Identifier
Created
Classification
Origin
06ISTANBUL1049
2006-06-13 09:43:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Istanbul
Cable title:  

TURKEY'S HOLDINGS BRACE FOR A BRAVE NEW WORLD

Tags:  ECON EINV EFIN TU 
pdf how-to read a cable
VZCZCXRO6713
RR RUEHDA
DE RUEHIT #1049/01 1640943
ZNR UUUUU ZZH
R 130943Z JUN 06
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC 5219
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUEHAK/AMEMBASSY ANKARA 5211
RUEHDA/AMCONSUL ADANA 2228
UNCLAS SECTION 01 OF 02 ISTANBUL 001049 

SIPDIS

TREASURY FOR CPLANTIER

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EFIN TU
SUBJECT: TURKEY'S HOLDINGS BRACE FOR A BRAVE NEW WORLD


Sensitive but unclassified. Not for internet distribution. This
cable has been coordinated with Embassy Ankara.

UNCLAS SECTION 01 OF 02 ISTANBUL 001049

SIPDIS

TREASURY FOR CPLANTIER

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EFIN TU
SUBJECT: TURKEY'S HOLDINGS BRACE FOR A BRAVE NEW WORLD


Sensitive but unclassified. Not for internet distribution. This
cable has been coordinated with Embassy Ankara.


1. (SBU) Summary: The positive evolution of Turkey's macroeconomic
environment over the past four years, together with the prospect of
EU accession, has prompted Turkish companies at all levels to
redefine their corporate strategies. Whereas previously it was rare
for a CEO to look out beyond a one- or two-year time horizon, now
companies are increasingly trying to develop long-range strategies.
The effort has been particularly marked among the giants of Turkish
industry, the large holding companies or conglomerates that have
long dominated the industrial and commercial landscape.
Increasingly, in contrast to their earlier tendency to diversify
into a range of sectors, they are seeking to identify key niches
where they can build on their natural competitive advantages, in a
development that symbolizes the "normalization" of the Turkish
economy.


2. (SBU) This cable focuses on Turkey's four largest holdings: Koc
Holding, Sabanci Holding (Koc's closest rival),Dogan Holding, and
Dogus Holding. Subsequent messages will look at specific sectors,
small and medium enterprises, and other economic actors. End
Summary.
--------------
Holdings in the Turkish Economy
--------------


3. (SBU) Holdings have defined the Turkish economy since soon after
the start of the Republic. Initially encouraged through concessions
provided by the Turkish government, they were a vehicle through
which the country realized its strategy of rapid industrialization
through import substitution. Subsequently benefiting from their
size and access to capital, the holdings diversified into a wide
range of industries to cushion themselves from the vicissitudes of a
Turkish economy that was characterized by rampant inflation and
repeated boom and bust cycles. By owning companies in different
sectors, a holding could balance out these cycles: if one sector did
poorly one year another sector might act as a counterbalance.
Analysts have predicted that as the economy becomes less volatile,
holdings will no longer need such insulation from economic shocks,
and will increasingly specialize in particular sectors of the

economy.


4. (SBU) The persistence of these highly-diversified conglomerates
in Turkey long after this business model was discredited in other
industrialized countries is also attributable to foreign direct
investors' need for a local partner to navigate the shoals of
Turkey's anti-foreigner regulatory and judicial systems. In other
words, the big groups added value as "fixers" for foreign
multinationals.


5. (SBU) The last two years have provided hints that Turkey's
newfound macroeconomic stability has permitted the start of a move
towards greater specialization by the big Turkish groups. The chief
economist at one local brokerage noted to us that the the "holdings
are trying to evolve. Some are adjusting successfully to new
economic realities, and others are not." In this analyst's view, to
date only the Dogan and Dogus Groups have successfully carried out
this specialization, while the bluest of Turkey's Blue Chips- Koc
and Sabanci-have had more difficulty, perhaps stemming from their
larger size and more complicated organizational structure.

