Unicredit set to complete exit from Turkey's Yapi Kredi Bank with sale of remaining 20% stake

Unicredit set to complete exit from Turkey's Yapi Kredi Bank with sale of remaining 20% stake
Analysts have seen Unicredit suffering low capital returns, high earnings volatility and no active control at Yapi Kredi. / SAİT71 CC-BY-SA 3.0.
By Akin Nazli in Belgrade November 10, 2021

Italy’s UniCredit (Milan/UCG-Frankfurt/CRI-Warsaw/UCG) is to sell its remaining 20% stake in Turkey's Yapi Kredi Bank (YKBNK), UniCredit said on November 8.

The Italian lender will sell an 18% stake to Istanbul-listed Koc Holding (KCHOL) for €0.3bn at the current exchange rate, while it expects to sell the remaining 2% on Borsa Istanbul.

The deal is expected to be completed in Q1 2022.

The sale will have an overall low-mid single-digit positive impact on UniCredit’s consolidated CET1 ratio while the group will book a €1.6bn loss on the sale. The loss will have no impact on UniCredit’s CET1 capital since it has already been accounted for.

"The deal is coherent with the group's strategy of exiting areas with low capital returns, high earnings volatility and no active control," BofA analyst Alberto Cordara said in a note confirming a "buy" rating on the stock, as cited by Reuters.

On November 9, Koc Holding said that it would pay Turkish lira (TRY) 3.49bn ($358.6mn), or TRY2.2980 per share, to UniCredit for the 18% stake in Yapi Kredi.

As a result, Koc’s direct stake in Yapi Kredi will increase to 27.02% and its combined stake will increase to 67.97%, when its 40.95% indirect stake held via Koc Finansal Hizmetler is included.

Since its combined stake will surpass the 50%-threshold, Koc Holding will be obliged to hold a tender call.

A total of 30.03% of Yapi Kredi is listed on Borsa Istanbul and it seems UniCredit will also participate in the tender call with its remaining 2% stake.

The tender call price will be set at a later date, but it will not be below TRY2.3940, namely the weighted average share price across the last 180 days.

Yapi Kredi shares were priced at TRY3.09 at market close on November 9.

Koc Holding may face up to around TRY6.5bn worth of bids in the tender call to be held for the remaining 32.03% stake in Yapi Kredi if all shareholders demand the sale of their holdings.

At end-September, Koc Holding reported TRY68bn (€7bn) worth of cash on its balance sheet, while its market value was around $7bn as of November 9.

The Koc Group companies account for around 6% of Turkey's GDP.

The Koc family controls a combined 73.34% stake in Koc Holding, a conglomerate founded in 1926, while the remaining 26.46% is listed on Borsa Istanbul.

Since July, Koc Holding has been conducting a share buyback programme to repurchase a stake of up to 1.38%. So far, it has bought back 0.035% for TRY19mn.

At an analysts' meeting held on Koc’s Q3 financials, there was no mention of the latest Yapi Kredi deal.

In 2005, UniCredit and Koc Holding initially bought a 57.4% stake in Yapi Kredi for €1.16bn, but the market value of the Turkish lender has tumbled in recent years.

QNB and Development Bank are anomalies. Their free-float is below 1%. The price-to-book column is eyewatering.

In April 2018, the Italian lender invested around €330mn in Yapi Kredi’s rights offer.

In January 2019, Koc Holding and UniCredit each bought $200mn worth of Yapi Kredi’s subordinated bonds in order to dance around a dividend ban and support Yapi Kredi’s capital buffers.

In August 2019, UniCredit essentially said ‘enough is enough’ and pressured Koc Holding with the prospect of the sale of its stake in the market.

In November 2019, Koc and UniCredit struck a deal. Koc has been buying UniCredit’s shares since then.

Since July 2016, when Turkey was hit by a failed coup attempt, consequences of which fuelled an ongoing overall economic collapse, Turkey’s banks have been under political pressure to boost lending.

In 2018, Erdogan’s son-in-law Berat Albayrak became finance minister and tested the limits of political pressure on local lenders.

The currency crisis that began in 2018 added to the economic collapse process. Following the coronavirus (COVID-19) shock in 2020, the economy has entered a new period of jeopardy.

Since Albayrak’s resignation in November 2020, the banks have enjoyed some relative relief. However, with the latest rate-cutting cycle launched in September at the behest of President Recep Tayyip Erdogan, there is no guarantee that the political pressure in the drive for growth at all costs ahead of the next election, due by June 2023, will not add to the private banks' difficulties.

From their 2018 and 2019 profits, the banks were not allowed to distribute dividends, while they were allowed to distribute 10% of their 2020 profits. The dividend ruling for this year is awaited.

Debt restructurings and non-performing loans (NPL) are seen as amounting to an inexorable headache for Turkey’s banking industry in the coming period. The country's banks also have exposure to public private partnership (PPP) projects.

In 2016, Turkey's banking industry was still among the country's strengths. Currently, it is seen as among the country’s weaknesses.

In 2016, the banks were Borsa Istanbul flagships. As things stand, the share of foreign investors in the stock exchange's banking stocks hovers at the bottom level.

The Turkish banking industry’s strengthening process was launched following the great banking collapse of 2001. During the 2000s, the majority of the country’s banking system was sold to foreign buyers.

Since 2016, there have been persistent rumours of foreign owners wanting to flee their holdins in Turkish banks. Most speculation has not gone beyond 'rumours and murmurs', but Russia’s Sberbank (Moscow/SBER) managed a successful exit from Denizbank, while UniCredit appears to be making for the exit at any cost.

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