Bidding Up

These are interesting times for telecoms in Turkey, after higher than expected bids in the privatisation of the nation's state provider and a major financing deal for its number one cell phone network. Meanwhile, the number two GSM operator has also announced some of the fastest growth in Europe.



The sale of a 55% stake in Turk Telekom (TT) reached its conclusion on July 1 with an auction between the top two bidders. This tactic proved remarkably successful, as the two consortia, Oger Telecom and Etisalat, competed at auction. Etisalat went as far as $6.5bn, only to see Oger Telecom top that and win the stake with a final bid of $6.55bn.



This was much more than most market watchers had expected, with figures of $3bn-4bn popular before the auction. Indeed, the initial bids were reportedly in that range, with the auction procedure thus adding considerably to the final total.



The Oger Telecom consortium is an offshoot of the Saudi Oger Group, owned by the family of assassinated Lebanese former prime minister Rafik al-Hariri, in collaboration with Telecom Italia and BT Teleconsult.



Soon after the auction was over, Telecom Italia said it would initially invest $200m in the consortium, with the Italians and the Saudis likely focusing on TT's mobile business, while BT Teleconsult concentrates on the fixed-line telephony. TT owns a 40% stake in the country's number three GSM network, Avea, while it also has some 19m fixed-line customers.



Now, once the deal has been given final approval by the Privatisation Administration (OIB) and by the Turkish cabinet, Telecom Italia and Oger Telecom will sign a four-year technical assistance agreement with Avea. Telecom Italia's Tim International also has a 40% stake in Avea already, with the final 20% belonging to Turkey's Is Bank.



The agreement with Oger states that the stake in Avea held by Tim International can be transferred to TT, with a partial reinvestment of the gains from the sale in Oger Telecom shares, or directly conferred to Oger Telecom. The total value of Avea shares held by Tim International is estimated at between $400m and $600m, on the basis of pre-defined share-swap parameters, according to Dow Jones. Tim International retains a put option with Oger for the Oger Telecom shares it receives for the sale of its Avea share, while Oger retains a call option on them with Tim.



Avea is something of a distant third in the Turkish GSM market, behind market leader Turkcell and second place Telsim. The result of a merger between two equally struggling providers, Avea will have its work cut out carving a significant market share. This may be particularly so given an apparent solution to Turkcell's recent troubles, or to be more precise, the troubles of its owner, the Cukurova Group.



In late June, Cukurova announced that it had made an agreement with Russia's Alfa Group under which its debts with the Turkish receivers, the Savings Deposit and Insurance Fund, and Yapi Kredi Bank would be paid.



Cukurova ended up with this debt after its high-street lender Pamukbank went into receivership. Since then, it has been battling to keep itself afloat and retain control of Turkcell, the Cukurova's flagship money-earner.



On July 4, details of the Alfa Group loan emerged. The Russians will lend Cukurova
$1.7bn over the next six years and $1.6bn in six-year-bonds convertible to Turkcell shares. The convertible bonds amount to a 13% stake in Turkcell.



"This investment will enable the Cukurova Group to repay its debt to the Turkish state, and the payment will be made directly to the budget," Turkish State Minister Kursad Tuzmen said after meeting Alfa Group managers on July 4.



Tuzmen also added that the money currently represented the largest Russian investment outside Russia.



Turkcell also announced this week that it would go ahead with its plans for developing a second mobile network in Iran, even though its original majority stake in the project had been cancelled by the government in Tehran, which objected to foreign control of the network. Turkcell's stake was cut from 70% to 49%, which appeared to have killed off the deal.



However, with Iran's existing mobile network currently serving only some 6m users out of a population of around 67m, the second network has enormous growth potential.



Elsewhere, there was also some surprising news from Turkey's number two GSM provider, Telsim, which announced on July 4 some 70% growth in active subscribers over the last 15 months.



Such growth would be good news too for the Turkish government, as Telsim is currently being set up too for sell off. Part of the notorious Uzan Group, which collapsed amidst massive corruption allegations, its sale, likely late this year or next, is widely expected to attract strong interest.



Telecoms then may well be one of the most sought after areas in the months ahead in Turkey. The TT sale also boosts the government's coffers at a time when its privatisation programme had been looking increasingly stuck. Now, deals on steel producers Erdemir and refiners Tupras are being anticipated, although there may not be any attempt to try and sell off state tobacco firm TEKEL again for some time. This latter company has proved very difficult to privatise, with company management saying last week that they would likely wait for improvements in market share before trying again.



They may be waiting some time.