HSBC, UBS see Turkey value gain as CBQ pays ‘top dollar’

Bloomberg/Dubai

UBS, Switzerland’s largest bank, and HSBC Holdings said it’s becoming more costly to buy Turkish firms as investors such as Commercial Bank of Qatar drive up prices to get a foothold in its expanding economy.

“Everyone’s a strong believer in the growth prospects of the country and that sends the sellers’ expectations higher,” Selim Kervanci, head of global banking in Turkey for HSBC, said in an interview at the bank’s offices in Istanbul two days ago. “One transaction sets the benchmark for the next.”

Turkey is attracting investors seeking to tap a near $800bn economy set to grow about 4% this year. Commercialbank of Qatar, known as CBQ, said earlier this week it agreed to buy a 70.8% stake in Turkey’s Alternatifbank for two times book value. That compares with OAO Sberbank’s acquisition of Turkey’s Denizbank from Belgium’s Dexia for 1.3 times book value, or about $3.8bn, last year.

“Valuation expectations on the part of sellers are quite high,” Gonca Gursoy Artunkal, chief executive officer of UBS Securities in Istanbul, said in an interview Thursday. “The latest CBQ acquisition seems to have set the multiple higher.”

While there’s also appetite for deals in health care, infrastructure, insurance and pension companies in Turkey, transactions may take longer to complete due to the high multiples, Kervanci said.

The enterprise value of listed Turkish companies is 10 times earnings before interest, tax, depreciation and amortization, more than double that in Russia and Poland, according to data compiled by Bloomberg.

Excessive valuations for potential targets prompted US private equity firm Advent to shut its Istanbul office, Turkey’s Hurriyet newspaper reported Thursday, citing office head Kayril Karabeyoglu. Spending the firm’s resources in the country under current conditions isn’t rational, it said.

“Despite these exits, there’s increased level of interest in Turkish assets,” Artunkal said. “And with large scale privatisations coming up, I would think this year we would replicate last year’s success.”

Investors poured into Turkey after economic growth accelerated to an annual 8.2% in the third quarter of 2011, the fastest increase among Group of 20 countries after China. The economy, which expanded 2.5% last year, according to Economy Minister Zafer Caglayan, is forecast to grow 4% this year.

Alternatifbank’s book value was 585.1mn liras ($323mn) at the end of 2012, CBQ said in a March 18 statement. The sale will be based on the book value of the company at the end of June, it said.

CBQ is doing the deal “at top dollar valuation,” Jaap Meijer, an analyst at Dubai-based Arqaam Capital, wrote in an e-mailed report.

Ernst & Young said in January it expects mergers and acquisitions in Turkey to rise to $25bn this year from $23.2bn in 2012. The country has drawn international investors such as Diageo, Russia’s OAO Sberbank, E.ON SE, Amgen and Aeroports De Paris in the past two years.

Turkey’s government is selling assets, approving the sale of Seyitomer power plant for $2.25bn and Ankara gas grid Baskent Dogal Gaz for $1.16bn this month.  A secondary public offering of shares in state-run bank Turkiye Vakiflar Bankasi may take place in second half, according to Deputy Prime Minister Ali Babacan.

Qatar National Bank, the Middle East’s biggest bank by assets, may buy a stake in one of Turkey’s top 10 lenders as it expands faster overseas, chief financial Officer Ramzi Mari said in December.

Carrefour, a supermarket joint venture between Carrefour and Haci Omer Sabanci Holding, Migros Ticaret, another retailer owned by BC Partners, and Finansbank, a lender owned by National Bank of Greece, are among potential targets for whole or partial acquisitions this year, according to Istanbul-based investment bank Unlu&Co.

“The potential of the Turkish market is very attractive and the existing government is promoting investment, so Turkey is better placed currently to attract investment from the Middle East than Europe,” Kervanci said.