Cablegate: Late Offer Muddies Tupras Privatization

Published: Wed 14 Jan 2004 03:48 PM
This record is a partial extract of the original cable. The full text of the original cable is not available.
E.O. 12958: N/A
1. (SBU) Summary: Turkish analysts are reacting positively
today to yesterday's announcement that the highest bid for
privatization of two-thirds of the state refinery Tupras came
in at 1.3 billion USD. While the press has been critical of
the offer, the bid values the overall company at 2 billion
USD, which market analysts term a "reasonable" discount from
its current market capitalization of 2.4 billion USD. The
losing bidder, Anadolu Consortium, which includes Cukurova
Holding and a Kazakh partner, briefly muddied the waters on
January 14 by announcing it would raise its bid above 1.3
billion USD, but privatization officials swiftly termed this
impossible, noting that it would require cancellation of the
tender and recommencement of the process. Most analysts we
have consulted view the winning bid as a reasonable
valuation, and while reluctant to predict its ultimate
disposition, note that the Privatization Administration's
decision to submit it to the High Privatization Council for
approval is a positive indication. End Summary.
2. (SBU) The winning bid of 1.3 billion for TUPRAS from
Efremov Kautschuk GmbH (a little known Russian company that
is widely believed to represent the interests of Tatneft,
Russia's sixth-largest oil company) and Zorlu Holding (which
only announced its intention to join in the Efremov bid on
January 12) values the overall company at 2 billion USD.
While the valuation represents a discount from the company's
market capitalization of 2.4 billion USD, leading analysts
such as Bender Securities term it a "reasonable" one. (Zorlu
and Efremov would pay 50 percent in cash and the remainder in
two equal yearly installments.) After the embarrassments
that surrounded the attempted privatization of Petkim (won by
the infamous Uzan clan but ultimately voided) and Tekel's
tobacco operations (where the highest bid was less than half
government expections), observers view the result as a
success, in that it exceeded market expectations. Indeed,
prior to the announcement, Turkish stocks had trended down on
fears that the PA would either cancel the tender or ask
bidders to raise their offer. The PA's decision to instead
submit the offer to the High Privatization Council is thus
viewed as a sign that the government may let the sale go
3. (SBU) The issue was muddied, however, on January 14, by
the announcement by the losing bidder, the Anadolu
Consortium, that it would raise its offer above 1.3 billion
USD. PA officials swiftly rejected the overture, noting that
such an action is legally impossible, and would require
cancellation of the tender and reopening of the process,
something it is loath to do after the highly publicized
failures of the Tekel and Petkim privatizations. There may
be other challenges as well, however, including legal ones.
Though Ahmet Zorlu indicated there were no plans for
redundancies at Tupras, the union representing many of the
company's employees indicated that it would go to court to
void the sale.
4. (SBU) If analysts view the bid amount for Tupras as
reasonable, there is wide speculation about the sudden
decision of Zorlu, whose holding is only peripherally
involved in the energy sector, to join forces with Tatneft at
the last minute. Bender Securities Research Director Murat
Gulkan, without naming names, speculated that Zorlu may be
operating as a front for the "largest downstream distributor"
in Turkey-- i.e. the Dogan Group. He further conjectured
that down the road there may be a share exchange that would
permit Dogan to create a vertically integrated empire with
his Petrol Ofisi gas distribution chain. If true, this might
also explain the persistent interest of Karamehmet's Cukurova
group, given his longstanding differences with Dogan.
5. (SBU) Comment: Though the tender was arguably successful
in attracting bids that represent a reasonable valuation of
the company, other elements of the tender process raise
questions. The Zorlu Group's ability to join the bidding on
the eve of the tender's announcement raises questions about
the entire process, as does the ability of a holding group
(Cukurova) that bankrupted two banks and still owes the
government billions of dollars to qualify as one of the final
two bidders. Finally, some may be concerned about the
prospect of a Russian company entering the Turkish energy
market in a big way. Despite these caveats, most analysts
believe that approval of the sale is critical to the
credibility of the government's privatization program, and
are thus looking for its ultimate approval. End Comment.
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