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bne Turkey Daily ListExecutive Summary:
This is bne's Turkey daily newsletter, a list of the top stories in the country this morning. To manage your delivery options: click here: | ||
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| 1. ERBD gives 135m euro loan for construction of a new wind farm in Turkey |
| ERBD |
| April 27, 2012 The EBRD is promoting renewable energy in Turkey with a €135 million loan to Enerjisa for the construction of a new wind farm in the country. Turkey is the sixth largest electricity market in Europe, and one of the fastest growing globally. Increasing electricity generation from renewable energy sources is one of the countrys priorities in order to meet the growing electricity demand and diversify away from expensive, imported fuel sources. Turkey is aiming to connect to the grid 10 GW of wind capacity alone by 2020. Jointly owned by Haci Omer Sabanci Holding A.S. and Verbund International Gmbh, Enerjisa is the leading privately owned Turkish energy company active in electricity generation, trading, wholesale and distribution. The proceeds of the EBRD loan will be used to build Enerjisa Bares WPP, an on-shore independent wind farm in Balikesir in western Turkey. Enerjisa Bares WPP will consist of 52 wind turbines and will have a generation capacity of 142.5 MW. Upon its completion, expected in the second half of 2012, Enerjisa Bares WPP will become Turkeys largest wind farm to date, increasing Turkeys current installed wind generation capacity of around 1.8 GW by approximately 8 per cent. The EBRD financing is structured under the Banks A/B loan scheme, with €100 million on EBRDs account and the rest for the account of commercial banks. Supporting investments in renewable energy is one of the EBRDs key priorities in Turkey. The EBRDs financing will help the country to increase the share of renewable energy in its energy mix, providing a significant contribution towards Turkeys green energy targets. Additionally, we are very pleased to be working with such reputable and experienced sponsors as Verbund and Sabanci who have a high demonstration impact in the Turkish power sector. said Nandita Parshad, Director of Power and Energy Utilities team at EBRD. Bernhard Raberger, Enerjisa CFO said, We are targeting to increase the share of renewable energy sources in the portfolio of Enerjisa which aims to install a capacity of 5.000 MW by2015, in order to meet the electricity demand in Turkey in the most reliable and environmentally-friendly manner. We have taken a strong step forward in the field of wind energy with Enerjisa Bares WPP. Raberger stated that this is one of the important agreements that finance the growth strategy of Enerjisa and he thanked to the EBRD for their trust and belief in Enerjisa. This is the EBRDs second wind farm in Turkey. In 2009 the Bank provided €45 million to finance the construction and development of a 135 MW on-shore independent wind farm, in Osmaniye, in southern Turkey. The EBRD has also provided €375 million through five Turkish banks for the financing of mid-sized reneweable energy projects, which includes the financing of a significant amount of wind farm investment. Since the beginning of the EBRDs operations in Turkey, the Bank has invested over €1.5 billion in various sectors of the countrys economy, mobilising additional investment in excess of €3 billion. |
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| 2. Blame Eurozone crisis for slower Turkish growth, says Caglayan |
| bne |
| April 30, 2012 European leaders have failed to resolve the Eurozone sovereign debt crisis and this is having a negative impact on Turkey's growth, said Turkey's Economic Minister Zafer Caglayan during his visit in Washington earlier this month, according to New Europe. Europe is in the mist of a deep economic crisis and the leaders of the two largest European Union countries', the German Chancellor Angela Merkel and French President Nicolas Sarkozy, have not shown much resistance, the minister said. According to Caglayan, the European leaders were not able to prevent the crisis and Turkey has to suffer from it since its economic growth is depended on Europe. Turkish economy will grow more than 4% this year, he says. However, this is around half of the growth rate of 2011. Other economists have warned that growth could be even less, with most agreeing that the Eurozone crisis is having a large impact on the Turkish economy. |
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| 3. Turkish deputy premier on politics and regional unrest |
| bne |
| April 30, 2012 It was a busy day for Turkish foreign policy on Friday, as Deputy Prime Minister Ali Babacan gave a speech at the Fletcher School of Law and Diplomacy at Tufts University in Boston. In the speech, Babacan emphasized that no countries should try to arm the Syrian opposition. He also said that Turkey still plans to freeze ties with the European Union when Greek Cyprus assumes the bloc's rotating presidency, but only at a "political level." He blamed the Iraqi government for the recent tensions between the two countries. Syria, which Turkey shares its longest border with, has been a hot topic for Turkey ever since unrest started in the country a year ago. Even though Turkey supports the political aims of the Syrian opposition, it has no desire to provide weapons to their armed forces, Babacan said. A legitimate opposition is in important, as it would present an alternative to the existing regime, he added. Babacan also highlighted that Turkey is against external intervention in its neighboring country. When it comes to Turkey's relationship with the European Union during the Greek Cyprus' term at the presidency, Babacan said that since Turkey doesn't recognize Greek Cyprus it plans not to attend political meetings that are chaired by Greek Cypriot administration in the EU. However, Turkey will pursue cooperation with the EU institutions on technical level, he added. We will suspend our interaction with the EU on political level only for six months, Babacan said. |
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| 4. Turkey's foreign trade deficit decreased by 25,3% in March 2012 |
| BGC Partners |
| April 30, 2012 March foreign trade deficit was in line with expectations, while exports surprised on the upside again. Exports grew by 12.2% y-o-y in March, which was higher than what the preliminary export data was suggested. Imports, on the other hand, recorded a 4.8% y-o-y decline in March, which was almost in line with expectations. Consequently, monthly foreign trade deficit was US$7.35 bn in March compared to market consensus of US$7.4 bn and our forecast of US$7.7 bn contracting by 25.3% y-o-y. However, we should note that seasonally adjusted imports point to a m-o-m increase of 4.3% in March, whereas m-o-m seasonally adjusted export growth was only 0.1% in the same month. With the March data 12-month cumulative foreign trade deficit came down from US$104.1 bn to US$101.6 bn. In seasonally and calendar day adjusted terms, the 12-month foreign trade deficit improved from US$101.7 bn to US$100.2 bn. We know that the improvement is still gradual, but at least the last five months' data (except January) confirmed that the deterioration in foreign trade balance is over. We continue to foresee that in the absence of a severe recession the improvement in external balances will be gradual. This means that FX demand in the market will ease, but to a very limited extent. Monthly export-import coverage ratio in March was 64% against 66% in February, which is still one of the highest levels in the last two years. Consumption goods imports, which could start recovering slowly in the coming months, recorded a y-o-y decline of 20% in March (similar to what we have seen in the first two months of the year), while imports of intermediate goods registered a 1% y-o-y decline in March (slightly weaker compared to February). Investment goods imports, which account for 15% of total imports, recorded a 6% y-o-y decline (again weaker compared to February). On the other hand, when we look at the product breakdown of imports, we see that