Metin Kilci, the president of Turkey’s Privatisation Administration was looking eagerly forward to the dawn of June 3, 2004. That was the day when the government would hand over the shares of Tupras to a private consortium, which was prepared to stump up $1.3bn. His staff had spent the previous day counting and arranging the shares for transfer to the buyer. He had also planned a celebration for the next day when the deal would be completed. Mr Kilci had arranged for the top Citigroup executives to come from London and had booked them suites at a plush Ankara hotel. The scene was set for the conclusion of a successful privatisation.
But on the afternoon of June 2, Mr Kilci’s hopes, and those of the entire Turkish government were dashed by a court decision that said the privatisation was “not in the public interest” and should be stopped.
The Citigroup staff went back to London and the government brought in its legal team to begin an appeal. The government continues to discuss the appeal with its advisers, says Citigroup. Meanwhile, the deal is mired in debate and acrimony.
Mr Kilci is angry about the court decision, which he says is “not reasonable” and he is deeply frustrated that the government has been denied the money, which was to be paid as cash on the nail, rather than by instalments.
Court interest in Turkish privatisation is not uncommon, say government advisers, but this decision came at a particularly unfortunate time. Mr Kilci says this sale and all the others in the Turkish pipeline must go ahead.
The government says it is more determined than ever to push ahead with the privatisation programme. Advisers to the programme say that privatisations suffered under earlier administrations, when decisions had to be made with the agreement of a coalition of interests, but now that the government is composed of a single party, decision-making has become easier and quicker. “There is a single focus and greater determination”, says one adviser.
Scuppered sales
This makes the recent record of mishaps and missed chances that have dogged the privatisation programme all the more aggravating. For example, the government opened its tender for the sale of Petkim, its petro-chemicals company on May 31, 2003 and quickly received an acceptable offer of $605m from the Uzan family conglomerate, which owned interests in media, banks and cement. The Privatisation Administration was again euphoric and the sale was imminent. But within a month of the Uzans making their offer, their business had gone bankrupt and the government was back to square one.
The Uzans had to pay up on a $10m bond that they had placed in the event that they did not complete on the deal. As a result of their bankruptcy, other Uzan businesses went into state control and these in turn are now being prepared for privatisation.
The failure of the tender for the cigarette arm of Tekel, the seventh largest cigarette company in the world, has been yet another blow to the privatisation programme. The successful sale of Tekel’s alcohol division for $290m had lifted hopes of a similar outcome for the cigarette arm, but the highest offer of $1.15bn is believed to have been half the government’s expected price and was turned down.
Persistence over Tekel
Advisers put the market’s lack of enthusiasm down to industry fatigue. They say that Tekel was at the end of a queue of cigarette companies in other emerging markets and the major cigarette firms were not ready to buy another. Other market players accuse Tekel of being inadequately prepared; they also say that Tekel staff, fearing for their jobs under a private sector regime, obstructed potential buyers’ efforts to acquire documentation.
Citigroup is now restructuring Tekel cigarettes in the hope that the government can launch a tender offer in 2005 with an improved outcome. Advisers to the government say that “improvements in the country’s macro-economic position will have an impact on the price”. Attempts have also been made to “crystallise more cash flow generation” by writing down the value in the books of historical costs associated with the company’s stocks of tobacco, said to be the largest of any tobacco company in the world.
Tales of success
Disappointing outcomes to high-profile sales in 2004 should not be allowed to mask the country’s success in selling smaller, lower-profile businesses to the private sector. It sold 45 state-owned businesses including textile, fertiliser and port operations in the first seven months of 2004 for $1.1bn.
The government is not deterred by the problematic history of big-ticket privatisations and has a number of tenders planned for the coming year. These include the sales of Turk Telekom, the monopoly owner of its landline network and THY, the Turkish national airline.
Slated for sale
The sale of Turk Telekom promises to be particularly important. Mr Kilci says the government, which is being advised by BNP Paribas, has already solicited interested parties to examine the company and it will publish the tender document in September. It hopes to complete the sale by May 2005 and it is aiming to receive between $5bn and $12bn.
A large international telecommunications company is expected to take a majority stake, while between 10% and 20% of the stock will be sold by way of public offering in the market. Turkish law requires that a further 5% of the shares must be sold to the employees.
THY (Turkish Airlines), of which the state owns 97%, has defied earlier privatisation attempts but the government appears determined to press ahead. Mr Kilci says he plans to sell 15%-20% on the stock market with an initial public offering in November or December this year. This will be a precursor to an attempt to sell a majority stake to a trade buyer in 2005.
The government will also launch an offering of shares in Petkim, the problematic petrochemicals company, at the same time on the Istanbul exchange.
Privatisation is at the heart of government policy, and prospects can only improve with the strengthening of Turkey’s economy. However, the country’s immature social and legal structure may yet intervene to make the ride choppier than the government would like.