Debt payment assurances

ISTANBUL – Turkey’s Cukurova group sought to reassure investors yesterday that it would pay multibillion-dollar debts to Yapi Kredi bank and the state banking fund after its failure to meet a deadline sent a chill through the markets. The banking-to-telecoms conglomerate agreed in August to repay $2 billion in debts to its Yapi Kredi Bank arm and $2.1 billion to the TMSF banking fund within two years as part of a bigger scheme to separate Cukurova from the blue chip bank. Cukurova had also agreed to sell a 39 percent stake in Yapi Kredi – Turkey’s fourth-biggest bank – after its other banking subsidiary, Pamukbank, went into receivership in 2002, forcing both Yapi Kredi and the fund to pick up the pieces. While investors are confident that the latest hitch on the debts will not threaten the basic framework of the agreement to keep Cukurova out of Yapi Kredi and for Yapi Kredi to sell its non-financial holdings, the conglomerate’s cash squeeze is unnerving the market. Trading in shares of Yapi Kredi and Turkcell, Cukurova’s mobile phone arm, has been suspended for the last two days. Yapi Kredi shares tumbled 9.5 percent on Tuesday. Cukurova said it had yet to receive the first installment of $4.1 billion it borrowed from US, Israeli and Gulf investors through a special-purpose vehicle to help it meet its obligations. Yet a statement from the group said its priority was still to pay its debts early. It would bow to a 2003 agreement – which extends payments over a longer period – however, if it kept missing the deadlines set by a new deal in August. Under this agreement, Cukurova had been due to pay a total of $130 million by the end of September. «Our priority is to explore all alternatives and, if possible, to meet the requirements of the supplementary (August) agreement and pay the debt early,» Cukurova Holding AS said. «The size and structure of our group’s assets, valuation and resources are more than enough to cover all our debts,» it said. As well as a 46 percent stake in Yapi Kredi – a lucrative bank which operates Turkey’s biggest credit-card network – Cukurova holds 42.6 percent of Turkcell, Turkey’s leading mobile phone company, in which Yapi Kredi also has a stake. Banking troubles The state seized some 20 private banks amid financial upheaval that climaxed in a 2001 crisis. The TMSF plans to collect $5.5 billion in debt owed by the insolvent banks by the end of 2007. Under the original 2003 accord, Cukurova was to pay debts totaling $6.2 billion, made up of $1.9 billion to Yapi Kredi over nine years, $3.1 billion to the fund over 15 years, and $1.2 billion in interest payments to both. Yapi Kredi said on Wednesday it was reviving the 2003 deal, but TMSF said it would revert back to it if Cukurova failed to pay by the end of this month. The bank said it was also canceling plans under the August deal for Cukurova to buy the bank’s holdings in non-financial companies by April 2005 for about $1 billion. These sales would have brought the total value of the two deals to $5.1 billion. Cukurova said it still had the option to buy from the bank its 13.2 percent share in Turkcell, but the Yapi Kredi move has sparked market speculation about the fate of the stake. Nordic telecoms operator TeliaSonera, which owns 37.1 percent of Turkcell, is keen to buy some more. «We believe it is highly likely for a potential buyer to pay a premium to Turkcell, especially if this is TeliaSonera, which may finally capture the majority stake it was seeking,» Ekspres Invest’s Ecem Nalbantgil said in a research note. A source close to Cukurova said the group would not lose out financially by returning to the original deals. «If the main deal is revived, neither the BDDK (banking watchdog), the TMSF, nor the group will suffer financial damage. The group will just lose credibility,» he said.