energy imports posted a 26% increase in March, as it was the case in the last three months. However, it is worth to note that almost all non-energy sectors' imports contracted in March, which could bolster hopes of a sharper rebalancing. For instance, motor vehicle imports recorded a 29% y-o-y decline. On the export front, we see sharp increases in precious metal, energy exports and furniture, which boosted total exports and made a surprise. We observe that rising exports to Africa (Libya up by 513% y-o-y, Egypt up by 106%) contributed positively to overall export performance. It is clear that the normalization in economic activity in March persisted. For March, we expect monthly current account deficit to be around US$6.0 bn, which will bring 12-month rolling C/A deficit from US$75.3 bn to around US$71.7 bn. We still think that the C/A deficit to GDP ratio in Turkey will improve from 10% in end-2011 towards 8% by the end of this year and March data will support that view. But we should also note that in March some one-off factors will contribute as well, such as last year in March GE took out its dividend (worth of around US$1.1 bn) after its Garanti stake sale to BBVA, which will not be there in 12-month rolling C/A deficit in this March. |
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| 5. CEE Insights |
| Erste |
| April 30, 2012 For the CEE region, the overwhelming event was the breakthrough in the conflict over the Hungarian Central Bank Law. Although some speed bumps are still in sight, the start of formal talks between the government and the EU/IMF has moved much closer. Hungarian assets drew great strength from this development and probably also neutralized spillovers onto other CEE assets from international market sentiment, which had become more negative, due to worries about fiscal consolidation in Spain and elevated political risks. Governments are faring very differently in these difficult times: the Dutch government fell this week, the collapse of the Czech government was only averted at the last minute, and, this afternoon, the Romanian government lost a no-confidence vote, which means lost time until early elections can take place. The previously expected rate cut of the Romanian central bank is no longer our call. Even though there are political changes pending, we do not see governments going for fiscal loosening, because the pressure by markets and international frameworks such as the European Fiscal Compact demands discipline. However, as can be seen from the answers to our Question of the Week, governments may start looking for simplistic ways of fiscal adjustment - going for revenue hikes, as in Hungary and Slovakia, which can erode growth potential in the long term. The Eurostat figures for the budget deficit last year turned out better than expected in the CEE countries, but offered a slightly negative surprise for Romania, where the deficit came in at 5.1% in ESA95 terms, instead of the expected 4.8%. Question of the week A possible socialist French president, the fall of the Dutch government and a political crisis in the Czech Republic... Will CEE governments stay the fiscal course? Croatia: The newly elected coalition government has a comfortable majority in the Parliament and thus has the capacity to back the recently presented mid-term fiscal consolidation with the 2014 deficit targeted within the Maastricht criteria deficit target. Tackling structural weakness remains a challenge along the way, with the coming quarters to reveal the extent to which the new government will opt for unpopular moves. Czech Republic: The political crisis in the Czech Republic has been averted at least for now. Although the government lost its clear majority and will from now on operate with a majority of only a few MPs, its austerity drive is likely to continue. Even if the government were to collapse and be replaced by the left-wing Social Democrats, the current environment (bond markets) would likely be quick to keep any potential spending in check. A left-wing government would in all likelihood change the structure of the measures (more taxes on banks, high-income individuals) but would not change the overall direction. Hungary: In Hungary, it is very unlikely that there will be any possibility to deviate from the fiscal austerity path, or that the current government will try to loosen fiscal policy. The latest fiscal package released this week targets 0.5% and 1.4% of GDP additional decreases of the fiscal shortfall for 2012- 13, respectively, and this may be enough to keep the deficit below 3% of GDP. What is more concerning is the structure of the measures and, in connection with this, the quite poor potential growth outlook for Hungary. The plan relies strongly on revenue increases, aimed to trim the effect of ceasing windfall taxes next year, while we also see execution risks for the spending cut part of the package. Thus, while the size of the package may be enough to reach the deficit goals, the above also indicates that the high level of state expenditure is not being reduced too quickly. Even excluding interest payments, state expenditure to GDP is nearly 45%, about two percentage points higher than the Czech and Polish figures, while it strongly exceeds the much lower Slovak and Romanian numbers. This, combined with the still low participation rate (around 56%) and general uncertainty stemming from the recent economic policy track record, is perhaps an even greater problem than the simple level of the fiscal deficit, even if fiscal discipline is something that Hungary lacked in most of the 2000s. Poland: As it is shortly after the elections, the Polish government is not under any pressure. There are also a few more reasons why they do not need to change their determination. The austerity measures are not so painful in Poland, as the decent economic growth helps to decrease the budget deficit. Moreover, it seems that Poland is already through the worst. The deficit has already declined from 7.8% of GDP in 2010 to an expected 2.9% this year. Given the fact that Poland has spending limits linked to its debt to GDP ratio in its Constitution, any other government would need to employ austerity measures in any case. Romania: The recent data released by Eurostat about the deficit of the consolidated state budget in Romania in 2011 (5.2% of GDP, above the target agreed with the EU), the planned increase in public wages in May or June and downside risks to the economic growth forecast make the achievement of the 3% budget deficit target very difficult in 2012. Nevertheless, we think that fiscal consolidation efforts will continue after the parliamentary elections scheduled for November and the precautionary stand-by arrangement with the IMF and EU will stay on track. The Socialist and Liberal opposition has a narrow range of economic alternatives, if it comes to power in the context of the European fiscal compact. The budget deficit could stay at 3.4% of GDP in 2012 in a rather optimistic scenario - still a big improvement compared to the previous years. Slovakia: The new government has so far stuck to the aim of fiscal deficit reduction towards 3% of GDP in 2013. Discussions about measures are ongoing right now, so it is too early to say whether they will be sufficient in order to meet the target. The government aims to find the necessary sources on the revenue side and only a little via expenditures cuts. Often- mentioned are higher taxes for big companies, banks and people with higher income. Ukraine: Social policies remain the key program message, even from the ruling political party, which mainly represents the net tax-payers. However, the government's austerity measures are more a necessity than a choice. There is simply not enough money available to borrow for the state budget to be run with a deficit. |
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| 6. Fears about Spain continue to mount |
| Daiwa |