--------------
KOC HOLDING
--------------


6. (SBU) Koc Holding is the flagship of Turkish industry.
Established in 1926, it operates in sectors including automobiles
(in partnership with Ford),durable goods, food, retailing, energy,
financial services, tourism, construction and information
technology. Five of Turkey's top ten private industrial companies
are Koc companies. Koc enjoyed the largest revenue of any holding
in 2005, with $18.2 billion in earnings. With Koc Holding's exports
accounting for around 10% of Turkey's overall exports, the group
enjoys important political and economic influence in Turkey. In
line with the Group's expansion plans, Koc undertook two major
acquisitions in 2005: a majority stake in Turkey's fifth largest
bank Yapi Kredi, in partnership with their Italian partner
Unicredito (Euro 1.16 billion) and a 51% stake in Turkey's largest
refinery Tupras ($ 4.14 billion),significantly increasing its
involvement in the energy sector. Koc executives describe their
strategy as one of positioning themselves in sectors that are close
to the consumer, so as to benefit from their longstanding strength
in consumer goods. Analysts at local brokerages are mixed in their
assessment of these efforts: some argue that the holding remains too
large and unwieldy, and believe that while it struck a savvy deal
for Yapi Kredi, it overpaid for Tupras and will have difficulty
making a profit. That difficulty may be accentuated by the Turkish

ISTANBUL 00001049 002 OF 002


lira's depreciation in May 2006, as Koc financed the acquisition
largely with foreign-exchange denominated loans. Koc CEO Mustafa
Koc told the Ambassador that the recent depreciation of the lira is
taking a toll on his group for this reason.

--------------
SABANCI HOLDING
--------------
pdate Research

6. (SBU) Also dating to the 1920s, Sabanci Holding is the largest
holding in Turkey by asset size. With revenues exceeding $10
billion in 2005, Sabanci is especially active in the financial
services, with presence as well in the food and retail, cement, auto
and tire, and textile and chemicals sectors. This expansion follows
a new strategy based on a more decentralized management style.
Sabanci is according more autonomy to the heads of its business
units, in order to increase efficiency and improve decision-making.
In contrast to Koc's aggressive expansion over the past year,
Sabanci has adopted a more measured approach, staying on the
sidelines for a number of recent privatizations, though it is
rumored to be interested in the upcoming sale of regional
electricity transmission networks.

--------------
DOGAN HOLDING
--------------


7. (SBU) Dogan Holding, though slightly smaller than Koc and
Sabanci, is the most profitable of the largest publicly traded
holdings. Revenues increased in 2005 to $ 7.8 billion, producing a
net profit of $474 million, a stellar 142% increase over 2004. At
the start of 2005, Dogan was engaged in three core lines of
business: financial services, media, and oil and gas distribution.
It exited the banking sector in 2005, however, and now focuses
primarily on media and energy (oil and gas distribution),as well as
to a lesser degree on insurance, tourism, industry and commerce.
Analysts have applauded Dogan's strategy, noting that it secured a
premium for its Disbank franchise, and that with a still embryonic
advertising market, the holding's focus on media offers significant
upside. Dogan has a dominant position in media, helped both by
restrictions on foreign ownership in the sector and by the
competition authority separating print from broadcast media in its
analysis.

--------------
DOGUS HOLDING
--------------


8. (SBU) Dogus Holding is the only entirely privately held holding
amongst the largest four. It is active in the finance, automotive,
construction, tourism, and media sectors. It has exited from a
number of consumer areas, selling its Tansas supermarket chain. In
2005, the group also sold a 50% share in Garanti Bank to GE Capital
of the U.S., thereby reducing its presence in financial services.
As of end 2004 (the last year for which statistics are available),
the Group's total assets were $23.9 billion, with total revenues of
$5.9 billion and a net profit of $326 million. Local economists
note that the Sahenk family has historically chosen excellent
executives, who are steering Dogus in a successful direction, even
though all the company's ventures have not been successful.

--------------
Comment
--------------


9. (SBU) Our contacts argue that "it still makes sense to continue
with a holding model," though it needs to evolve to adapt to new
economic realities. That process appears to be beginning, as
Turkish holdings identify their core businesses, and divest
themselves of non-core assets. They continue to forge strategic
partnerships with foreign firms to survive in an ever-more
competitive international market and can still take advantage of
foreign firms' need for a local partner. Despite Minister Babacan's
professed desire for "Greenfield" investors, wholly-owned
subsidiaries of multinationals are still rare in Turkey. The large
groups' size and access to capital - compared to smaller Turkish
companies -- gives them a natural advantage in that process, so that
holdings are likely to remain a fixture of the Turkish economy for
years to come. End Comment.
JONES