Turkey Said to Send Ultimatum to Turk Telekom Owners on Debt

(Bloomberg) -- Turkey told the owners of Turk Telekomunikasyon AS that it may take control of the company’s management if it fails to outline a plan to resolve a debt issue involving the country’s biggest syndicated loan, according to people familiar with the matter.

The country’s Treasury sent a letter to Otas, which owns 55 percent of Turk Telekom, on June 23 saying it may exercise its rights to dismiss existing board members and take over its management if Otas can’t agree a restructuring plan with banks for the $4.75 billion loan, the people said, asking not to be named because the talks are private. The Treasury holds a 25 percent stake in the telecom firm.

Otas, an Ankara-based special purpose vehicle, is said to have missed two $290 million repayments on the loan in March and September. It also has to make the missed payments due on the loan this month, one of the people said.

Banks and Saudi Telecom Co., which also indirectly owns a stake in Otas through Oger Telecom Ltd., have been locked in debt talks for almost a year after Otas missed the first repayment. Saudi Telecom in May improved its offer to lenders, saying it would reduce the loss they would take on the outstanding loan. Otas has struggled to make dollar-denominated loan payments after the lira’s slump dented the converted value of Turk Telekom’s local-currency dividends.

Turk Telekom shares erased earlier gains and were unchanged at 6.2 liras at 4:06 p.m. in Istanbul.

Shareholder Agreement

The Treasury has the right to dismiss its partner’s representatives on the board of directors and replace them with its own if the partner defaults on a loan payment, according to a shareholder agreement between the Treasury and Otas on Turk Telekom’s website.

Otas and the Treasury declined to comment.

The outstanding principal on the loan is $4.6 billion, people familiar with the matter said in April. The loan was originally made by 29 Turkish and international lenders in 2013.

Akbank TAS has about $1.5 billion in exposure to the loan -- the most of any bank -- while Turkiye Garanti Bankasi AS lent about $1 billion and Turkiye Is Bankasi AS around $500 million, according to public filings of the lenders at the end of the first quarter.

--With assistance from Matthew Martin

To contact the reporters on this story: Ercan Ersoy in Istanbul at eersoy@bloomberg.net, Kerim Karakaya in Istanbul at kkarakaya2@bloomberg.net.

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Paul Armstrong