Turkey Lures Asian Investors as It Looks East for Capital

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When Turkish conglomerate Anadolu Holding put its 75-percent stake in Alternatifbank up for sale last year, a distant potential suitor took a close look at the business, eyeing an entry into Europe's fastest-growing economy.

The possible buyer was Industrial & Commercial Bank of China (ICBC), the world's largest bank by market value, according to industry sources familiar with the matter.

Although ICBC did not in the end get its hands on the stake, partly because it entered the process late, the lender has not shut its eyes to Turkey's banking sector and may look at future asset sales there, the sources said, speaking on condition of anonymity as the matter has not been made public.

ICBC declined to comment for this article. Alternatifbank is now in talks with Commercial Bank of Qatar on the stake sale, and the Qatari lender expects to complete the purchase by the end of March.

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But the Chinese bank's interest underlines growing appetite among Asian investors for Turkish assets. They are lured by the country's strong economic growth, stable politics and a regulatory system which shepherded Turkey's banks safely through the global financial crisis.

When the government raised $2.5 billion from a 24-percent stake sale in Halkbank last year, in its biggest share sale ever, Singaporean investors accounted for 9 percent of the allocation, with sovereign wealth fund Temasek and Government of Singapore Investment Corp picking up stakes.

"I think the Turkey story is a pretty obvious one for global investors. Already Gulf investors are deploying their money here, and we are now seeing the trend trickling to Asians," said Elif Bilgi, Turkey country executive and co-head of emerging markets investment banking at Bank of America Merrill Lynch.

"They are looking at the banking system, infrastructure opportunities and also portfolio investments into the stock and fixed income markets."

Foreign Capital

Interest in Turkey among Middle Eastern investors has been rising for several years. The appetite among more distant Asians is more recent, and an encouraging sign for a country which is in need of foreign capital.

"The Asians are real buyers. They can deploy $5-$10 billion in a single deal if they want to. That is where we see deal flows in the future," said an investment banker who handles financial industry activity at a global bank.

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Bank of Tokyo-Mitsubishi, Japan's largest bank by assets, has applied for a banking licence in Turkey. Another Japanese lender, Mizuho Corporate Bank, opened a representative office in Istanbul in June last year.

Asia's interest in Turkey is not confined to the country's banking system but widely spread across sectors including infrastructure, tourism and logistics.

One of the most prolific Asian investors in the country is Malaysian state firm Khazanah Nasional. A unit of the company, which has an investment portfolio worth around $40 billion, was involved in the largest private equity deal in Turkey last year when it bought a majority stake in the country's largest hospital chain, Acibadem, from Abraaj Group. The deal was valued at over $2 billion.

Another Khazanah Nasional unit, UEM Group, is part of a consortium which won a tender for the privatization of Turkey's toll roads and bridges with a bid of $5.72 billion last year, in the largest privatization deal in the country.

Turkey has an active privatization program planned for this year, and more Asian investors specializing in power, energy and infrastructure are expected to enter.

"We are constantly receiving calls from our colleagues in Asia asking for potential opportunities for clients in Turkey," said Selim Kervanci, HSBC's head of global banking for the country. "Some of the large Asian investors have identified Turkey as the top emerging market destination they need to invest in."

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Shangri-La Hotels and Resorts, one of Asia's leading luxury hotel groups, has signed an agreement with a local family group to build its first hotel in Istanbul.

"In the last decade, Asian companies' foreign investments In Turkey jumped by 57 times," said Samet Inanir, strategy and business development counselor at the Foreign Economic Relations Board, a business organisation in the country.

"These companies went to developed markets first to catch up and invested in low-hanging fruit," he said. Now they are turning to Turkey and other emerging markets "because on the one hand their investment capacity has increased and on the other, real growth is in those markets."

Looking East

Turkey badly needs foreign capital to cover its large deficit in trade of goods and services. Traditionally it has relied on Europe for the vast majority of that capital, but the European debt crisis has underlined the risks of such dependence.

"Turkey is in need of external capital. The country has been so far relying on the West, mainly Europe, for its needs, but seeking to diversify funding sources with a focus on Asia is an extremely positive move," Kervanci said.

The diversification is still in its very early stages; Europe provided $12.4 billion of the $15.9 billion of foreign direct investment in Turkey during 2011, according to the most recent data from the Turkish government. Asian countries outside the Middle East provided just $505 million.

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Nevertheless, a rebalancing of trading patterns appears to be underway, which could encourage a shift of investment. In 2000, European Union countries took 56 percent of Turkish exports, according to HSBC; the ratio fell to 39 percent in 2012, while Turkish exports to Asia increased from 5 percent to 7 percent over that period.

"To attract more Asian investments to our country, Turkey should improve its logistics infrastructure. If we can manage to send goods to Europe, the Middle East and Middle Asia faster and cheaper, the volume of investments will increase," Inanir said.

Burak Tansan, partner and managing director of the Boston Consulting Group in Istanbul, said last year's upgrade of Turkey's credit rating by Fitch Ratings, and financial incentive schemes introduced by the government last year, would help it attract more Asian money.