DEALTALK-Turkey bankers kept busy as deal flow defies protests

Thu Aug 22, 2013 9:44am EDT

* First half M&A, debt volumes up significantly over pvs year

* Bankers see increased M&A activity going forward

* Political events mainly impacted portfolio flows

* Asian, Middle East interest holding deal flow steady

By Dinesh Nair and Birsen Altayli

DUBAI/ISTANBUL, Aug 22 (Reuters) - Investment banking activity in Turkey is riding high despite a summer of often violent political protests, and bankers expect to be even busier in the autumn as investors size up the country's growing middle class and consumer-oriented economy.

Investors from Malaysia, Japan and the Middle East in particular appear to have taken in their stride the nationwide demonstrations against Prime Minister Tayyip Erdogan in June and sporadic protests since.

Turkey was the eighth most targeted nation in Europe in the first half of 2013, with the value of mergers and acquisitions involving Turkish companies reaching $10 billion, up 15 percent from a year ago, according to Thomson Reuters data.

"What we are seeing today is that deal activity has held up steady despite the political events," said Selim Kervanci, HSBC Holdings' head of global banking for Turkey.

"There is increased interest from the Middle East and Asia as more companies from these regions seek to gain presence."

Since the end of June more high-profile deals have been completed, including Commercial Bank of Qatar's purchase of a majority stake in Alternatifbank for $460 million and Malaysian state-run investment fund Khazanah Nasional buying 90 percent of health insurer Acibadem Sigorta.

A bidding process for Acibadem attracted companies such as Sompo Japan Insurance and British medical services Bupa, sources told Reuters.

The flurry in activity is in stark contrast to the experience in Egypt, where political turmoil and street violence have helped cut M&A activity by nearly a quarter so far this year, with no offerings of shares or debt.

Turkey's resilience reflects the calmer situation in the country as well as appealing fundamentals. Over the past decade, its economy has grown rapidly, with a near tripling of nominal wealth. Moody's upgraded Turkey to investment status in May.

The government has also courted investors from Asia and the Middle East, who are more comfortable with political risk.

"In Turkey, there has been a tendency to largely shrug off political risks when it comes to doing deals. Clients seemed less worried while dealing with them," said a Middle Eastern banker, speaking on condition of anonymity.

Even two and a half years of bloody civil war in neighbouring Syria have failed to dent deals in Turkey, but allegations the government in Damascus was responsible for a chemical attack on civilians could yet hamper activity.

"The situation there is really fluid, and in the event of international intervention, we could come to a situation where things could go out of hand. Turkey will find it hard to keep away from it," said the banker.

Erdogan's fierce criticism of the Egyptian army's removal of Muslim Brotherhood president Mohamed Mursi could also hurt relations with countries such as Saudi Arabia and the United Arab Emirates, which have backed the military's action.

"Turkey's support for the Brotherhood may not be appreciated in the Gulf widely. These kind of factors play a key role, especially in a region where most investment decisions are political," said the banker.

M&A, DEBT SALES

The June protests, the largest in Turkey in three decades, have contributed to a drop in Turkish stocks, which are down 7.4 percent year this year after jumping over 50 percent last year.

The fall in valuations is helping to drive deals, and bankers expect sectors such as energy, financials, consumer and healthcare-related industries to remain active.

"Deals in the energy sector driven by privatisations will lead M&A activity in the coming period," says Musfik Cantekinler, corporate finance head at Ernst&Young in Istanbul.

"We expect average deal volumes to increase, but apart from privatisations and several big private sector M&A, the majority of activity will be driven by small and mid-sized deals."

Debt issuance in Turkey rose 84 percent to $9 billion during the first half of 2013 compared with a year ago, while share issues touched $688 million, up 71 percent.

But the flurry of debt issuance, which was driven by the prospect of rising rates globally, is expected to ease in the second half as concerns the United States will soon start to turn off stimulus measures hurt emerging markets.

"On the debt-financing side, a couple of potential issues has got postponed, and it mostly had to do with broader events which resulted in weak investor sentiment for emerging market debt," says HSBC's Kervanci.

Blue-chip issuers Coca Cola Icecek and Turk Telekom are the two big mandates in the country's international deal pipeline, which is otherwise expected to be thin compared to the first half of the year.

M&A bankers, however, will stay busy.

The head of Turkey for Dubai private equity group Abraaj, which recently sold its stake in Turkish health insurer Acibadem Sigorta, said his group was looking for deals.

"Our business is a long-term business, and people tend to think away from political factors if you are offering quality businesses for sale," said Selcuk Yorgancioglu.

"In the countries that we are in, we see Turkey as one of the important investment destinations, and we continue to scout for interesting opportunities here."