Turkey's Sovereign Wealth Fund Seeks International Investors

By Margaret Coker and Yeliz Candemir 

ISTANBUL--Turkey's newly created sovereign-wealth fund is conducting a valuation process of its blue-chip state enterprises as part of a planned drive to attract more overseas investment, the fund's director Mehmet Bostan said Friday.

Turkey Wealth Fund has hired international accounting firms for the audit of the varied group of companies that were transferred to its control by the government earlier this month. These include stakes in Turkish Airlines, Turk Telekomunikasyon AS, the country's largest landline operator and internet-service provider, the nation's energy pipeline company BOTAS and state-owned oil company TPAO.

Mr. Bostan told The Wall Street Journal that the investment and management goals of the fund are based on conservative, long-term investment principles aimed at increasing the value of the state enterprises via foreign investment, domestic job creation and maximizing the government's macroeconomic growth strategy.

He said the fund isn't seeking to privatize the state enterprises under its control, but rather help them attract foreign investment as a way to expand operations. Although the fund has the authority to invest in both domestic and international markets, he doesn't expect to be going on an asset buying spree in the near future.

"Our main playing field is the portfolio we have been given," said Mr. Bostan. "From the cash that these companies generate...we will use it in markets and use it smartly. We want to be a platform for foreign investors in both capital markets and other investments."

Turkey formally established the fund in late 2016 at a time of escalating instability in which Turkey posted its first negative growth rate in eight years. The Turkish lira had depreciated by more than 20% in annual terms against the U.S. dollar and the country was becoming polarized over the radical political reform program of President Recep Tayyip Erdogan that aims to change the structure of Turkey's democracy.

At the same time, investors have grown wary of the extraordinary powers the government has used since it declared a state of emergency after the failed July 15 coup.

Investors are particularly concerned over the seizure of hundreds of businesses without judicial review due to their alleged links to a U.S. based cleric Fethullah Gülen. The Turkish government blamed Mr. Gülen for masterminding the failed coup and jailed tens of thousands of people on accusations of supporting terrorism or the coup plotters. Mr. Gülen denies any role in the summer's military insurrection.

All three international ratings firms classify Turkey at junk status, citing in part the continuing political instability.

In this turbulent atmosphere, Mr. Bostan, who left Turkey's privatization administration to take on his job in early November, is completing the hiring of a four-person team who would be in charge of the fund's investments based on a strategy that he described as focused on low-risk, long-term returns.

The top candidates for the management jobs--who are all Turkish nationals--have extensive experience in international banking and multinational corporations, he said.

Meanwhile, a full audit and valuation process for the enterprises under the fund's control is expected to be completed in a few months, he said. At that stage, the fund will seek government approval for a five-year strategy that he expects to be financed by raising cash on international money markets.

Mr. Bostan said it was too early to talk about the size of any bond offerings, as the fund still has no idea the size of the assets it has under management. "I can't even tell you an approximate figure," he said in an interview in his Spartan offices located in the headquarters of Borsa Istanbul, Turkey's main stock exchange.

Critics and analysts of Turkey's economic strategy have raised questions about the creation of the fund at a time when political pressure has weakened the independence of financial regulators as well as the checks and balances of government bodies. They fear that the fund will become an alternative revenue pool for controversial infrastructure projects favored by the ruling party, to the detriment of the state enterprises themselves.

Mr. Bostan said that the fund would abide by international standards of transparency and it will have strong internal audit mechanisms as well as face independent auditors on a regular basis.

"It should be easy for international investors to look to us for opportunities. We have a strong background with the government. We are adopting best practices. We have a very diverse asset set," Mr. Bostan said.

The fund's operations may also be adversely affected by the country's political uncertainty. The nation will be voting in mid-April on a referendum to approve a constitutional reform package that envisages a strong executive presidency and abolishing the office of the prime minister. Current legislation has the fund reporting directly to the prime minister and the cabinet.

Mr. Bostan didn't have any answer as to what changes in his statutory reporting obligations there could be if the referendum passed.

Write to Margaret Coker at [e-mail] and Yeliz Candemir at [e-mail]

(END) Dow Jones Newswires

February 17, 2017 10:29 ET (15:29 GMT)

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