| April 30, 2012 While concerns about the Netherlands have been put to bed for the time being, fears about Spain continue to mount. Last weeks two-notch downgrade of its sovereign rating shouldnt have come as a surprise. But the ongoing deterioration of the economy and rising expectations that a new bank restructuring scheme will be required possibly funded with EFSF assistance means that Spain will remain centre-stage this week. Indeed, today brings Spanish GDP data for the first quarter of 2012, which are expected to align with the Bank of Spains forecast of -0.4%Q/Q. And Thursday brings the latest Spanish bond auctions, of 3Y and 5Y paper. Thursday also brings the conclusion of the ECBs latest interest rate-setting meeting. Draghi is likely to repeat his previous stance that the ECB is not in a position to announce any additional policy exceptional measures to support troubled euro area markets and economies, at least for as long as it continues to assess the impact of the LTROs. But his assessment of recent economic data and surveys which have taken a turn for the worse at the start of the second quarter will also be worth watching. On the data front, meanwhile, in addition to the Spanish GDP data, the highlight today will be the first estimate of euro area CPI inflation for April, which we expect to fall by 0.2ppts to 2.5%Y/Y on lower energy and core inflation. The latest euro area MFI balance sheet data, which will show how banks have used the ECBs LTRO funds in March, are also due today. And we have already seen some better-than-expected German retail sales figures, showing growth of 2.3%Y/Y in March, up from a revised 2.1%Y/Y in February. While there are no top-tier data due to be released tomorrow a national holiday in many European countries the flow picks up again on Wednesday with the final estimate of the April manufacturing PMIs for the euro area together with the latest unemployment rates for the euro area and some of its member states including Germany. The first estimate of Belgian GDP for Q112 and Italian budget data for April are also due on Wednesday. On Thursday, meanwhile, euro area PPI inflation for March is due, while the week ends on Friday with the release of the final estimate of the April services PMIs and March retail sales figures for the euro area. Finally, back on the supply side, ahead of the coming weekends second-round Presidential election, the latest French sovereign bond auctions will be held on Thursday. |
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| 7. Where will the FDI flow next? |
| RBS |
| April 27, 2012 - The last decade saw a huge surge in FDI inflows into Emerging Markets driven by ample global liquidity and strong economic growth. In effect, the period 2002-2008 proved a true FDI boom with the 21 EM economies subject to this review attracting a cumulative USD2.1tn in gross inflows. - While historically the assumption had been that FDI flows are sticky and durable through crises, the severity of the ensuing global financial crisis led to a considerable fall in inflows in all three EM regions. The most badly hit was CEEMEA given its reliance on bank-related flows while Asia and Latin America generally enjoyed robust recoveries in 2010. - Looking at the drivers of FDI over the last decade, we observe that investor-friendly business environments are key to attracting flows. Interestingly, labour costs do not appear to have played a significant role while the education of the labour force has. In addition, we find signs of a shift in focus of direct investors, with commodities now an important driver of FDI. - Looking ahead, we anticipate a generally weaker FDI backdrop in CEEMEA, driven by a dearth of commodities while the countries with enviable commodity endowments such as South Africa and Russia will struggle due to difficult business environments and lack of infrastructure. That said, we are relatively bullish on Turkey, Israel and the Czech Republic, the latter two especially providing sound investment environments, highly skilled workforces, and able to attract FDI in higher-value manufacturing. - Commodity-rich Latin America is also set/likely to outperform on the FDI front as direct investment out of Asia intensifies. The one country where the outlook is a little more challenging is Mexico given strict restrictions over foreign ownership, especially in the oil and gas sector. - Asia will likely see a divergence between maturing economies seeking to attract FDI in the services sector, poorer countries with more difficult business environments drawing investment in lower-value manufacturing and commodity-rich countries in the primary sector. Importantly, China's appeal from a manufacturing FDI perspective is waning, suggesting that it will have to compete for FDI in its growing services sector. A successful transition will require a significant improvement in the business environment which is yet to occur. Countries which should outperform on FDI front are Indonesia, Malaysia, Singapore and the Philippines. Conventional wisdom claims that Foreign Direct Investment (FDI) has a positive impact on the host country's economy, providing direct capital financing and enhancing productivity through the introduction of new technology and the transfer of foreign know-how, training and work ethic. Such positive externalities depend on a country's capacity to take advantage of FDI, dictated by local conditions such as the depth of financial markets, local education, and the prevention of foreign knowledge/trade secrets spillovers by foreign firms. As such, the extent of positive spillovers from FDI on a country's economy will depend on its absorptive capacity. In this piece, we review FDI trends in Emerging Markets before searching for the drivers of FDI and FDI absorption in order to ascertain which countries in our EM coverage are most likely to benefit from FDI flows in the future. FDI is also particularly important with regards to balance of payment funding, and consequently FX performance, as it tends to provide a stickier, more reliable source of funding than flightier portfolio, or even other investment flows. Recent trends: a tale of regional and intra-regional divergence The last decade saw a huge surge in FDI inflows into Emerging Markets driven by ample global liquidity and strong economic growth. In effect, the period 2002-2008 proved a true FDI boom with our sample of 21 leading EM economies attracting a cumulative USD2.1tn in gross inflows. While historically the assumption had been that FDI flows are sticky and durable through crises, the severity of the ensuing global financial crisis led to a considerable fall in inflows in all three EM regions. The subsequent recovery proved disparate with both Asia and Latin America enjoying a full recovery in FDI inflows while flows to CEEMEA remained subdued. One key reason herein is the latter region's over-dependency on bank-related FDI which was disproportionately affected by the crisis. On the other hand, Latin America has benefitted from its substantial commodity endowment while Asia's solid domestic growth dynamics have likely helped attract a larger piece of the global pie. Amazingly, inflows into both Asia and Latin America are now higher than pre-crisis (12m rolling basis), a reflection of the two regions' solid recoveries. That said, the below chart depicts marginal slowdowns in both regions since H2 2011, reflecting concerns over global growth in the second half of last year. In CEEMEA, the recovery has so far proved more subdued with annualised inflows still ~30% below their pre-crisis peak. The banking nature of FDI inflows into CEEMEA pre-2008 coupled with a visible process of 'slow grind' bank deleveraging in the region due to the weaker health of the European banking system suggest flows will be much slower to bounce back than in the two other regions. Looking at Asia in more detail, the strongest post-crisis recoveries in FDI inflows have taken place in Indonesia, Malaysia, Singapore and China with all countries enjoying 12m rolling cumulative flows above pre-crisis peaks. Proactive policy efforts at the country level have been a key contributor to this success. Indonesia in particular has sought to liberalise an increasing number of industries and improve FDI-related administrative procedures. The 2007 Investment Law has proved key herein, allowing for tax incentives for new and existing foreign businesses