With the Spanish bank BBVA canceling its bet on Turkey, almost no one dared to follow

As stated by Carlos Torres Vila, the head of BBVA, the Bank of Spain plans to adopt Full ownership of the Turkish bank Garanti, It doesn’t always sound like the sales pitches usually launched for corporate transactions.

But then the 55-year-old BBVA chairman could hardly ignore the background of the transaction-Turkish President Recep Tayyip Erdogan (Recep Tayyip Erdogan) led by years of unstable economic management and turbulent politics.

As BBVA announced, Torres said on Monday: “We have seen recurring crises, rising inflation and currency devaluation, and our flesh and blood have suffered due to the devaluation of the investment amount.” Plan to pay 2.25 billion euros Garanti has the remaining 50% of the shares, which has been held since 2011.

If approved by shareholders and regulators, BBVA’s bid will become one of Turkey’s largest single foreign direct investment in recent years, boosting the country’s stock market. But BBVA shares closed down 4%, and Citigroup analysts called the deal “risky.”

Although the Istanbul deal was ecstatic, corporate executives and analysts warned whether the announcement now foreshadows more investment in this strategic location and a country with a population of 83 million that has long been promising for foreign companies. It’s too early.

“Most Western investors believe that Turkey’s current political risks are too high,” said Jonathan Friedman, an analyst at Wallbrook, a global risk and ESG consulting firm.

On the contrary, the BBVA deal fits a pattern familiar to foreign diplomats in Turkey: while new entrants are still very cautious, some of these long-standing companies are ready to increase their commitments.

Torres welcomed the opportunity to obtain the rest of Garanti, partly because of the Spanish bank’s in-depth knowledge of Turkish banks, which have been largely integrated into BBVA accounts.

“At these prices, the risk has been digested,” he told analysts. “We know this asset very well, we have been in operation for ten years, and we have seen how it works in crisis situations and generates euro returns.”

He added that in the past five years, Garanti has generated an average annual net profit of 1.2 billion to 1.3 billion euros-although the Turkish lira has fallen by more than 70% against the euro since the beginning of 2016.

After the central bank cut interest rates sharply, the currency fell further on Thursday, ignoring investors’ warnings that the move would further increase inflation. The drop in the lira was enough to drag BBVA’s share price down by 5.5%.

Ahmed Brak Daglioglu, the head of the Turkish Government Investment Office responsible for attracting foreign investment, insisted that “people outside Turkey have higher risk awareness than those inside Turkey”.

Cavit Habib, CEO of the Danish service provider ISS Turkey, agrees with this view. The company has been in the country for 16 years and acquired a local facility management company this year. “It’s totally different to see things here and from the outside,” Habib said.

BBVA is not the only foreign company willing to endure macro turmoil. Ford Otosan is a partnership between the American automaker and Turkey’s largest conglomerate. It dates back nearly a century. The company announced in March that it plans to invest 2 billion euros in the next five years.

The Finnish sustainable packaging producer Huhtamaki, which first entered Turkey in 1997, acquired local company Elif Plastik for 412 million euros in September. “For us, this is not a new market. Katariina Hietaranta, an official at Huhtamaki, said that this makes things easier, adding that the fact that most of its sales are exports “to a large extent Help reduce currency risk”.

However, international companies already in Turkey have not turned a blind eye to dangers, including the constant erosion of democracy and freedom and the rule of law. A foreign executive stated that he was afraid of being hit by some “horrible, politicized” tax rulings, which could result in huge fines. “It’s not just because it procrastinates in court, but you will never successfully appeal,” he said.

Erdogan’s determination to prioritize growth at all costs and his relentless intervention in the central bank have hit the lira and plunged Turkey into a cycle of prosperity and depression. Although the International Monetary Fund predicts that the economy will grow by about 9% this year, this expansion is accompanied by an inflation rate of 20%.

Companies that have left Turkey in recent years have attracted attention, including Japanese car manufacturer Honda and American appliance manufacturer Whirlpool. UniCredit, Italy’s second largest bank, also joined them this month, announcing plans to sell its remaining 20% ​​stake in Turkish bank Yapi Kredi in 2022.

Since taking over as CEO in April, Andrea Orcel has set out to simplify UniCredit’s global operations. The decision to sell its stake in Yapi Kredi is part of this strategy, and UniCredit sells minority stakes in countries where it does not have significant business.

The bar chart of foreign direct investment* (2020) shows that foreign investment in Turkey last year lags behind many other emerging markets

However, a person familiar with the bank’s plan said that the relative lack of liquidity in the Turkish capital market, coupled with the political uncertainty in Ankara, played a role in UniCredit’s decision.

Turkish officials said that this year’s foreign direct investment data will be better than the levels of 2019 and 2020, when they were at a 15-year low, and the country’s growing technology industry helped.

As venture capitalists, private equity firms, and sovereign wealth funds inject capital into companies such as the delivery app Getir and the e-commerce site Trendyol, technology start-ups, usually based in Istanbul, have ignored this pessimistic trend.

The Turkish bulls also pointed out that opposition parties increasingly believe that Erdogan may be forced to step down in the elections scheduled for 2023, but it may be held sooner.

Charles Robertson of Renaissance Capital, an investment bank focused on emerging markets, said: “The general view is that all Turkey needs is one person to retire, and this country can participate in the competition.”

However, analysts such as Wallbrook’s Friedman said that betting that the worst is over is still a huge gamble. He added: “Investment is always considered to be less risky when it is rising compared to when it tries to bottom out.”

Additional reporting by Irving Walker in London

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *