. Thanks to the unique structure of Delta Capital and Delta Partners, the MENA Telecom Fund is willing to provide growth capital and can leverage its telecom expertise to help in the expansion of the associated business.
"What will Delta Partners bring to the table?"
The Advisory side of Delta Partners offers strategy consulting to the main telecom players in the region, and has a solid team of more than 70 experienced professionals of 22 different nationalities, creating strong synergies with the Private Equity business. Delta Capital’s unique approach of combining a solid team with in-depth knowledge in the Private Equity business, together with top-notch intellectual capital from the Advisory side, and relevant contacts, makes it quite attractive to companies looking for partners to succeed and attain their growth objectives.
So, for all prospective entrepreneurs and companies that fit their focus - this is a great new opportunity for Turkey. I urge you to submit your business plans to Pipeline@deltapartnersgroup.com, or contact Delta Capital directly.

For any questions about this particular post, please contact turkvcanalyst@gmail.com.

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UPDATED: Islamic Bank Turkiye Finans Bought Out by Saudi National Commercial Bank; Deal with CBK and the Noor Group falls through
UPDATED: 19-7-2007
Saudi National Commercial Bank agrees to purchase 60% of Turkiye Finans for $1.08 billion, valuing the company at $1.8 billion. Boydak Holding and the Ülker Group will retain 20% each from the deal. The deal will be completed by the end of the year and could be revised up $120-130 million depending on profits. This post was originally written on the premise that CBK and the Noor Group were going to be purchasing 50% of Turkiye Finans, but it looks as though that deal was passed up for Saudi NCB.

Paul Wouters, a guest contributor on Dinarstandard.com, wrote a very nice piece on the Turkish Islamic Banking Sector (or Participation Banks as they call it). It comes on the heals of my last post about the IPO of Albaraka Turk Bank. It details nicely the success and potential success of the players in that space.

Indeed, the Islamic Banking sector (wiki), which does not charge interest under Sharia Law, has been a small but active sector. Orgininally, according to local newspapers, and as printed in Iş Banks Daily Market Review (July 3rd, 2007(pdf)), Turkiye Finans is to sell a 50% stake to the Commercial Bank of Kuwait (CBK) and Noor Group. UPDATE: This deal is now defunct. The deal is said to be around $1.8 billion for Turkey's 2nd largest Islamic bank (based on assets), and should be completed by the end of the month. This has come just a year and a half after the Ülker Group sold 50% of Family Finans to the Boydak Holding and Anadolu Finans, thus creating Turkiye Finans. Once the merger has been completed, I will update the post on banking acquisitions in Turkey.

Of the four Islamic banks in Turkey, two are now listed on the Istanbul Stock Exchange (IMKB) with Kuwait Turk Bank thinking about an IPO in 2008-2009. Bank Asya, was the first and one of the most successful IPOs to date and has also been one of the most profitable companies listed on the IMKB. Judging by the size of the domestic demand for Albaraka Turk, it doesn't seem like this sector is going to cool down anytime soon.

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IMKB's Latest IPO's: Sinpaş REIT and Albaraka Turk Bank
The summer has really been heating up concerning IPO's and the IMKB. For both international and domestic investors, the IPO window seems to be fairly open in Turkey. Despite the usual theorizing over accurate values of the offerings, the success of the flotations and the mechanisms behind it may very well prove that Turkey and its ready investment climate is ripe for the taking. Although there is some cause for concern about what this may mean for Turkey's SME's. But first, here's how the two broke down:


Probably one of the most active and exciting sectors in Turkey right now, the Turkish REITs deserve mention all to themselves. Sinpaş REIT, as of its IPO will be the largest REIT, and certainly not the last. Here's how it fell out:

  • 49% of stock was on offer representing 67.12 million shares. The bookbuilding was completed on June 15th.
  • Foreign Investors will take the lion's share 66% of these shares, leaving domestic investors the remaining 34%.
  • Total Subscription was oversubscribed 2x on the international side, while on the domestic side it was 1.08x oversubscribed.
  • Two investors bought more than 5% of the offering, namely, Autonomy Capital and ING Investments.

Sinpaş REIT fell 6 percent on its IPO day, while the index of REITs fell 0.6 percent. The deal was originally priced at 6.85 to 8.40 lira per share. However, the price was eventually opened at YTL 7,60, in the middle of that range, giving the deal a value of 510 million lira ($392 million) and making Sinpas the biggest REIT on the market. Considering the initial public offering price and the share dispersion after the initial public offering, the market value of Sinpaş REIT has now reached to YTL 1.41 billion (approximately $795 million). The company is planning to channel the cash proceeds raised from the IPO into new residential projects. Speculators interviewed by Reuters (Yahoo Finance) were quoted as saying "Sinpas was valued at a 20 percent premium to its net asset value at its IPO price, making it more expensive than the sector, which trades at a discount of 10 percent, on a weighted average." Ayse Colak, deputy general manager of Tera Securities said, "It didn't come out very cheap," , adding the company was a medium-term bet as it has two large projects which are planned but not yet contributing to its value.


Albaraka Turk, a subsidiary of Bahrain-based Albaraka Banking Group, was founded in 1985 as the first bank to operate on non-interest base. Albaraka Türk has 66 branches in Turkey. The bank's reported total assets in the first quarter are YTL 2.6 billion, while its net profit stands at YTL 18.3 million.

  • 22.22% of stock was on offer representing 54.5 million shares. The bookbuilding was completed on June 25th. The bank had its IPO on June 29th.
  • Foreign Investors will take 63% of these shares, leaving domestic investors the remaining 37%.
  • Total Subscription was oversubscribed 21.3x on the international side, while on the domestic side it was 60.4x oversubscribed!!!. This makes total demand for the IPO 32x oversubscribed and at a value of US $5.4 billion.
  • Originally, the price range of the shares, the nominal value of which is YTL 1, was estimated to be between YTL 3.60 and YTL 4.10. Although, now it has priced its initial public offering at 4.1 lira a share, at the top of an initial range, valuing the bank at around $840 million
  • The bank is expecting a total gain between $150 million and $170 million from the IPO.

Shares of Albaraka shot up 10% on opening day, closing at YTL 4.52. The Islamic banking sector is particularly in focus as the owners of larger Islamic lender Turkiye Finans are in talks to sell half the bank, most likely to an institution in the Gulf, which is an Islamic banking hub. The four banks making up the sector saw total assets grow 38 percent last year and net profit rise 56 percent, according to data from the Participation (non-interest) Banks Association. Shares in rival Bank Asya have more than doubled since its offering last year, far outperforming the wider banking sector.

Previously I pondered what this means for Turkey's SME's. Some might say nothing at all - these deals are much too big. Others might simply be happy that the IPO machine is in full gear and being tuned up for more to come. For private equity enthusiasts, this is promising, but for smaller VC's, we still might have to wait awhile. But the domestic demand alone for Albaraka is not something to laugh at, and I'm sure the various legal professionals, underwriters, as well as brokerage houses and investment banks should stand up and take notice. Entrepreneurs also should learn something from this little lesson. Could the IPO window at the IMKB finally be coming of age, able to weather any political and economic storms? Let's wait for the elections first.

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