partnering with local entities and to companies venturing into rural areas to develop innovative industries. Singapore for its part has benefitted from its status as a leading global financial centre, harnessing gains from increasing investment across Asia while China's workforce continued to prove attractive. That said, rising wages and production costs in China may be contributing to a recent slowdown in inflows while divestments are actually occurring from the more 'developed' coastal areas. The nature of FDI into China is also changing towards high-tech and real estate (50% of FDI inflows in 2011 were in real estate). On the other hand, FDI inflows into Thailand, Taiwan, Korea, India and the Philippines have failed to rebound beyond pre-crisis highs. The worst performer on this front is Taiwan where FDI inflows are generally low as a percentage of GDP but have actually turned negative since the beginning of last year, indicating foreign repatriation of capital. Taiwan is a relatively mature economy, home to many world-class electronics companies. As such, Taiwan enjoys an oversupply of capital and is a net exporter of FDI with FDI outflows running at around 3 times the amount of inflows over the last 10 years. The story is very similar in newly industrialised Korea where FDI inflows are dwarfed by FDI outflows. The same cannot be said for India where recent underperformance is acutely linked to general macroeconomic concerns (fiscal deficit, high inflation and wide budget deficit) as well as indecisiveness over economic reform. The latter is perfectly illustrated by the recent debacle over the keenly anticipated liberalisation of the retail sector which was reversed due to insufficient political support. Of the four countries in our Latin America coverage, only Mexico has failed to enjoy a recovery of FDI inflows above pre-crisis highs. One possible explanation is that FDI into Latin America has recently focused on the primary sector (i.e. commodities) and been driven by Asian countries (mostly China and India) while Mexico has the smallest commodities balance out of the four countries. Indeed, Asian firms had been only marginal investors in the region until 2010 with their activity mainly confined to Greenfield projects. In 2010 however, Latin America witnessed a surge in investment from Asia, with acquisitions jumping to USD20bn, driven by resource-seeking China and India. Brazil has clearly been the largest beneficiary of this trend with 12m cumulative FDI inflows rising from a pre-crisis peak of USD45bn to USD76bn in Q3 2011 but Chile and Colombia also appear to have benefitted. The CEEMEA region's underperformance on the FDI front is neatly illustrated by the fact that none of the countries in our CEEMEA universe have enjoyed a recovery of inflows above pre-crisis levels. The countries which suffered the most during the crisis were those where a prevalence of FDI flows were bank-related such as Romania, Turkey, Poland and Hungary. Many Europeans banks were attracted to the CEEMEA region because of relatively low levels of banking development/penetration and increasing living standards and credit demand. We estimate that during the period 2005-2008, as much as 40% of FDI inflows into the region were bank-related, typically acquisitions rather than through organic growth. Clearly, this source of FDI has almost entirely dried up, leaving a significant void and suggesting some countries will find it difficult to attract similar levels of FDI as before the crisis. Other countries with a strong foreign manufacturing base such as the Czech Republic and Israel enjoy a more reliable source of FDI in the form of reinvested earning which helps explain their more solid recoveries. One interesting case is Russia where FDI inflows have failed to recover to 2008 highs despite the country's huge primary resource base. While the authorities acknowledge the need for Russia to attract more FDI (FDI inflows are relatively healthy at 3% of GDP but more than offset by outflows of 4% of GDP), foreign investors continue to face a challenging business environment, including institutional weaknesses in the legal system. South Africa appears to suffer similar difficulties in attracting FDI despite its substantial commodity endowment. In fact, FDI inflows are around half the level of Russia's as a percentage of GDP though outflows are significantly lower leaving net FDI in positive territory (currently 1.4% of GDP). Low productivity and lack of infrastructure are mainly to blame herein, as the manufacturing base has become uncompetitive due, in part, to significant union power while the infrastructure bottlenecks prevent commodities from being easily transported to ports. What drives FDI? Having reviewed past FDI trends in our EM universe we now seek the drivers of FDI in order to assess countries' FDI potential going forward. The 'chunky' nature of FDI means the choice of destination is paramount and carefully evaluated on the basis of many factors. Intuitively, one of the key drivers of FDI should be the host country's business environment, namely the ease of operating in the country, the degree of regulation/taxes, property rights and rule of law. Does this hold in practice? According to the Heritage Foundation's Economic Freedom Index (EFI), Singapore, Chile, Taiwan, Korea, Mexico and the Czech Republic had the most "free" economies in our EM universe in 2005, thanks to low taxes, low corruption, established property rights, and minimal business regulation. On the other side of the spectrum, Turkey, Russia, China, India, Indonesia and Romania had the least "free" economies, weighed down by trade tariffs, corruption and weak rule of law. Herein the chart below depicts a significant positive relationship between the EFI and gross FDI inflows during the EM FDI boom (2002-2008) with the most "free" economies tending to enjoy larger FDI inflows in the period and the least "free" less. For instance, Singapore which has the highest EFI score in our spectrum managed to attract FDI equivalent to around 50% of GDP in the seven year period, five times as much as China or Russia. There are interesting discrepancies however, with both Korea and Taiwan for example having only managed to attract inflows equivalent to 2.7% and 5.6% of GDP respectively despite supportive business environments. This may be explained by the fact that both countries are relatively developed and capital rich while quite poor in terms of labour supply. In fact they are the two only countries in our Asian universe which consistently experienced net FDI outflows over the last 10 years, suggesting already sufficient capital at home. It is also possible their more expensive labour force (particularly Korea), especially relative to China, dissuade foreign direct investors. Overall though, the chart does suggest that countries with the most business-friendly environments should be most successful in attracting FDI over the next cycle. Intuitively, a key driver of FDI should also be labour costs, which should matter particularly in the manufacturing sector. We gather hourly manufacturing compensation costs for 10 EM economies where the data is available and plot it against pre-crisis FDI inflows. The chart (see below) suggests there is basically no relationship between the overall FDI surge and manufacturing labour costs. While this appears counterintuitive at first glance, it reveals the higher risk involved in investing in most low labour cost economies, while cost is obviously not the only metric used when assessing a country's labour force from a direct investment perspective. For instance, while the Philippines enjoyed one of the lowest manufacturing labour costs between 2002 and 2008, it also suffers a low score on the EFI suggesting difficulties with respect to rule of law, corruption, and property rights. Overall, this indicates that low labour costs will likely not determine FDI flows over the next business cycle. Indeed, other factors must drive the overall attractiveness of a country's labour force. In particular, education should play an important role, given its significance for a country's overall productivity. The below chart