(Adds missing text in para 11)
By Sandrine Bradley
LONDON, Dec 1 (Reuters) - The restructuring of one of Turkey’s largest corporate loans is being delayed by political volatility in Turkey and the Middle East as Turkish banks seek to limit potential losses, sources close to the situation said.
The fallout from Turkey’s failed coup d’etat in July 2016, which led to a devalution of the lira, coupled with political sanctions imposed on Qatar by Saudi Arabia, the UAE, Bahrain and Egypt in June, are delaying restructuring negotiations on a US$4.75bn loan for holding company Otas, which owns a 55% stake in Turk Telekom.
“It’s beginning to get very political – we are starting to see that dynamic playing out,” one banker said.
Otas is up for sale as part of the loan restructuring, which will involve a cash injection by the winning bidder and a haircut of the debt.
Otas, a special purpose vehicle that was set up by Oger Telecom to acquire a 55% stake in Turk Telekom in 2005, signed the US$4.75bn loan in May 2013.
The deal was Turkey’s largest corporate loan at the time, and was underwritten and arranged by mandated lead arrangers and bookrunners Akbank, BNP Paribas, Citigroup, Deutsche Bank, Garanti Bank and JP Morgan, with 23 further banks joining in syndication.
Otas has now missed three US$290m repayments on the loan and negotiations around a potential sale and restructuring began over a year ago.
Problems repaying the debt stem predominately from the depreciation in the Turkish lira in the last year. Both Oger Telecom and Turk Telekom raise revenue in lira, which is then converted into US dollars.
Oger Telecom did not respond to a request for comment.
“Turk Telekom is not directly responsible for the unpaid Otas debt ... the debt concerning Otas has no effect over Turk Telekom operations,” Turk Telekom said in an emailed statement.
Two rival bidders have come forward for Otas as part of the restructuring process -- Saudi Telecom Company (STC), which already owns a 35% stake in the holding company and more recently Qatari telecommunications company Ooredoo..
The winning bidder will inject cash into the holding company, in return for the 55% stake in Turk Telekom, and lenders face a haircut on the debt, bankers said.
The political stand-off between Qatar and Saudi is, however, influencing Turkish banks’ decision about which deal to accept.
“Turkey has politically always been close to Qatar so there is little bit of buyer uncertainty – who should be the buyer be? Any deal needs government support and there are three very large Turkish banks involved and they are influenced by the Turkish government,” said a second banker.
The government owns a 32% stake in Turk Telekom and its involvement in the situation is further hindering the progression of a commercial restructuring deal, bankers said.
Turkish banks are hoping to avoid a sale and haircut through government intervention.
“The government feels some responsibility towards the banks as the problems with the loan are a direct result of the lira devaluation, which is a result of the coup. The loan itself is well structured and the underlying asset is strong,” the second banker said.
In August, sources told Reuters that the government could acquire Oger’s Turk Telecom stake if a buyer was not found.
In October the Treasury said it would not grant a request from shareholders in Turk Telekom to extend a deadline in ongoing debt talks and in November Turkey’s bank regulator asked creditors not to classify Otas’s debt as non-performing.
This is creating some comfort for creditors as Turkish banks are hoping that government intervention could mean avoiding writing down their debt and potential losses.
“The government is now unintentionally creating deal risk. If it didn’t give (Turkish) banks comfort they would be forced to do a commercial deal – a scheme could be used and hold-out banks crammed down,” a second banker said.
”Now it is going to be harder to do a deal. The situation is dragging, there will be some real length to this process,” he added.
Akbank and Garanti have a loan exposure of around US$1.5bn and US$960m, respectively. That represents around 3.2% and 1.8% of the banks’ gross loans in 2016 respectively, according to company filings, MUFG said in a report in April, while Isbank has a US$500m exposure.
Restructuring advisers Houlihan Lokey has been mandated by Otas to advise on the situation, while lenders have appointed Lazard. (Editing by Tessa Walsh)