Turkey Army Supplier Said to Turn to Local Brokers for Sale

(Bloomberg) -- Turkey’s biggest defense-electronics maker is hoping that history doesn’t repeat itself, again.

Aselsan Elektronik Sanayi ve Ticaret AS has failed to hire any international banks to work on a share sale, so will now have to rely on Turkish brokerages, according to three people with knowledge of the plan. That means the company may not achieve the $1 billion it had hoped to raise by selling a 15 percent stake, said the people, who asked not to be identified because the details are private.

In 2013, the Ankara-based company also struggled to persuade non-Turkish banks to help manage a share sale. As a result, Turkey’s seventh-largest company by market value ended up aborting the plan. 

It put the latest offering on the table on Dec. 26, but again failed to draw any interest from foreign lenders to help arrange the sale. The company was said to have wanted one international bank and one local investment brokerage to work on the sale. On Jan. 25, Aselsan said it didn’t receive “a proper proposal” from investment banks for a role.

Book Build

The company wants to hire more than one Turkish investment bank for the latest issuance, which could be done through an accelerated book build, rather than a secondary public offering, the people said. Aselsan didn’t respond to emailed questions seeking comment on Tuesday.

Aselsan rose as much as 3.7 percent and was trading 2.7 percent up at 32.16 liras as of 1:20 p.m. in Istanbul. The stock has gained 1.1 percent this year, compared with a 0.3 percent drop in the country’s benchmark index.

Some U.S. lenders were deterred from working on the newest deal by the potential political repercussions of Turkey’s missile deal with Russia, while some of the European banks found the fees unattractive, people familiar with the matter said last month. Aselsan is the biggest supplier to the Turkish military, which has been waging a war against Kurdish rebels in northern Syria in the past month.

The international investment banks -- including Bank of America Merrill Lynch, Deutsche Bank AG, Credit Suisse Group AG, Citigroup Inc., UBS Group AG, Morgan Stanley and JPMorgan & Chase Co. -- had initially been invited to pitch for the deal, according to a document seen by Bloomberg. Many of the nine local investment banks asked to submit proposals didn’t bid either by the Jan. 23 deadline, people familiar with the matter said last month.

Sales Miss

The company, in which Turkish Armed Forces Foundations holds 85 percent, had a project backlog of $6.8 billion at the end of 2017, according to its website. Aselsan, which manufactures software and hardware for electronic-warfare equipment, aims to add as much as $1.5 billion in new contracts to the backlog this year. More than half of the projects are from the Turkish government’s defense industry under-secretariat. Only 6 percent of its backlog is from international contractors.

Aselsan on Tuesday released full-year sales that increased 42 percent to 5.36 billion liras ($1.4 billion), missing the 5.82 billion liras average estimate of eight analysts, according to data compiled by Bloomberg. Net income came in at 1.39 billion liras, beating the 1.28 billion liras estimate.

The company aims to grow sales as much as 35 percent and earnings before interest, tax, depreciation and amortization as much as 20 percent this year.

To contact the reporters on this story: Ercan Ersoy in Istanbul at eersoy@bloomberg.net, Kerim Karakaya in Istanbul at kkarakaya2@bloomberg.net, Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net.

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Andrew Blackman, Vernon Wessels, Paul Richardson.

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