indicates a positive relationship between pre-crisis FDI inflows and education, measured by the population's average years in schooling. The Czech Republic, Hungary and Israel had the highest education levels out of our EM economies in 2005 and also enjoyed FDI inflows at or above 20% of GDP between 2002-2008, whereas India, Indonesia, Turkey and Brazil had some of the lowest education levels while only managing to attract FDI inflows below 10% of GDP. Once again, Taiwan and Korea come out as the biggest outliers with their ample supply of domestic capital likely the key reason herein. Removing both these economies from the scatter chart (given their more developed status) reveals a much tighter and significant relationship, suggesting a clear positive connection between education and FDI flows. Looking ahead, one would expect education to play an even bigger role as manufacturing becomes more complex and economies choose to move up the value chain. Besides human capital, economies with an endowment of natural resources may also be more fruitful in attracting FDI, as foreign companies help fund the exploration and development of the infrastructure for these resources. The most striking example at present is how the Africa-China relationship has been built, with many commodity rich African countries consenting to China extracting natural resources for its fast-growing economy in exchange for direct investment in infrastructure. The chart below plots FDI inflows against countries' commodity balance (energy, softs and metals) for the periods preceding and following the 2008 financial crisis. The comparison between the two different periods is striking with the post-crisis chart displaying a clear positive relationship between FDI inflows and commodity net exports while the same chart for the 7 seven years preceding the crisis shows no relationship at all. This is extremely interesting in that it suggests much more of a focus on commodity-related FDI post-crisis, and helps partially explain why CEEMEA has underperformed since 2009. Given the growing importance of Asia and in particular China in global FDI flows, we would expect commodities to remain a significant driver of FDI in the future. Where will the FDI flow next? The above analysis suggests that countries with business friendly operating environments and a well educated workforce should prove more attractive to foreign direct investors over the next business cycle. In addition, given the changing nature of FDI with a larger focus on commodities, we would also expect commodity-rich economies to outperform. In Asia, Singapore should remain at the top of the class in attracting FDI, reaping the benefits of a stable, market-friendly business environment, strong rule of law and its status as the leading financial centre in Asia. Indeed, one of the key drivers of FDI in Singapore will likely be its dominance in Asia as a financial hub which will enable it to benefit from investment across Asia. Furthermore, the process of establishing a foreign-owned liability company is the fastest in Asia with the entire procedure talking just 9 days, making Singapore even more attractive from a regional perspective. The stability of its political system in comparison to the rest of Asia should also help cement its status as a regional safe haven. The other two 'advanced' Asian economies, Korea and Taiwan should prove less attractive despite their sound business environments and educated workforces. For example, despite a high EFI score foreign equity ownership restrictions are actually relatively stringent in Korea with the country imposing limits in the telecommunications, electricity, media and transportation sectors. This could therefore limit FDI in several services sectors whilst the country is commodity poor, making it irrelevant for FDI in the primary/commodity sector. Meanwhile, China is already witnessing a slowing in FDI inflows as its low value manufacturing base becomes uncompetitive relative to other south-eastern Asian countries. The country will need to drastically improve its openness to FDI if it is to enjoy inflows in the future. Indeed, the country continues to score poorly on the EFI while its rules for foreign direct investors are amongst the most stringent in our coverage. For instance, it takes 18 procedures and 99 days to establish a foreign-owned limited company in Shanghai while foreign equity ownership is strictly regulated, in particular in services industries. Sectors such as publishing and television broadcasting are completely closed to foreign ownership while other sectors such as telecommunications, electricity, oil and gas, transportation and even financial services suffer restrictions with regards to foreign ownership. While the majority of FDI into the country has so far been in the manufacturing sector where restrictions are lighter, the decreasing allure of China from a manufacturing perspective means the country is at risk of suffering a decrease in FDI inflows in coming years. Another BRIC where the FDI outlook is clouded is India which continues to suffer from a poor business environment (2012 EFI in bottom 3 with China and Russia) and severe restrictions on foreign investment. Like China, foreign equity ownership restrictions are rife in the services sectors while it is actually prohibited in the agriculture sector. Coupled with a dearth of commodities, this means the country will find it hard to attract FDI in coming years, without comprehensive reform. Indonesia and Malaysia, the only two Asian countries with substantial commodity endowments should continue to fare well on the FDI front as long as reform momentum is maintained. Malaysia scores relatively well on the EFI, almost on a par with Hungary and Israel, reflecting a relatively liberal economy and generally good business environment. Indonesia scores less well on the EFI, despite undertaking wide-ranging reforms to address various structural weaknesses in the economy and improve competitiveness. Significant restrictions are still in place with regards to foreign ownership while starting a foreign business in Indonesia is a relatively slow and complicated process lasting 86 days (Jakarta). That said, there is substantial appetite to invest in Indonesia given the country's significant commodity endowment and strong domestic growth meaning a continuation of the reform drive (recent tax reforms are encouraging) should provide an underpinning to increasing FDI inflows. One country where FDI inflows have disappointed over the last cycle is the Philippines, where cumulative inflows over the period 2002-2008 only reached 5.3% of GDP. The country is amongst the strictest in Asia with regards to foreign equity ownership with severe limitations in both the service and primary sectors. The country also performs quite badly on the EFI, yet the business environment is showing signs of improvement. Indeed, the government has pursued a series of legislative reforms to enhance the entrepreneurial environment and develop a stronger private sector. The authorities recently launched its Public-Private Partnership Centre to facilitate the coordination and monitoring of PPP projects. Thus, the outlook for FDI is gradually improving in the Philippines, meaning the next cycle may prove more fruitful. Given its commodity backdrop, we would expect Latin America to continue to attract healthy FDI flows over coming years. The star performer so far has been Brazil as Asian countries have made significant acquisitions in the primary sector. Generally, Brazilian legislation grants equal treatment to foreign and domestic companies although there are ownership restrictions in the air, media and health care sectors. Note that it remains time-consuming and costly to launch and close a business (166 days for foreign businesses) which perhaps explains why a large proportion of FDI have been through acquisitions. Also note there have been concerns recently over the actual nature of FDI with speculations that taxes on foreign portfolio flows are leading investors to disguise investments as FDI flows but which are ultimately parked in financial instruments instead of the real economy. Brazil