BBVA Increases Stake in Turkiye Garanti Bankasi -- Update

By Jeannette Neumann in Madrid And Yeliz Candemir in Istanbul 

Banco Bilbao Vizcaya Argentaria SA said Wednesday it will pay EUR1.99 billion ($2.49 billion) to acquire additional shares in Turkey's largest lender by market value, in a bid to bolster growth beyond its stronghold in Latin America and home country of Spain.

BBVA, Spain's second largest bank by market value, said it will acquire an additional 14.89% stake in Turkiye Garanti Bankasi AS, raising its stake in the Turkish lender to 39.9%. BBVA will buy the shares from Turkish conglomerate Dogus Holding AS, the bank said in a regulatory filing on Wednesday. Dogus will be left with a 10% stake in the bank.

The purchase won't trigger a full takeover offer for Garanti, BBVA executives said Wednesday, since the Spanish lender still holds less than 50% of the company's shares. The heightened control of Garanti means BBVA can appoint seven of the Turkish lender's 10 board members, up from four.

"We are now allowed to change the chairman and CEO," BBVA Chief Financial Officer Jaime Sáenz de Tejada said. "But we are not expecting any changes."

BBVA purchased its initial 24.9% stake in Garanti in November 2010 for $5.8 billion. That included a 6.3% share sale by Dogus Holding.

In a separate regulatory filing Wednesday, BBVA said it will issue up to 310.48 million shares to finance the stake increase.

That would raise about EUR2.5 billion, Mr. Sáenz de Tejada told analysts during a presentation later Wednesday. But he said BBVA would likely only raise EUR2 billion in the accelerated bookbuilding offer to cover the cost of the Garanti deal.

While Turkey's economic growth has eased recently, analysts still said they had expected BBVA to try to increase its investment in Garanti given the Turkish lender's solid performance in recent quarters.

The move is also a way for BBVA to further diversify its presence beyond Latin America. While the region is the biggest contributor to BBVA's net profit, weaker currencies in South American countries such as Venezuela and Argentina have chipped away at earnings this year.

"Garanti continues to show strength, although growth is slower than in 2013," BBVA said in its third-quarter earnings report.

Turkey's economic growth slowed to 2.1% in the second quarter of the year from 4.7% in the first quarter due to weak domestic demand. The economy is facing a number of challenges, including a rising current account deficit, low domestic savings rates and stubbornly high inflation.

Mr. Sáenz de Tejada told analysts that he expects Turkey's economy to grow by around 4% next year and around 4.5% in 2016.

"Turkey offers good growth prospects given the low banking penetration, young population, need for infrastructure and focus on exports," analysts with Madrid-based investment bank N+1 said in a research note Wednesday. "However, this growth will come with a higher risk and volatility," the analysts said, including high inflation and currency volatility.

BBVA has gotten its deal mojo back in recent months as its home market of Spain starts to show signs of recovery amid modest economic growth.

In July, BBVA purchased bailed-out lender Catalunya Banc SA from Spain's government. The country spent EUR12 billion of public funds to clean up Catalunya Banc after property developers defaulted on loans issued during the country's real-estate boom.

BBVA looks at "every single transaction," Mr. Sáenz de Tejada said in an interview Wednesday. But the Garanti stake increase, just months after the Catalunya Banc acquisition, "minimizes opportunities that we will close in the future," he said. "Unless there is something so clear, so cheap, that we cannot avoid doing it."

Write to Jeannette Neumann at [e-mail] and Yeliz Candemir at [e-mail]

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