| Update on Participation Banking in Turkey: 2008 |
| 16 June 2008 |
Stepping away somewhat from private equity, I would like to extend to my readers an article concerning Participation (Islamic) Banks in Turkey. This article was written and submitted to me by good friend, Paul Wouters, consultant at Bener Law Office in Istanbul, Turkey. Although, it has been sometime since it was first printed, the information contained is still relevant, and gives good insight to the Participation banking industry in Turkey.
This article was first published at www.islamicfinancenews.com on April 18, 2008.
Paul WOUTERS is consultant to Bener Law Office, Istanbul - Turkey and can be reached at paul.wouters@bener.com.tr
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All eyes set on Turkey
The Chief Prosecutor of the Turkish Supreme Court of Appeals - Abdurrahman Yalçınkaya - submitted on March 14th an indictment to the Constitutional Court aiming to shut down the governing Justice and Development Party (AK Party) on the grounds that it had become a focal point of "anti-secular activities". The indictment also envisages banning 71 of its members for 5 years from political party membership - including President Abdullah Gül and Prime Minister Tayyip Erdoğan.
One of the elements that appear to have been withheld by the Chief Prosecutor would be a speech delivered by Prime Minister Erdoğan in Malaysia, where he is said to have commented that as a moderate Islamic country, Turkey could serve as an example for the alliance of civilizations.
The Turkish Constitutional Court announced that it will hear the case. The decision was taken unanimously with 11/11 votes. The case against President Gül – who supposedly only can be tried for treason – was approved with 7/11 votes.
The case has shocked the world, moreover since the AK Party was the most moderate and democratic party of its kind ever in Turkish history. Only 7 months ago, the party came to the government through democratic elections, claiming 47 % of the popular votes. Strong disapproving reactions were specifically noted from the European Union that announced that the accession talks could be hindered if not endangered would the AK Party be disbanded.
The government appears not to be influenced by the ongoing procedure and is set to continue the present modernisation of the Turkish judicial and economical environment. A mini democracy reform package has been put forward and the calm leadership of the governing AK Party resulted in the absence of any overheated reactions. It may be expected that – though some further violent confrontations by opposing activist groups and individuals might be launched during the months to come – the government will succeed to control the situation.
The indictment appears to be construed in a very broad way and not to focus entirely on a few specific facts or allegations. Therefore surprises might pop up unexpectedly at any time and the outcome of the litigation cannot be predicted for sure. The AK Party prepares for its defense and also for a change of the Turkish Constitution that would make the ban of political parties more difficult in the future and that will lift the difficulty of such closures to European standards.
The participation banks are not expected to be hindered by or involved in the present discussions and their growth will most probably follow the general Turkish market fluctuations as usual.
GENERAL
During 2007 the business volume of the Turkish participation banks increased by 30-35 percent and a similar growth is expected to take place in 2008, said Osman Akyüz, the CEO of the Turkish Participation Banks Association.
The sector is waiting impatiently for the much needed Sukuk regulations. Considering the present global credit crunch and the consequences thereof, it will be clear that already lots of good opportunities already have been missed.
ALBARAKA TURK
Albaraka Türk has absorbed the IPO from 2007 in good order and was able to raise the net profits by 50 % in 2007 over the previous year to YTL 85 million (approx USD 65.4 million).
 
Total assets increased by 48 %, to YTL 3.7 billion (approx USD 2.85 billion), and total loans increased by 44 % to YTL 2.85 billion (approx USD 2.2 billion). Deposits saw a 39 % increase, reaching a level of YTL 3 billion (approx USD 1 billion).
 BANK ASYA
Publicly listed since 2006, Bank Asya increased its net profit in 2007 to YTL 221 million (approx USD 170 million), a 51 % increase as compared to 2006.
The capital equity of Bank Asya increased by 35 % to YTL 854 million (approx USD 657 million) and that its total assets reached YTL 6.26 billion (approx USD 4.81 billion), a 50 % increase as compared to 2006.
Deposits in the bank increased by 47 % to YTL 4.7 billion (approx USD 3.6 billion).
KUVEYT TURK
The Kuwaiti-Turkish joint-capital participation bank Kuveyt Türk announced that it had increased its profits in 2007 by 109 %, totalling YTL 74.1 million, compared to the preceding year 2006.
Kuveyt Türk CEO Ufuk Uyan explained that the bank had reached a historically high profitability rate and aimed to grow by 59 % in total assets, to YTL 6 billion (approx USD 3.8 billion), and by 63 percent in loans extended to YTL 5 billion (approx USD 4.6) in 2008. End 2007 Kuveyt Türk had around 1,800 employees and this figure is said to increase to 2,189 this year. 25 New branches are expected to be opened, bringing the total number of branches to 113.
Due to the ongoing uncertainty in the global financial markets, the IPO that was planned earlier this year has been delayed. No new date has been fixed yet.
 TURKIYE FINANS
Still privately owned, Türkiye Finans aims for 30% growth in assets in 2008, 27 % growth in capital and 46 % growth in loan issuance. The goal for YTL 203 million (approx USD 156 million) in profit before taxes could be hindered by the raise in the value-added tax imposed on leasing transactions at the beginning of 2008.
Yunus Nacar, the CEO of Türkiye Finans said leasing was one of the primary tools of participation banks for financing new investments: “This latest regulation [tax rise] not only blocks the usage of an important financial tool, but also decreases the accessibility of loans with 48-60 month-long maturity periods for small entrepreneurs.”