scores relatively poorly on the EFI given weaknesses with regards to corruption and property rights as well political influence in the judicial system which could undermine FDI in the medium term. Thus while the outlook generally remains bright for Brazilian FDI, especially thanks to its large commodity endowment, there are risks that the recent pace of increase in flows cannot be sustained without meaningful reform. On this front, both Chile and Colombia fare much better, enjoying significantly higher EFI scores (Chile only second to Singapore while Colombia is better than Israel but just below the Czech Republic) while both countries are amongst the most open with respect to foreign ownership with almost all sectors fully open to foreign capital participation. Moreover, both countries are commodity rich with Chile the largest copper miner in the world and Colombia enjoying significant oil and coal endowments. Thus these countries should continue to prove attractive to foreign direct investors. The one Latam country where the FDI outlook is slightly less rosy is Mexico where despite a healthy commodity backdrop (especially oil), foreign investment is heavily regulated. Indeed, Foreign Investment Law sets out a list of strategic sectors which are either closed to foreign capital participation or in which foreign ownership is limited. Moreover, Mexico imposes restrictions not only in services but also in primary sectors such as the oil and gas industry which has so far been completely closed to foreign ownership. Note however recent comments from the two main presidential elections runners Pena Nieto and Vazquez Mota who suggested Mexico may allow private investment in its oil and gas sector for the first time in 74 years. As has been clear over the last three years, the region where the FDI outlook remains the most challenging is CEEMEA given its dearth of commodities (exceptions herein are Russia and South Africa) and the fact that a large proportion of pre-crisis FDI inflows was from Western banks which has almost completely dried up. Looking at the CEEMEA region in a little more detail, we would expect the Czech Republic and Israel to fare relatively better than Balkan economies such as Romania over coming years, helped by relatively sound business environments and highly skilled/educated workforces. Indeed, these countries, especially Israel, have a solid track record of attracting investment in high value-added sectors such as high-tech, thanks to their skilled workforce. Israel is also set to benefit from FDI into recently discovered gas fields, capable between them of meeting Israel's current gas consumption for over 200 years. Cognisant that the region is fighting for a smaller FDI cake generally, the Czech Republic plans to expand the breadth of its tax incentives law. The law applicable to both foreign and domestic investment currently allows no tax to be paid on 40% of investments in manufacturing above CZK100mn for 5 years. The new amendment will extend the incentive to 10 years and will encompass other strategic services such as tech hubs, not just manufacturing as was previously the case. South Africa and Russia, the two commodity-rich CEEMEA economies will need to improve their business environments and infrastructure if they are to enjoy a healthy FDI recovery. Russia suffers the worst EFI score in our EM universe, weighed down by extensive state interference in the economy, corruption and limited respect for property rights which undermine the rule of law and increase investment risk. Indeed, Russia has a track record of strained relations with foreign investors after a spate of high profile cases where direct investors were left with the impression that the Russian national strategic goal had changed to increasing the role of the Russian state. Barring substantial economic reform, we believe the country will continue to face difficulties in attracting FDI, despite its large oil and gas reserves, and indeed will continue to suffer FDI "flight" (reflected in disappointing net FDI flows) as domestic Russian enterprises look to invest directly overseas - a reflection of the poor domestic business environment. The story is perhaps slightly more favourable in South Africa which enjoys a better business environment while contracts are generally secure. The main trouble in South Africa is a lack of infrastructure which prevents adequate transportation of commodities. However, these infrastructure bottlenecks are improving while the authorities are keen to stimulate FDI into the services sector. We anticipate that the country will benefit from increasing investment in Africa as investors use it as a portal to the rest of the continent. Finally, we maintain a relatively bullish on the outlook for on FDI flows into Turkey given its openness to foreign investment, perceived favourable long-term demographics, combined with its recent strong track record for delivering high paced real GDP growth and rising living standards. Turkish law on FDI, meanwhile, provides equal treatment for foreign and direct investors, albeit foreign capital participation is limited in a few strategic sectors such as air transportation. In addition, setting up a foreign-owned company is typically straightforward and takes only 8 days. Herein the government is prioritising FDI, having a specific agency (Invest in Turkey), attached to the prime ministry, to promote FDI inflows, which aims to help foreign direct investors overcome bottlenecks to their operations. A long list of assets slated for privatisation - particularly in energy and infrastructure - should also underpin inflows over the next few years. Other bottlenecks in Turkey's case remains skill shortages - reflective of weaknesses in the education system still - despite the large, growing and young population. Interestingly, Turkey's key vulnerability perhaps at present is its close proximity to Europe, with broader appetite to invest in Europe much diminished as a result of the European periphery problem, and the perception of the region as low growth, and crisis prone -albeit Turkey has arguably now broken away from this regional typecast. This latter vulnerability has been seen by the marked drop in FDI inflows into Turkey since the one-set of the global financial crisis, albeit they are now showing some signs of recovery. |
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| 8. Labour Day will push down liquidity in the early part of the week in CEEMEA |
| TEB |
| April 30, 2012 Liquidity in the early part of the week will be below average as many countries in the CEEMEA space celebrate the Labour Day. As its the beginning of the month, the only data releases of note will be PMIs, which we generally expect to have come off in April. Hungary will remain in the spotlight and we sit with our long positions in front-end €Rephuns and 2s5s CDS steepeners. What worries us a little bit is that the market expects an imminent start of talks with the IMF. Our last weeks visit to Budapest indicates, however, that chances of that happening before the summer are slim. This is simply because we still await a couple of important decisions from Brussels, namely restoring of the structural money flows and removing Hungary from the Excessive Deficit Procedure. Both should be done by 22 June. That being said, we think the situation is moving towards positive resolution and we would buy Hungarian assets on dips. In the cross-regional comparison we believe that PLNHUF has room to move to the downside towards 67.00 in the coming weeks. In Romania, the government did not find sufficient support to win the confidence vote on Friday. While surprising, we do not think it will have broad-based repercussions for the markets. In fact, EURRON trading at 4.39 will probably attract sellers considering the NBR has been actively defending this area in recent months. Later on in the week the focus will shift towards the CPI release in Turkey and the rate decision in the Czech Republic (both on Thursday). Governor Basci was trying to downplay the importance of the April CPI release by focusing on May and we think the market will follow this logic despite another very high number. At a margin, we still prefer to be paid in the belly of the curve. In the Czech Republic, the central bank will leave rates on hold but we are beginning to see renewed hawkish comments from some MPC members, which could bring some paying pressure towards the front end, particularly as its trading almost flat to PRIBOR fixings. We continue to like ASWs on the back end of the curve. |
