SAUDI-ITALIAN CONSORTIUM WINS TURK TELECOM BID

UNCLAS SECTION 01 OF 02 ANKARA 003845

SIPDIS

EB/CBA FOR FRANK MERMOUD
TREASURY FOR CPLANTIER AND MMILLS
NSC FOR BRYZA AND MCKIBBEN
USDOC/ITA/MAC FOR DAVID DEFALCO

E.O. 12958: N/A
TAGS: EINV BEXP EFIN TU
SUBJECT: SAUDI-ITALIAN CONSORTIUM WINS TURK TELECOM BID

REF: A. A. 04 ANKARA 6673


B. B. 05 ANKARA 446

C. C. 05 ANKARA 2159

D. D. 05 ANKARA 2812


1. (SBU) Summary: The Privatization Authority took a major
step in the privatization of 55 percent of Turk Telekom July
1, opening the four consortia,s bids and short-listing the
two top bidders: Oger Telecoms-Telecom Italia and a
consortium led by Etisalat of UAE. In a televised bargaining
session, the Oger consortium topped Etisalat with a $6.55
billion bid. The privatization now goes to the competition
and regulatory boards and to the Council of Ministers for
approval. If the PA is successful in navigating these shoals
without falling prey to legal challenges it will be a
watershed event in Turkey,s economic reform program. End
Summary.


2. (U) On July 1, The Turkish Privatization Authority opened
the bids of the four groups that had submitted bids June 24
to buy a 55 percent stake in the state landline company Turk
Telecom (TT). Privatization Administration (PA) President
Metin Kilci announced that Oger Telecoms JIG (Oger Telecoms
and Telecom Italia) and Etisalat JIG (Cetel-Calik Energy
Telecommunication, Dubai Islamic Bank, Abu Dhabi National
Insurance Company and Etisalat-Emirates Telecommunications
Corporation) submitted the two highest bids and were
therefore shortlisted. We understand Oger-Telecom Italia's
sealed bid was $1.4 billion higher than Etisalat's. The
other two bidders, who were eliminated July 1, were Koc
Holding JIG (Koc Holding A.S. and the Carlyle Group L.L.C.)
and Turktel JIG (Turktel Information Services, Gen-PA
Telecommunication and Communications Services-Tekofaks Office
and Communication Equipment Trade-Kurtson Mining and Industry
Operations). Carlyle was the only U.S. company involved in
the bidding.


3. (U) News reports, citing leaks from the Privatization
Administration, indicated that a lower-limit*or reserve
price*had been set at a minimum of USD 9 billion (valuation
for 100 percent of the shares) in order to continue with the
tender. Kilci said in a news conference that "within the
framework of the tender commission's ruling, the decision was
made to continue negotiations with the investors who made the
two highest bids." Oger's final $6.55 billion bid for 55
percent of the shares more than meets the minimum threshold.


4. (SBU) This will be the third attempt by the GOT to sell
shares of TT (see Ref. A). Repeated delays, legal obstacles,
political sensitivities, internal wrangling over tender
specifications, and outright cancellations of sales have
blocked the previous attempts and slowed the current effort
to sell this flagship state enterprise, that is widely
considered a "cash cow" for the Turkish state. (See Ref.
A-D). A demonstration took place today at the Privatization
Administration building to protest the privatization of TT.
Turkish labor unions have intensified their opposition to
privatization in recent weeks with demonstrations and
billboards showing evil foreign investors (literally with
vultures) ready to acquire Turk Telekom. The unions mounted
a street demonstration in front of the PA headquarters during
the auction. However, Turk-Is labor union,s international
relations advisor Hakan Sukun told Laboff July 1 that,
although the union opposed the privatization of Turk Telekom,
it doubted it would be able to stop it.


5. (SBU) Next steps: As PA President Metin Kilci announced
at the close of the bidding session, the deal still requires
approval by the Telecom Regulatory Authority, the Competition
Authority, and the Council of Ministers.


6. (SBU) Comment. The sale of TT would be a watershed event
for the GOT's faltering privatization program. The GOT has
been able to sell off most of its small and medium-sized
state economic enterprises (SEEs),but has failed in past
attempts to sell off larger SEEs like TT. The sale of TT
would build credibility in the GOT's privatization program
and would represent both a significant inflow of Foreign
Direct Investment and cash for Turkish Treasury to use to
reduce public sector indebtedness. Perhaps most importantly,
it would open the door to more efficient, world-standard
telecommunications services in Turkey. End Comment.
MCELDOWNEY