The bank aims to increase the number of branches by 27 % from 138 to 175 and intends to hire around 1,000 employees, bringing the total number of employees from 2,500 to 3,500.
Thanks to outstanding performance in the previous years, the bank had attracted the attention of foreign investors and received not less than 15 merger and acquisition proposals. After it had been agreed to sell a 60 percent stake to Saudi Arabia-based National Commercial Bank NCB in July 2007 and the transaction was approved by the Turkish banking regulator BDDK early March 2008, the factual hand over proceedings were completed at the end of the same month.
At those formalities, NCB CEO Abdulkarim Abu Al-Nasr stated that the partnership with both the Boydak and Ülker groups would offer great opportunities. There is a growing global interest in interest- free banking and there still is much more potential that can be tapped in Turkey. Besides access to larger financial resources and business accomplishments, the cooperation is expected to result in a substantial transfer of know how and a fast implementation of the latest IT banking techniques.
QATAR ISLAMIC BANK - TURKISH BANK
Just now, end March 2008, Qatar Islamic Bank announced to be filing an application to run a participation bank (Islamic bank) in Turkey. It would be the fifth license of its kind and a valuable addition to the market.
The partnership talks between the National Bank of Kuwait NBK and Turkish Bank, established in 1982, have ended positively. NBK, a leading finance cooperation of the Gulf Cooperation Council's (GCC), will buy 40 % of Turkish Bank's shares for USD 160 million.
Turkish Bank is a conventional operating bank and will not apply for a license as participation bank.
CONCLUSION
The present political turmoil set aside, the most interesting news will be generated from the result of the renegotiation of the ongoing stand-by program of the IMF that will soon expire. That program has dominated the Turkish financial policy for long times now and resulted, combined with sound economical reforms, in the exceptional growth and stability in Turkey over these last years.
Among the alternatives for a replacement are post-program monitoring and a precautionary stand-by program that does not include funding. This will most probably result in the continuation of the present policies and will further sustain growth amidst the present turmoil on the global financial markets.
Turkey will be able to obtain the remaining loans from the IMF and if the latest review is approved by the IMF Executive Board, USD 3.6 billion in loans will be released.
The IMF expects Turkey's gross domestic product (GDP) to grow by 4 percent in 2008 and 4.3 percent next year. According to the just released IMF “World Economic Outlook” report, Turkey's rate of inflation based on consumer prices might be estimated to be 7.5 % this year 2008 and 4.5 % in 2009. The expectation on the current account deficit for 2008 is 6.7 % of GDP and 6.3 % for 2009.
Though every economy will be affected more or less by the present credit crunch, the Turkish economy – and certainly the Turkish participation banks – appears to be relative safe.
All in all, subject to the further developments in the closure case, this results in stable to slightly positive prospects for Turkey during 2008 and well into 2009.
Paul WOUTERS
consultant to Bener Law Office
Istanbul – Turkey
paul.wouters@bener.com.tr
Labels: Albaraka Turk, Bank Asya, Bener Law Office, Islamic Banking, Kuveyt Turk, Participation Banking, Turkiye Finans
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| Turkey's First Hedge Funds; Trouble for Turkcell; Carlyle Group's Summer Intentions; and Turkiye Finans and NCB |
| 06 April 2008 |
İş Bank's investment division, İş Invest (İş Yatırım Menkul Değerler), has been approved by the Capital Markets Board to operate a hedge fund. It will have an initial YTL 30 million ($23 million) under management.
The İş Invest's announcement comes one day after Garanti Bank, the Turkish lender co-owned by General Electric Co., said it received approval to open Turkey's first hedge fund. The fund initially will have about YTL 500 million ($388million) under management.
TDN: Banks race to open first hedge fund in Turkey
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It seems Russia's Alfa Group, just after acquiring AFM cinemas, may be about to gain control of Turkey's largest mobile phone network, Turkcell. The deal is hinging on a court case between Turkcell stockholders, Alfa Group and Çukurova Holding.
TDN: Russia's Alfa dreams of Turkcell ownership
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Carlyle Group's Can Deldag made an announcement stating to be on the lookout for deals coming this summer, possibly in June. The news is fairly weak, but you can judge for yourself.
TDN: Carlyle Group plans acquisitions in Turkey
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I reported on the Turkiye Finans deal with NCB last year, and it appears the due diligence has come full circle and finally been completed. The announcement was made last week.
TDN: Saudi Arabia's NCB buys Türkiye Finans
Labels: Alfa Group, Carlyle Group, Garanti Bank, Is Yatirim, Islamic Banking, NCB, Turkcell, Turkiye Finans
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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 |
| 10 July 2007 |
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.
 Technorati Tags: IMKB, Family Finans, Turkiye Finans, Mergers, Deal Flow, Turkey, Commercial Bank of Kuwait, Albaraka Turk, Banking Sector, Islamic Banking, The Noor Group, Boydak Holding, Ülker Group, Bank Asya, Saudi NCB
Labels: Banking Sector, IMKB, IPO, Islamic Banking, Mergers
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| IMKB's Latest IPO's: Sinpaş REIT and Albaraka Turk Bank |
| 02 July 2007 |
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:
SINPAŞ REAL ESTATE INVESTMENT TRUST
 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 BANK
 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.
A FINAL WORD
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.
Technorati Tags: IMKB, IPO, REIT, Sinpaş, Deal Flow, Turkey, flotation, Albaraka Turk, Banking Sector, Islamic Banking
Labels: Banking, Banking Sector, Flotations, IMKB, IPO, Islamic Banking, REIT
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Publisher: Jon H. Black
