VZCZCXRO1169
RR RUEHDA
DE RUEHAK #1106 1301212
ZNR UUUUU ZZH
R 101212Z MAY 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 2037
INFO RUEATRS/DEPT OF TREASURY WASHDC
RHEHAAA/NSC WASHDC
RUEHIT/AMCONSUL ISTANBUL 2662
RUEHDA/AMCONSUL ADANA 1932
RUEHBS/USEU BRUSSELS
RUEHKU/AMEMBASSY KUWAIT 0876
UNCLAS ANKARA 001106
SIPDIS
TREASURY FOR INTERNATIONAL AFFAIRS - JROSE
SENSITIVE
SIPDIS
REF: ANKARA 1015
E.O. 12958: N/A
TAGS: EFIN TU
SUBJECT: Investors Ignore Politics, Snap up State Bank Shares
1. (SBU) Summary: The Privatization Authority sold 24.98% of
state-owned Halkbank through an Initial Public Offering (IPO) and
raised a total of %1.8 billion. Foreign institutional investors,
mostly from the Middle East, reported purchased 69.5% of the shares.
Privatized shares began to be traded on the Istanbul Stock Exchange
May 10. The Halk Bank IPO was a required prior action for the IMF's
6th review which will go to the IMF Board May 18. At a press
conference, Minister of Finance Unakitan said political stability
was important for economic stability, and that the strong foreign
participation in the IPO in an election year showed that foreign
investor confidence in Turkey continued. The politically-sensitive
partial privatization of Halk Bank despite election-year politics,
underlines the Government's commitment to the privatization program.
End Summary
2. (SBU) The Privatization Authority (PA) had announced on February
6 that the GOT would opt for an IPO for a 25 percent stake instead
of a block sale of a majority stake in Halkbank, Turkey's
second-largest state-owned bank. This controversial decision, which
ran counter to IMF and World Bank preferences, was attributed to
election year politics. Government officials argued that it would
be easier to explain an ultimate block sale to the public if a
market price were established first by means of a minority share
IPO. Business groups were critical of the block sale, fearing a new
private owner -- especially a foreign one -- might not act in the
interests of small businesses.
3. (SBU) The Halk Bank IPO was priced at the top of the permitted
range at YTL 8($6) per share. Finance Minister Kemal Unakitan,
Privatization President Metin Kilci and Halkbank General Manager
Huseyin Aydin jointly announced the results of the IPO at a press
conference on May 7, 2007. Unakitan announced receiving a total bid
of $12.9 billion of which only 14.6% could be met. The price gave
the whole bank a market value of 10 billion lira. Turkey raised a
total of $1.846 billion. Foreign institutional investors purchased
69.5% of the shares. Unakitan claimed that 230 institutional
investors from 20 different countries placed bids; including
investors from the UK, U.S., Europe and Middle East. The Minister
also announced that the Kuwait Investment Authority bought 10
percent of the shares.
4. (SBU) A PA Vice-President told us that the highest number of bids
were from U.K., followed by U.S.-based funds. He said the reason
they highlighted the Kuwait Investment Authority was because that
was the first time Gulf money came to the banking sector In Turkey.
The PA V.P. was very proud of the success of the transaction, saying
it was the largest IPO in Europe since 2004. On May 10 Halk Bank
shares began to be traded on the stock exchange. In its first
morning of trading Halk Bank shares constituted 70 percent of the
entire exchange's transaction volume and the price per share
increased 7.5%.
5. (SBU) Halk Bank is Turkey's second-largest State-owned bank. It
was established to lend to medium and small sized enterprises. The
bank earned a YTL 863 million profit in 2006, a 56 percent increase
from a year earlier. Completion of the IPO is a required prior
action under Turkey's IMF program. In the press Conference Finance
Minister Unakitan said that during the AKP government's period in
office, privatization proceeds would exceed USD 23 billion and
despite the elections the privatization program would continue. The
Minister noted that it took a long time to establish an environment
in which investors had confidence in Turkey, and the Government
would not deviate from prudent economic policies. Unakitan noted
that the strong demand for Halk Bank shares underlined investor
confidence in Turkey's democracy and post-election economic
stability.
6. (SBU) Comment: The successful IPO was encouraging both for local
and foreign investors and showed that despite the recent political
tension, investors attach importance to Turkey's improved economic
fundamentals. Banking assets have been particularly attractive,
given the room for growth in Turkey's underbanked economy. This
IPO, coming on the heels of the Izmir port privatization announced a
few days earlier, also demonstrates the Government's commitment to
continuing the privatization program, despite election-related
postponements of other privatizations. The IPO represents the first
step in the long-awaited privatizations of state banks, which have
suffered from several false starts and problems, and have been more
politically-sensitive than state sales of industrial assets. End
Comment.
Wilson