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| 9. Location, location, Lokata |
| bne |
| April 30, 2012 In the middle of April, Germany became the latest source of investment for Russia's budding e-commerce market. Germany's Bonial International Group has teamed up with Russia's leading internet firm incubator Fast Lane Ventures to create Lokata - a location-based service combining retailers' virtual catalogues, maps, and offline shop details. Lokata is based on Bonial's German service kaufDa, which was a big hit in Germany with 32m unique users each month and 1.2m downloaded mobile apps. The service allows punters to find the nearest shop carrying the products they are looking for, provides the vendors' opening hours and contact details, and generally makes it easier to shop. Stores can be found using search filters by products, retailers, and brands. Lokata is already nationwide and comes with all the bells and whistles you'd expect: a free mobile app released on iPhone, iPad, and Android devices. Bonial followed up its German version with a French version Bonial.fr, but now it's time to conquer Russian market, say the founders. "There are two reasons why Bonial decided to enter Russian market now," says Christian Gaiser, head of Bonial and kaufDa's creator, in an interview with bne. "The first reason is the high level of internet penetration in Russia: there are 60m internet users now. The mobile devices are getting more popular and the number of mobile internet users is growing fast. The second reason is that the retail structure in Russia is similar to that in Germany and France, and Bonial's biggest European partners Auchan and OBI - operate in Russia as well." Click to read more |
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| 10. Montenegro looks to Middle and Far East |
| bne |
| April 30, 2012 As a tiny, mountainous country with fewer than 650,000 people and scarce few natural resources in a relatively poor and troubled part of Europe, Montenegro would strike few as a natural investment magnet. But the statelet, independent only since 2006, has undertaken a concerted promotion drive across the world to raise its profile, while carrying out reforms to enhance the domestic business climate to attract new international investors like those from the Middle East and China. While this strategy springs as much from recognition of the country's weaknesses and vulnerabilities, it has also sought to capitalise on competitive advantages, particularly in tourism. Nonetheless, the success of the coast is in contrast to relative underdevelopment in the interior. Montenegro may have one of the world's fastest-growing tourism industries, but other sectors lag behind. The lack of productive export-oriented industries is reflected in a yawning current account deficit; the International Monetary Fund (IMF) and World Bank urge further reform. Critics of the Montenegin government (and its independence from Serbia) argue that this is a luxury villa built on sand, and darkly suggest that the statelet is somewhat shady. Click to read more |
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| 11. Disabled people face obstacles in exam in Turkey |
| Hurriyet Daily News |
| April 30, 2012 Participants in Turkeys first Disabled Civil Servants Exam (OMSS) in the central province of Tokat encountered serious hurdles entering the classrooms and exam halls yesterday, as the schools lacked facilities and equipment to assist the handicapped. It says third floor for the disabled test on the exam paper. I mean it would be good if we thought things out a little better when we [attempt] to do something, said Hamdi Tarim, who carried his orthopedically handicapped brother Gultekin Tarm up to the third floor at the Mehmet Akif Ersoy Anatolian High School in Tokat. Click to read more |
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| 12. Turkey regaining ecological richness through new project |
| Hurriyet Daily News |
| April 30, 2012 Nature-lovers in Turkey are welcoming back some of the countrys ecological treasures thanks to new projects that are designed to regain some of the countrys biodiversity, particularly in wetlands. The wetland areas are like open-air museums, Natural Preservation and National Park Association General Manager Ahmet Ozyanik recently told Anatolia news agency. Turkey is now one of the richest countries in terms of wetland areas. Click to read more |
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| 13. Turkish man marries niece, disappears |
| Hurriyet Daily News |
| April 30, 2012 A 30-year-old Turkish man married his 24-year-old niece in Istanbul before disappearing with her once their familial relationship was revealed, daily Habertrk reported. The woman, a university student, ran away with her uncle when her parents found out about her marriage, still unaware that the husband was her uncle. The family learned the identity of their son-in-law after subsequently applying to the relevant authorities. Click to read more |
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| 14. AKPs Turkey no model to Mideast: Opposition |
| Hurriyet Daily News |
| April 30, 2012 The countries involved in the Arab Spring have no need of any regional for the future, the main opposition Republican Peoples Party (CHP) has said, noting that Arab neighbors appreciated the partys stance that Ankara should not interfere in their developments. The Arab countries have as many features in common as they have features that are divergent, CHP Deputy Chair Faruk Logoglu told journalists yesterday at the end of a two-day international conference called Seasons in Change: The Arab Peoples March for Democracy and Freedom that was held by the CHP in Istanbul. Click to read more |
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| 15. May 19 controversy continues in Turkey |
| Hurriyet Daily News |
| April 30, 2012 A political debate over how to celebrate May 19, the day marking the beginning of the War of Independence in 1919, between the government and opposition parties has deepened after a court annulled a government decree to limit the scope of the celebrations. No one should dare to discipline or brandish us like a tutor over May 19 celebrations anymore, Prime Minister Recep Tayyip Erdogan said in his address to the Justice and Development Partys (AKP) Youth Branches yesterdau. Erdogans words came as a criticism of a Council of State verdict that annulled the Education Ministrys decree restricting mass celebrations outside Ankara. Click to read more |
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| 16. Turkeys opposition thanks Cicek for his efforts on deputies in jail |
| Hurriyet Daily News |
| April 30, 2012 The main opposition has voiced its gratitude to the parliamentary speaker for launching an initiative to release jailed lawmakers even as Prime Minister Recep Tayyip Erdogan played down hopes for a solution. I thank Cemil Cicek for his efforts and for the contribution he has made for arrested deputies, Republican Peoples Party (CHP) leader Kemal Kilicdaroglu told reporters yesterday in Istanbul after an international conference on the Arab Spring process organized by his party. Click to read more |
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| 17. Panel for new charter starts landmark duty in Turkey |
| Hurriyet Daily News |
| April 30, 2012 Turkeys Constitutional Reconciliation Commission will begin penning down the contents of the first civilian constitution starting tomorrow following a six-month-preparatory process on the charter. The peoples expectations will be decisive in penning down the new constitution, Parliament Speaker Cemil Cicek said April 28. Click to read more |
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| 18. Greek ships wait for Turkish investors: Shipping magnate |
