Turkey Country Report Jun 21 - June, 2021

June 3, 2021


Turkey is entering an era of violence. President Recep Tayyip Erdogan threatened the opposition with describing a mob attack against Iyi Party leader Meral Aksener as “these are your good days.”

What we see in Turkey right now is the state clashing within itself again. Those who know Turkey are familiar with this kind of scenario. The most crystallised moment of this type in the present era was the failed coup attempt on July 15, 2016.

Sedat Peker, a mafia boss who is singing like a canary about the Erdogan regime on YouTube, has been triggering the current clashes.

As things stand, it is unclear how the gangs and cliques are grouped and who is attacking whom. The fighting and regrouping will now continue, but the fight will spread to ordinary people in the form of violence in society.

There is little to no foreign intervention in Turkey’s demise as yet, but when it inevitably and visibly arrives, everything will become messier. On June 14, Erdogan has an appointment to meet US President Joe Biden on the sidelines of a Nato gathering in Brussels.

Erdogan is tired, old, the squanderer of a lot of domestic and international ground. But he still has the army, the police, paramilitaries…

The opposition is demanding snap elections. On May 7, a senior official in Erdogan’s Justice and Development Party (AKP), informed that opinion polls showing the AKP vote at below 30% do not reflect the truth. The Erdogan regime is too weak. The gangs within the regime are surfacing.

Turkey has more holes than Swiss cheese. However, the opposition got things right at the latest key elections, the local polls held in the spring of 2019 when the AKP lost Istanbul, Ankara and other major cities. No blood was spilled. But two years later, the stakes have become so much higher. Pray to the gods…

On May 7, the UK and France added Turkey to its travel red list. Turkey lost the UEFA Champions League Final and Formula 1 race on virus fears.

Turkey’s record breaker lira is back. Latest record on USD/TRY: 8.62 on May 28.

The balance of payments (BoP) remains under close scrutiny.

Pegasus Airlines sold $375mn 5-year eurobonds at 9.25% coupon. It is hard to fathom, but the company is slated to pay a total coupon of 46% if it cannot recall the paper in the third year.

Pegasus CEO Mehmet Nane reiterated that the coronavirus crisis-hit Turkish aviation industry roughly needs $2bn and noted that its borrowing costs were high due to Turkey’s high risk premium.

LimakPort sold $360mn worth of 15-year papers at a 9.50% coupon. Electricity producer Zorlu Yenilebilir (Zoryen), sold $350mn 5-years at 9.50%. Arcelik (ARCLK) sold €350mn 5-year eurobonds at 3% coupon. Anadolu Efes (AEFES) is on the way.

External debt rollovers have continued undeterred. The spring season for Turkish banks syndicated loan rollovers was concluded at an average renewal rate of slightly above 100%.

The central bank officially has around $90bn of gross FX and gold reserves, but its net FX position remains in deep negative territory at around minus $60bn. The banking industry has an additional $20-30bn.

The flow of lira loans to the economy is also under close scrutiny. So far this year, it has not reached anything like the eye-popping levels seen in 2020, and local FX and gold demand does not seem to have taken off either.

Turkey’s banking watchdog BDDK is “planning to extend the regulatory forbearance measures” that allow the country's banks to record a loan as a non-performing loan (NPL) after a 180-day delay rather than a 90-day delay. The extension is expected to last to end-September or end-2021. NPL sales by Turkish banks declined sharply in 2020.

The government launched a fresh loan package for SMEs via the Credit Guarantee Fund (KGF). The annual interest rate on the loans will be 17.5%, with a grace period of six months. State-owned banks Ziraat, Vakifbank (VAKBN) and Halkbank (HALKB) and state-owned Islamic lenders Ziraat Katilim and Vakif Katilim, as well as private lenders Isbank, Garanti, Yapi Kredi, Akbank and Denizbank will take part in the loan scheme.

The Treasury is again cancelling 10-year domestic bond auctions.

Borsa Istanbul’s IPO price ceiling spell was broken. Morgan Stanley Capital International (MSCI) excluded Turkish Airlines (THYAO), Sabanci Holding (SAHOL) and Yapi Kredi Bank (YKBNK) from its MSCI Turkey index.

On the Borsa Istanbul and lira markets, there remains little liquidity, making Turkish assets vulnerable to shocks. Why the local stock market is not collapsing remains a mystery. The foreign investors are selling. And company owners are siphoning the market with initial public offerings (IPO) and rights issues. Yet outbreaks of turbulence on the Istanbul stock exchange are forestalled by an ‘invisible hand’ that keeps a grip on some of the stocks that make up the biggest weights in the benchmark indices.

Fuel price ceiling ended with huge price hikes.

Turkey’s e-commerce volume is expected to double in 2021.

Turkey’s Getir is “in talks for $500mn new funding to expand in the US.”

Turkey’s gaming start-ups remain a hot spot. Romanian games developer Firebyte opened Turkish unit ‘to capitalise on low development costs’.

Turkey completed tenders for 74 solar power plants with a combined installed capacity of 1,000 MW.

The flow of gas from Azerbaijan's offshore Shah Deniz I gas field to Turkey was halted since the 6.6bn m3/year (bcm/yr) contract signed in 2001 expired in April. The TANAP pipeline, which since 2018 has transited Azerbaijani gas from the Shah Deniz II field to Turkey under a separate contract for 6 bcm/yr, is operating normally.

Turkish private companies, including Gama Holding, Aksa, Kalyon and Demiroren are “holding talks with Russia’s Gazprom to renew contracts for 8bn cubic metres (bcm) of natural gas.” The contracts are set to expire at the end of 2021.

The steel industry is hot. BIM and A101 ranked 152nd and 244th in Deloitte’s Global Powers of Retailing 2021 list.

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