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Cablegate: Investors Ignore Politics, Snap Up State Bank Shares

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RR RUEHDA
DE RUEHAK #1069 1271456
ZNR UUUUU ZZH
R 071456Z MAY 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 1984
INFO RUEATRS/DEPT OF TREASURY WASHDC
RHEHAAA/NSC WASHDC
RUEHIT/AMCONSUL ISTANBUL 2641
RUEHDA/AMCONSUL ADANA 1924
RUEHBS/USEU BRUSSELS
RUEHKU/AMEMBASSY KUWAIT 0875

UNCLAS ANKARA 001069

SIPDIS

TREASURY FOR INTERNATIONAL AFFAIRS - JROSE

SENSITIVE
SIPDIS

REF: ANKARA 1015

E.O. 12958: N/A
TAGS: EFIN TU
SUBJECT: Investors Ignore Politics, Snap up State Bank Shares


1. (SBU) Summary: The Privatization Authority sold 24.98% of
state-owned Halkbank through an Initial Public Offering (IPO) and
raised a total of %1.8 billion. Foreign institutional investors,
mostly from the Middle East, reported purchased 69.5% of the shares.
Privatized shares will start to be traded on the Istanbul Stock
Exchange May 10. The Halk Bank IPO was a required prior action for
the IMF's 6th review which will go to the IMF Board May 18. At a
press conference, Minister of Finance Unakitan said political
stability was important for economic stability, and that the strong
foreign participation in the IPO in an election year showed that
foreign investor confidence in Turkey continued. The
politically-sensitive partial privatization of Halk Bank despite
election-year politics, underlines the Government's commitment to
the privatization program. End Summary

2. (SBU) The Privatization Authority (PA) had announced on February
6 that the GOT would opt for an IPO for a 25 percent stake instead
of a block sale of a majority stake in Halkbank, Turkey's
second-largest state-owned bank. This controversial decision, which
ran counter to IMF and World Bank preferences, was attributed to
election year politics. Government officials argued that it would
be easier to explain an ultimate block sale to the public if a
market price were established first by means of a minority share
IPO. Business groups were critical of the block sale, fearing a new
private owner -- especially a foreign one -- might not act in the
interests of small businesses.

3. (SBU) The Halk Bank IPO was priced at the top of the permitted
range at YTL 8($6) per share. Finance Minister Kemal Unakitan,
Privatization President Metin Kilci and Halkbank General Manager
Huseyin Aydin jointly announced the results of the IPO at a press
conference on May 7, 2007. Unakitan announced receiving a total bid
of $12.9 billion of which only 14.6% could be met. The price gave
the whole bank a market value of 10 billion lira. Turkey raised a
total of $1.846 billion. Foreign institutional investors purchased
69.5% of the shares. Unakitan claimed that 230 institutional
investors from 20 different countries placed bids; including
investors from the UK, U.S., Europe and Middle East. The Minister
also announced that the Kuwait Investment Authority bought 10
percent of the shares.

4. (SBU) Halk Bank is Turkey's second-largest State-owned bank. It
was established to lend to medium and small sized enterprises. The
bank earned a YTL 863 million profit in 2006, a 56 percent increase
from a year earlier. Completion of the IPO is a required prior
action under Turkey's IMF program. In the press Conference Finance
Minister Unakitan said that during the AKP government's period in
office, privatization proceeds would exceed USD 23 billion and
despite the elections the privatization program would continue. The
Minister noted that it took a long time to establish an environment
in which investors had confidence in Turkey, and the Government
would not deviate from prudent economic policies. Unakitan noted
that the strong demand for Halk Bank shares underlined investor
confidence in Turkey's democracy and post-election economic
stability.

5. (SBU) Comment: The successful IPO was encouraging both for local
and foreign investors and showed that despite the recent political
tension, investors attach importance to Turkey's improved economic
fundamentals. Banking assets have been particularly attractive,
given the room for growth in Turkey's underbanked economy. This
IPO, coming on the heels of the Izmir port privatization announced a
few days earlier, also demonstrates the Government's commitment to
continuing the privatization program, despite election-related
postponements of other privatizations. The IPO represents the first
step in the long-awaited privatizations of state banks, which have
suffered from several false starts and problems, and have been more
politically-sensitive than state sales of industrial assets. End
Comment.
Wilson

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