The strategic investment arm of the Republic of Turkey, Turkey Wealth Fund, is contemplating acquiring a stake in Turk Telekomunikasyon AS. The sovereign fund has an asset portfolio of 23 companies and is spread across 8 sectors. The potential deal with the second-largest telecom company would make it the largest shareholder, as per a report from Bloomberg news.
Three years ago, creditors had taken control of a 55% stake in the company after the previous owners of Turk Telekomunikasyon AS defaulted on a loan of multi-billion dollars.
The shares of the Telcom company rose by 5.90 % to 7.67 Lira in Istanbul, erasing the earlier losses in the past ten months. The fund known as TVF has approached lenders as per unnamed sources. As per Bloomberg news which has compiled the data, if the deal goes through, a new stake would be worth approximately $1.60 billion based on current market capitalization.
As price negotiations are on between the two parties, TVF is yet to make a formal offer. The lenders, which comprised of local banks mainly, had earlier hired Morgan Stanley to advise on identifying strategic buyers.
The buyout deal, if it goes through, would be the biggest step towards the re-nationalization of Turkey’s Telecommunication sector. Last year, TVF took a majority stake in Turkcell Iletisim Hizmetleri AS, the biggest mobile phone operator in the country.
Building Asset Portfolio
Since 2016, TVF has taken over many key Government holdings. The Turk Telecom privatization in 2005 was dogged by corruption allegations. The largest divestment by the Turkish Government fetched $6.55 billion in sales proceed. TVF also came out with an IPO of $1.90 billion in 2008, which was a record amount at that time.
The wealth fund is now looking forward to clinching its biggest deal since President Erdogan replaced the TVF CEO 3 years back in a significant shakeup of key financial institutions in Turkey.
The establishment of a Sovereign fund in 2016 was done to take the lead role in making investments that were considered huge for private players. The fund acquired assets worth $39 billion across eight sectors and nearly two dozen companies.
The sovereign fund, whose chairman is President Erdogan, has already merged all state-owned insurance companies and recapitalized public sector banks by infusing funds to increase the lending during the Pandemic.
The previous CEO of TVF, in an interview in February this year, had urged the banks to allow a change in Turk Telecom ownership so that it can take exposure in large infrastructure projects. He, however, said that the investment by Turk telecom should not be as long-term investors as it amounted to activity outside their core business.
The shareholding structure of TVF comprises banks holding shares through LYY Telekomunikasyon AS, an SPV, the Government holding 25% to have the power to make policy management decisions, TVF owning 6.70 %, and the rest held by the public.
Biggest Default
Turk Telecom defaulted on an installment payment of $4.75 billion in 2018, which is considered as one of the largest non-payment in the history of turkey. It was then under its previous owner, the Oger Telecom Ltd, belonging to the Lebanese Hariri family. Then 20 odd consortiums of lending banks have taken over Turk Telecom with some of the writing off a major portion of their exposures. Among them is Akbank TAS, the biggest shareholder in the SPV with 35.6 % and a key decision-maker.
According to Bloomberg sources, TVF and Turkey’s treasury and the finance ministry declined to comment.
Turk telecom fixed lines license expiry in 2026 contributed to the inability of the banks to sell their stake. The new investors were unsure whether they would recover their investments through dividend pay-outs before 2026.
Many strategic investors from China and the Middle East had shown interest but backed out later. TVF’s move to acquire Turk Telecom follows a successful bid last year when it acquired control of Turkcell, ending years of shareholders disputes. TVF now has 26.2 % shareholding in Turk Cell, which includes a 15% privileged stake.