| Hurriyet Daily News |
| April 30, 2012 Debt-hit Greek maritime companies have much to offer Turkish investors, says a leading Greek maritime businessman. Meanwhile, Turkish companies are seeking cooperation opportunities with the neighboring country Gerassimos Agoudimos, a leading Greek ship owner, has called on Turkish investors to buy ships from his country, as the prices have nearly halved due to the ongoing economic woes. Some Greek transporters were ready to sell ships worth between 80,000 and 100,000 euros at half their prices because of the hardships they face paying back their loans, the owner of GA Ferries said, according to a note by the Turkish Transport, Maritime Affairs and Communications Ministry to chambers of maritime trade. Click to read more |
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| 19. Turkish MUSIAD picks new chairman at assembly |
| Hurriyet Daily News |
| April 30, 2012 Nail Olpak, the former deputy chairman of the Independent Industrialists and Businessmens Association (MS?AD) replaced Omer Cihad Vardan as chairman on April 28 at the end of an assembly where nearly 4,000 businessmen were in attendance. Olpak was elected unanimously. Prime Minister Recep Tayyip Erdogan attended the assembly along with many prominent Cabinet ministers including Foreign Minister Ahmet Davutoglu, EU Minister Egemen Bagis, Labor Minister Faruk Celik, Economy Minister Zafer Caglayan, Industry Minister Nihat Ergun and Education Minister Omer Dincer. The prime minister said in his opening speech that MUSIAD has maintained a principled stance on Turkeys democratization and development of democratic standards since its inception, according to Anatolia news agency. I believe with all my heart that MS?AD will support us and make contributions to us in future, as it has in the past, he said. Click to read more |
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| 20. EASA partially suspends Turkish Technic, says Turkish Airlines |
| Erste |
| April 30, 2012 According to airporthaber.com, the European Aviation Safety Agency (EASA) has suspended some Turkish MRO (Maintenance, Repair and Overhaul) companies licenses. Turkish Technic, a 100% subsidiary of Turkish Airlines, is listed among the companies whose licenses were partially suspended. In 2011, Turkish Technic recorded USD 490mn in revenues and generated USD 31mn net income. |
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| 21. Turkish Ford OtosanS higher than expected 1Q12 net profit |
| Erste |
| April 30, 2012 Ford Otosan has reported a TRY 166.3mn net profit for 1Q12 (up 16% y/y, up 7% q/q), thus higher than our expectation of TRY 147mn and the consensus estimate of TRY 138mn. The top line is in line with our expectation, while the announced net profit deviated from our net profit forecast, mainly due to reported TRY 36mn of deferred tax income (from investment incentives), despite lower than expected operational margins. Note that the company reported TRY 31mn deferred tax income for the whole year of 2011. The company sold 18.6k vehicles in the domestic market (down 35% y/y), and exported 55.4k vehicles (up 9% y/y) in 1Q12, representing a y/y decline of 7% in total unit sales (due to strong domestic sales in 1Q11). However, it increased its total revenues by 8% y/y to TRY 2,409mn (our expectation: TRY 2,297mn, consensus: TRY 2,206mn) in 1Q12, thanks to higher prices in domestic market sales, while a strong EUR against TRY reflected in export revenues. Accordingly, domestic revenues declined 23% y/y to TRY 786mn (due to volume contraction compared to the same period of last year, despite higher prices), while export revenues rose 14% y/y to EUR 686mn (thanks to higher volume) in 1Q12. OPEX and financial income&expenses are in line with our expectations, although margins deteriorated this quarter compared to last year due to higher COGS (higher raw material costs) this quarter. The gross margin declined by 2.4pp y/y, while the adjusted EBITDA margin shed by 2.4% y/y from 10% in 1Q11 to 7.7% in 1Q12. Adjusted EBITDA declined 17% y/y to TRY 186mn (our expectation: TRY 209mn, consensus: TRY 199mn). Note that the company reported a TRY 36.6mn provision in its 1Q11 financials for a fine imposed by the Competition Authority, and hence we have adjusted this amount in our comparison. Although EBITDA is below the consensus, both revenues and net profit are above it. The company announced the results during the session on Friday, and so we do not expect any major impact today. The share price outperformed the ISE100 by 3% on Friday, while underperforming by 7% YTD. We will revise our estimates and target price for the company by incorporating recent financial results. |
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| 22. Turkish Aksigorta reported a net profit of TRY 9.1mn in 1Q12 |
| Erste |
| April 30, 2012 Aksigorta reported a net profit of TRY 9.1mn in its 1Q12 consolidated financials, which is slightly higher than our TRY 9.02mn estimate. The companys bottom line implies 44% drop q/q (TRY 16mn in 4Q11), but is significantly higher than the same quarter last year where the company had booked a loss of TRY 6mn. As a consequence, there is a deterioration in the quarterly RoE from 10.5% to 9.1% As we have concerns over the insurance sector in general in terms of profitability and growth, we maintain our Hold recommendation for the company. |
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| 23. Turkish Arcelik to disclose 1Q12 financial results today |
| Erste |
| April 30, 2012 We expect Arcelik to report a TRY 118mn net profit for 1Q12 (consensus: TRY 130mn). We expect it to announce TRY 1,954mn in revenues (consensus: TRY 1,989mn) and TRY 228mn EBITDA (consensus: TRY 215mn), with an 11.6% EBITDA margin for 1Q12. |
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| 24. Turkish TAV Airports Holding says Aeroports de Paris receives necessary approval from Competition Authority |
| Erste |
| April 30, 2012 TAV announced that the Competition Authority granted the necessary approval regarding Aeroports de Paris (ADP) acquisition of TAVs 38% stake. On March 13, 2012, ADP and TAVs main shareholders (Akfen Holding, Tepe Insaat and Sera Yapi) agreed on a 38% stake sale for a total consideration of USD 874mn. ADP applied to the Competition Authority to receive permission for the share transfer. We expect no impact on the share price, as this was an expected outcome. |
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| 25. Turkish Albaraka Turk reported a net profit of TRY 39mn in its 1Q12 |
| Erste |
| April 30, 2012 Albaraka Turk reported a net profit of TRY 39mn in its 1Q12 bank-only financials, which is slightly below our TRY 45mn estimate and far below the consensus forecasts of TRY 50mn. The bank 1Q12 bottom line corresponds to 22% q/q dive over 4Q11 (TRY 50mn) and 5% annual drop. At a first glance the deviation mainly stems from higher than expected loan loss provisions, while the other P&L participants are broadly in parallel our forecasts. The banks quarterly RoE declined to 15.3% in 1Q12, which was 20.6% a quarter earlier. Volume growth was strong. In the underlying quarter, the bank expanded its loans by 6.5% q/q in FX terms, above the participation banks average of 5.8%. The growth was mainly funded by FX funds collected which grew by 6.5% in the same quarter in FX terms, while the headline deposits remained flattish q/q. Margins contracted. We had been expecting NIM to remain flattish in 1Q12, however as a result of the higher funding costs, the banks NIM contracted by 20bps q/q. Total fees however showed 10% q/q growth thanks to stronger than expected loan growth. OPEX & provisions dragged the bottom line down. Higher than our forecasts, Albarakas 1Q12 OPEX showed 18% q/q growth which was mainly due to personnel expenses and amortization costs. On the asset quality side, the cost of risk increased by 20bps q/q despite the flattish asset quality. Overall, we find the results favorable except higher than expected growth in OPEX and provisioning expenses, which we think will normalize in the coming periods. |
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