By Asli Orbay-Graves
Still recovering from the aftermath of the summer 2018 currency crisis, Turkish corporations are in a bad position to weather a new typhoon through the coronavirus pandemic, according to market participants interviewed through Debtwire.
“The next wave of restructuring is expected to take a stand at the 2020 or early 2021 maturity, but it will now be faster,” said a Istanbul-based monetary adviser.
But an increase in loans, that is, from state banks, and government cuts in local interest rates mean that many corporations will refinance their debts.
According to statistics from the Central Bank of Turkey, the expansion of loans in the banking sector is 30.35% year-on-year.
“There is a state of relief at this time with the provision of increased liquidity and legal protections for 3 to six months due to COVID-19,” the monetary adviser continued.
While Turkey’s leading state lenders, Halkbank, Ziraat Bankasi and Vakifbank, may not have made some recent transactions, have provided more than 70% of domestic advertising loans since the beginning of the year, a lawyer said.
Of the 72.4 billion Turkish pounds of new currency loans from 6 March to 10 April, 52.6 billion came from state banks, according to a Sozcu report.
“All banks, but especially state-owned banks, offer huge volumes of loans with very low interest rates,” said an Istanbul-based monetary adviser, adding that in today’s environment, lenders are very flexible in terms of extending debt maturities.
The weighted average interest rate on advertising loans denominated in Turkish pounds (excluding corporate overdraft accounts and corporate credit cards) has fallen to 9.61% today, up from 23.81% in July 2019, according to the knowledge of the Central Bank of Turkey.
Meanwhile, for U.S.-dollar advertising loans, the average rate fell to 3.49% from 7.42% in the same period.
Expansion of credits and deposits from March 2017 to June 2020
TL – Turkish lira; YP – FX; Toplam – Total
Earlier this year, Yildiz Holding and Dogus Holding, two Turkish-based conglomerates that ended debt restructuring in 2018, announced that they were in talks with their creditors to reduce interest rates on their syndication agreements.
With the strong participation of state banks in the new wave of monetary difficulties, there is little incentive to put in place an effective restructuring framework that cuts, as opposed to amendment and extension solutions, said the first monetary adviser.
Areas of the watch list
Turkey’s hospitality and tourism sectors have been mainly affected by the COVID-19 epidemic. Turkey’s tourism profits in 2019 were $34.5 billion, however, the country will be lucky if it generates $10 billion this year, said the most sensible monetary adviser.
Many banks have postponed loan dates for corporations operating in the hospitality sector from six to 12 months, he said.
Wholesale and aviation stores have been affected by COVID-19 locks worldwide. Major Turkish airlines, such as Turkish Airlines and Pegasus, will survive, but they will most likely face serious capital erosion, according to the monetary adviser. However, second-tier market players in the service sector, such as airport operators and catering companies, will be greatly affected, he added.
Elsewhere, grocery shopping is open in Turkey, but pedestrian traffic is well below pre-coronavirus levels, creating a major fear in the wholesale sector, the first monetary adviser said.
The fall in exports to the European Union is another source of fear and, there has been a partial recovery, expansion remains slow, he added. The volume of Turkey’s exports to the EU fell by 9% by 1K20, according to the knowledge of the Ministry of Commerce.
Finally, the automotive sector is also on the watch list of all monetary restructuring advisers around the world. For Turkey, major auto parts providers are on the radar, said the first monetary adviser.
Total production in the automotive sector in the first part of 2020 fell by 28%, while car production fell by 26%, Sozcu reported.
Suppliers were able to recover their coins, as banknotes in this domain are made regularly within 60 to 90 days of purchase. The genuine minimum in the flow of currencies will be observed in July, August and September, the first monetary advisor added.
Risky recovery
The loan-driven recovery that Turkey’s finance and finance minister Berat Albayrak has driven since the 2018 exchange crisis can be detrimental to the current situation, a foreign investor said, delaying, and potentially expanding, a imaginable credit crisis.
So far, President Recep Tayyip Erdogan has categorically refused to approve an agreement with the IMF, which investor-say Turkey would address its fiscal reaction and corporate debt restructuring. If Erdogan changes direction in this sense “no one knows,” the investor concluded.
Asli Orbay-Graves is a senior journalist at Debtwire CEEMEA and covers debt restructuring and litigation. She can be for [email protected].