New York-listed power company Eaton Corporation has signed a final agreement to buy an 82.275% stake in Turkish switchgear maker Ulusoy Elektrik held by members of the Ulusoy family for $213.9mn, Ulusoy Elektrik said on February 1 in a stock market filing.

Turkey’s real sector companies, hit by a severe liquidity crunch and a nosedive in domestic demand amid the country’s economic turmoil ignited by last year’s Turkish lira crisis, are counting on stake disposals. Large companies are pushing for eurobond issues or debt restructurings with lenders, while relatively small enterprises are seeking bankruptcy protection. There is some conjecture as to whether Turkish companies are being sold on the cheap.

Two sources with knowledge of the Ulusoy Elektrik deal told Reuters back on November 28 that Eaton was in advanced talks to buy a stake of more than 80% in the company for a consideration of around $300mn.

The stake comes with 90.153% of the board voting rights. As of the date of the completion of the share transfer, 82.275% of Ulusoy Elektrik’s net cash position as will be added to the sale price. The company had TRY68.1mn ($13mn) worth of cash & cash equivalents as of end-September, according to its latest available financials.

Ulusoy Elektrik posted a net profit of TRY94mn for the first three quarters of 2018, marking growth of 68% y/y, while its revenues grew by 40% y/y to hit TRY291mn, it said on November 2 in a bourse filing.

The deal is subject to approval from the Turkish competition authority and the parties to the agreement plan to complete it within 6 months. The transaction includes the sale of Ulusoy Elektrik’s 100%-owned subsidiary Bozat Elektrik—which operates a 4.18MW hydropower plant in southeastern Turkey with paid-in capital of TRY21mn—to a third party while Ulusoy Elektrik’s assets related to catenery rail systems will be excluded from the sale.

BIST-100 flat
Ulusoy Elektrik's share price was down by 3.55% d/d to TRY15.77 as of 14:00 local time on February 1 while the Borsa Istanbul’s benchmark BIST-100 index was more or less flat day on day at 104,084. The annual gain on Ulusoy Elektrik shares stood at 71% versus the 14% y/y rise on the index.

Ulusoy Elektrik shares were trading in the TRY11s in early November but moved up into the TRY16s through the end of the month. The share price has fluctuated around TRY16 since then.

The BIST-100 jumped from the 87,000s on January 3 to the 105,000s on January 31 thanks to positive new year sentiment expressed towards emerging markets. However, the Istanbul stock exchange was struggling to record a gain on the first day of February due to worries over China’s shrinking performance as measured on the Purchasing Managers’ Index (PMI).

No change in headline PMI
Turkey’s headline Manufacturing PMI, meanwhile, was recorded at 44.2 in January, showing no change from what was seen in December. That signalled “a solid monthly moderation in business conditions, and the tenth in as many months,” IHS Markit said on February 1.

“While output price discounting is helping to soften the slowdown in new orders, business conditions clearly remained challenging for Turkish manufacturers at the start of 2019. On a more positive note, international demand seems to be offering some support having been broadly stable in January,” Andrew Harker, an associate director at IHS Markit, said.

“There are growing signs that, while Turkey’s recession may now be close to a trough, any recovery is likely to be slow-going,” Liam Carson of Capital Economics said in a research note on PMI figures released for Emerging Europe.

In Turkey, the conversation among locals on the ground is over what exactly is driving the boom in the country’s financial markets.

“The biggest equity price rises [across the Emerging Europe region] came in Turkey, where concerns about the local banking sector continued to ease,” Capital Economics said on January 31 in a research note, adding that the latest data suggested that Turkey’s GDP could have contracted by as much as 5% y/y in Q4.

“Weak rebound”
The Institute of International Finance (IIF) on January 31 put out a research note entitled “A weak rebound in Flows to EM”, observing: “Market sentiment towards EM has swung a lot more positive in recent weeks, powered by the dovish shift from the Fed, deescalating China-US trade tensions, and fading anxiety over global growth. Last week’s Global Macro Views examined this shift in sentiment through the lens of our daily flow trackers, which collate real money flows into EM stocks and bonds at high frequency.

“Our trackers do indeed show a sharp pick-up. However, much of that is due to one country—China—with the rest of EM looking quite weak... Basically, outside of China, only Mexico and Indonesia have seen a rebound in flows. Meanwhile, key emerging markets like India, South Africa, Turkey and Thailand are seeing weak inflows or continued outflows, which is remarkable given the severity of the EM sell-off in 2018.” Flows to Turkey were flat, according to the IIF.

The Turkish Ministry of Treasury and Finance, headed by President Erdogan’s son-in-law Berat Albayrak, on February 1 released a strongly-worded statement denying allegations that it had been involved in secret talks with the IMF.

“It has been stated several times that it is out of the question for Turkey’s path to even cross with the IMF in terms of both credit and technical support,” the ministry said in the statement, pointing to the country’s current economic performance.

The Turkish lira (TRY) lost 0.78% d/d against the USD to trade at 5.2121 as of 17:40 local time on February 1 after testing the 5.15s.

Garanti’s Q4 net down 37%
On January 31, Garanti Bankasi, one of the country’s largest private lenders, said in a bourse filing that its unconsolidated net income declined by 37% y/y to TRY1.06bn in Q4.

“This is respectively 6.6% below our TRY1,136mn call and in line with the TRY1,058mn RT consensus estimate,” Sevgi Onur of Seker Invest said in a research note, adding: “The main drivers of deviation from the actual figures are: 1) a negative surprise on the trading loss, 2) better than expected other income, 3) lower than expected provision burdens and 4) estimate-beating OPEX”.

Garanti’s net profit rose by a limited 5% y/y to TRY6.64bn in 2018. CPI inflation stood at 20.3% in Turkey as of end-2018.

The lender’s shares were down 0.88% d/d to TRY8.98 as of 15:30 local time, while the annual loss on the share price stood at 23%.

Also on January 31, another large-cap private lender, Akbank, said in a bourse filing that its unconsolidated net income declined by 31% y/y to TRY1.05bn in Q4 and by 6% y/y to TRY5.69bn in 2018 as a whole.

“[Q4 profit] is 28% and 8% above our TRY821mn call and the TRY971mn RT consensus estimate,” Onur said in a separate research note.

Public lenders Ziraat Bankasi, carrying the weight of pre-local election stimulus measures, has received approval to issue up to $4bn worth of eurobonds, according to the weekly bulletin of the Capital Markets Board (SPK) released on January 31.

The SPK has also allowed mid-cap Odea Bank to issue up to TRY3.9bn of domestic bonds via private placements.