GOT POSTPONES FULL PRIVATIZATION OF STATE BANK

UNCLAS ANKARA 000263 SIPDIS TREASURY FOR INTERNATIONAL AFFAIRS - JROSE SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN TU SUBJECT: GOT POSTPONES FULL PRIVATIZATION OF STATE BANK 1.(SBU) Summary: The Privatization Agency(PA) confirmed February 6 that media rumors that the GOT would opt for an Initital Public Offering(IPO) for a 25 percent stake over a block sale of a majority stake in Halkbank, Turkey's second-largest state-owned bank. Press reports suggest that this decision came after lobbying from small business groups -- Halk Bank's principal customers. Combined with other delays, the Halk Bank delay means that the structural reform agenda under the IMF program is likely to be particularly weak in 2007, an election year. End Summary. ¶2. (U) The PA announced February 6 that rather than the expected block sale of 100 percent of Halkbank shares to a single investor, 25 percent of the bank's shares will be privatized through an Initial Public Offering (IPO) in the first half of 2007. PA President Metin Kilci told the press the IPO would be based on the 2006 financial statements of the bank, which implies a deadline of May 22, 2007 for the process to be completed according to Turkish capital markets rules. Kilci underlined that he expected the IPO to be completed by May this year. Kilci said soon the PA would go on a road show once the financial statements are cleared by the Capital Markets Board. ¶3. (SBU) This is the second time this year that GOT has stepped back from planned privatizations. First was the electricity distribution privatization, postponed to an indefinite date. Press is also reporting that the TEKEL tobacco tender, scheduled to take place in February, will likely to be postponed. Market optimism over a block sale had underpinned markets in recent weeks following the government's decision to pull the electricity distribution sale. Although markets did not react to the news, analysts largely attributed the lack of reaction to continued global bullishness on Emerging Market risk. Both privatization postponement decisions were made public by Prime Minister Erdogan, suggesting that the decisions were political and designed to deal with criticism from labor unions, and some businesspeople. ¶4. (SBU) Turkey's leading business NGO TOBB President Rifat Hisarciklioglu welcomed the IPO news noting that the decision would be favorable for all parties. Turkey's NGO president for Handicraft and Artisan Cooperatives (TESKOMB) Akgul said TESKOMB was against the block sale of the bank, and the IPO decision was the right decision to take. Halkbank is the state-owned bank where artisans, SMEs enjoyed state-subsidized loans -- hence the fears about privatization. ¶5. (SBU) Comment: Under Turkey's IMF program, the GOT committed to finalizing the tender process for Halk Bank by the end of May 2007 as a structural benchmark. Today's decision could put the next review at risk. Some analysts point out that from GOT's point of view in an election year, a minority-share IPO makes a lot of sense because it allows a degree of privatization while maintaining state control. Meanwhile, it will allow the market to value the shares, providing a benchmark against which to evaluate eventual bids for the block sale. On the other hand it sends a signal of wavering commitment to privatization and will mean lower FDI inflows than had been expected if the block sale buyer was foreign. Market players calculate a $1 - $1.5 billion IPO, in comparison to expected receipts of at least $6 billion from the block sale. At least two major U.S. financial groups are reportedly interested in Halk and are likely to be disappointed by the postponement. Wilson