A consortium consisting of Turkish groups Gama and Turkerler and the US’ General Electric has launched talks with banks in Turkey to restructure €900mn of loans, two unnamed people familiar with the matter, who asked not to be identified as negotiations are private, told Bloomberg on October 14.
The consortium obtained the loans in question to build hospitals. They comprise of 18-year €301mn and $250mn outstanding loans for Bayrakli hospital in Izmir and a €314mn loan for Kocaeli hospital.
Both hospitals have a total investment value of nearly €1.2bn, according to Gama Holding’s website.
The Turkish government has been building 17 hospitals since 2015 for $10bn under a public-private-partnership (PPP) model.
Under the model, critics have noted, Turkish President Recep Tayyip Erdogan-affiliated businessmen build and operate hospitals while the government pays them euro-indexed annual fees over 25 years and provides loan guarantees.
Annual payments are higher than the overall construction costs of the hospitals while the facilities are often viewed as too large and impractical for effective medical operations. As part of the programme to deliver new hospitals, in-city hospitals are scrapped, adding to the economic cost of the new hospitals, seen as “black holes” by their opponents.
Gama is also behind bankrupted energy investments.
Lenders to the Gama-Turkerler-General Electric consortium include the European Bank for Reconstruction and Development (EBRD), US Overseas Private Investment, ICBC London, Intesa Sanpaolo and UniCredit, according to data compiled by Bloomberg.
“Elephant in the room”
Turkey is the country where the EBRD has its single largest investment portfolio, of which 97% is in the private sector. On October 12, Roger Kelly, EBRD’s Istanbul-based lead regional economist, said in an interview with Bloomberg that Turkey’s non-performing loan (NPL) “issue is an elephant in the room”. A boom in credit extension increases the risk of taking on riskier customers, and means many of the loans are still relatively young, he said.
To cope with an expected increase in souring credit, the EBRD has proposed that an asset-management company is created to carve out bad loans in Turkey. The London-based lender, which has vowed to boost loans denominated in Turkish lira (TRY) and has provided support of more than $13bn in the country over the past decade, has said it would be willing to invest in a vehicle that would bolster the asset quality of banks.
The European Union owns part of the G7 economic powers-controlled EBRD’s capital and co-finances investments with it. It has warned Turkey that it could impose sanctions on Ankara if “provocations and pressures” continue in the East Mediterranean. But on October 8, the EBRD’s outgoing acting president Juergen Rigterink told Reuters that the bank was going ahead with providing a medical emergency loan to Turkey. “We are currently looking at helping Turkey with an emergency loan on the medical side, it will be one of our first projects on the sovereign side,” said Rigterink, adding that the project was “not under review”.
Asked about the development bank’s involvement in Belarus—where the Lukashenko régime is attempting to suppress a people’s uprising—Rigterink said the lender was monitoring developments closely and consulting with shareholders. “We have only invested in the private sector in Belarus and expect that to be case in the future,” he said.
The Turkish health ministry, which has kept up on-time payments to the Erdogan-affiliated hospital contractors despite the pandemic strains on finances, has defaulted on $2.3bn debts owed to American and other pharmaceutical companies and on another Turkish lira (TRY) 19bn of debts owed to local medical equipment suppliers.
Erdogan resists NPL sales
Erdogan has so far resisted the sale of NPLs to foreigners, which would mean a full-blown looting of hypothecated assets held by the businessmen affiated with him. Erdogan may rather prefer debt restructurings to delay the inevitable doom is one line taken by sceptics on the markets in Istanbul.
Restructurings were first launched with the state’s Credit Guarantee Fund (KGF) following the failed coup attempt in July 2016, while Dogus Holding, owned by the formerly secular but presently Erdoganist Sahenk family, and Yildiz Holding, owned by the Islamist Ulker family who recently had problems with Erdogan due to the transferring of their wealth abroad, initiated the first round of high-volume debt restructurings at the beginning of 2018, prior to the lira meltdown that came in August.
Prior to the coronavirus crisis, in February, the duo relaunched a second round of high-volume debt restructurings on already restructured loans to benefit from synthetically pressured interest rates.
All of these groups or businessmen in question are billionaires, who mainly boosted their wealth during the Erdogan era, and their ongoing debt restructurings are typical examples of moral hazard.
Ferit Sahenk, head of Dogus, has depleted his stakes in Garanti Bank to Spain’s banking group BBVA for billions of dollars with perfect timing but he has not paid his debts to banks, including Garanti, as yet.
Turkey’s largest restructuring deal worth of $6.5bn was struck in 2018 by Yildiz Holding, which has spent billions of dollars on buying leading confectionery makers in the US and Europe.
Earlier this month, unnamed people “familiar with the matter” told Bloomberg that Dogus was in talks with lenders to delay repayments on €2.3bn of debt that was restructured in April 2019.
On September 29, two unnamed people told Reuters that another consortium, which also includes Turkerler along with Italy’s troubled contractor Astaldi, signed a €1.1bn restructuring deal for the stalled Etlik mega hospital in Ankara. The EBRD, which has invested a total of €650mn in building city hospitals in Turkey, was also present in this deal.
“Restructuring negotiations are continuing for other PPPs that are in trouble,” one of the unnamed people told Reuters.
Revisions ‘sought on agreed restructurings’
On September 15, some unnamed people told Reuters that large and small companies have been looking for further revisions to nearly all of the restructurings agreed in the past two years.
On September 21, Turkish electricity producer Enerjisa Uretim, a 50:50 JV between Turkey’s second largest industrial group Sabanci Holding and Germany’s E.ON, said that it had obtained a €650mn loan from Akbank, Garanti BBVA, HSBC Turkey, Isbank and French lender BNP Paribas’ local unit TEB.
Akbank is controlled by Sabanci.
Turkey’s electricity utilities were carrying debt amounting to $47bn, of which $12-13bn required restructuring, Turkey’s banking association TBB said in September 2019.
Following the coronavirus crisis, Turkey’s tourism industry, which was already hit by the crisis in relations with Russia and security troubles in 2015-2016, will be joining the construction and energy industries in the world of debt troubles.
The government has provided some relief to the construction industry with subsidised mortgage loans in recent months and to the energy industry in hiking electricity prices for consumers and cutting the sale prices of the government-run electricity producer EUAS.
On June 25, Sabanci Holding CEO Cenk Alper said that Temsa, Sabanci’s bus-making joint venture with Skoda Transportation, is to hold debt-restructuring talks with lenders including Akbank.
In June, S&P Global Ratings warned that it saw problematic loans at Turkish banks growing to a share of more than 20% by 2021.
Also in June, Hema Group agreed a refinancing agreement on a €400mn loan.
In December 2019, Bloomberg quoted unnamed bankers as saying that the government put pressure on senior private sector bankers to approve “ridiculous” debt restructuring demands made by pro-government businessmen.