Turkey's relaunched privatisation programme threatened by currency volatility and political risk

Following the global financial crisis and the slowdown in international financing, Turkey struggled to garner interest in its privatisation programme and nearly a decade of successful liberalisation slowed dramatically. In 2011 privatisation revenues were $1.4bn, down from a peak of $8.1bn in 2006. However, the programme came roaring back in 2012. While some obstacles had begun to emerge in 2015, several significant sales have taken place in the past two years.

The Right Time To Buy?

Privatisation proceeds reached a record high in 2013, amounting to $12.4bn, and while figures were unavailable for full-year 2015 at time of print, as of October 2014 the government had generated $10bn from the sale of state assets.

As a result, expectations for 2015 were high at the end of 2014. Minister of Finance Mehmet Şimşek told the press in January 2015 that the government was planning to raise TL8.7bn (€3bn) from asset sales for the year and TL6.8bn (€2.4) in 2016. The tenders for the privatisation of the life insurance and pension provider, Halk Hayat ve Emeklilik, and the non-life insurer, Halk Sigorta, have been announced with a deadline of September 2015, and five thermic and 49 hydroelectric power plants are slated for privatisation in the next two years. In October 2014 comments to the press, Şimşek noted that highways and bridges, seaports, the venues for the Erzurum Winter Universiade, 25 sugar factories, the Güllük Marina and state real estate would also be up for sale in this period.

Touchy Subject

In the past, privatisation efforts have been a contentious political issue – with critics from domestic labour groups and Turkish courts asserting that the sales of state-owned assets were taking place for less than their market value. For example, then-Prime Minister Recep Tayyip Erdo ğan raised concerns about the value achieved during the 2013 sale of the struggling Ba şkentgaz, Turkey’s largest natural gas grid serving Ankara. The company was sold to the Torunlar Food Company for $1.16bn after three previous tenders failed to find a qualified buyer.

Despite the critics, the privatisation programme has helped to reduce the government’s balance sheet obligations and created a revenue stream to support its fiscal position. In 2012, for example, privatisation payments far exceeded the $2.2bn target in revenue from asset sales that the government had set at the beginning of the year. This had a positive impact on the country’s budget deficit, which fell to 1.2% of GDP in 2013, below forecasts and the 2012 deficit of 2% of GDP. The deficit rose only slightly in 2014 to 1.3% of GDP. The primary surplus also began rising in 2012, from 1.2% of GDP to 1.6% in 2014. Budget revenues increased by 17.1% to TL389.4bn (€137.1bn). Of this, non-tax revenues accounted for 16.3% of the total.

Taking It Slow

Recently, the optimism of late 2014 has been tempered by volatility in the lira and the uncertain political environment preceding the June 2015 parliamentary elections. According to Bloomberg, borrowing costs have risen dramatically, with the yield on Turkey’s benchmark two-year up 2.38 percentage points in early 2015 to a one-year high of 10.4%, in late April. Meanwhile, the lira had fallen to a near-all-time low against the dollar ($1:TL2.71) as of April 2015, a decline of 13% from the beginning of 2015 and 33% since 2013. The combination of high costs and lira volatility has dissuaded investors, and the government has delayed tenders. The tender for construction of highways connecting Kinalı-Odayeri and Kurtköy-Akyazı were moved to July 7 and June 30, 2015, respectively, from their original May 6 launch.

Meanwhile, the $2.76bn privatisation tender for the national lottery to Net Holding and Hitay Investment Holding also fell through, when the consortium failed to complete the deal by its April deadline, although the government completed the sale to ERG-Ahlatci, the second-highest bidder, for $2.75bn. In spite of these challenges, Borsa Istanbul, the Turkish stock market, announced a partial privatisation in March 2015. The world’s 29th-largest exchange will list up to 43% of its shares in a sale set for end-2015.