Turkey's Dream of Record Year for IPOs Becoming a Nightmare

(Bloomberg) -- The cancellation of two IPOs in Turkey’s retail sector within hours of each other is casting doubt on other deals and threatening to spoil what was supposed to be a bumper year for the country’s equity market.

Boyner Perakende ve Tekstil Yatirimlar AS on Friday had to cancel the initial public offering of its luxury retailer Beymen Magazacilik AS as international investors, spooked by a series of record lows hit by the Turkish lira over recent weeks, turned cold on the offering. Only three hours later, another fashion retailer, DeFacto Perakende Ticaret AS, did the same. Both companies cited low demand because of recent volatility in emerging markets.

Only Argentina’s peso has been harder hit than the Turkish currency this year as sentiment turns toward emerging markets against a backdrop of rising U.S. interest rates. The lira fell nearly 5 percent versus the dollar last week over mounting concerns about the course of policy after presidential and parliamentary elections on June 24. President Recep Tayyip Erdogan called the snap elections last month.

“The fate and success of the IPOs have a lot to do with timing, macroeconomic conditions, and the market mood,” said Burak Cetinceker, a fund manager at Istanbul-based Strateji Portfoy. “None of these companies could have foreseen these. In short, it’s bad luck.”

Debt Obligations

Other companies could also soon be ruing their timing. Yildiz Holding AS is due to sell shares in its discount grocery chain Sok Marketler Ticaret AS and its technology distributor Penta Teknoloji on May 8-9 and May 10-11, respectively. Sok has said it wants to raise as much as 3.1 billion lira ($730 million).

Yildiz, which also owns Godiva chocolates and McVitie’s biscuits, needs the money to pay down debt after years of acquisitions. On Monday, it confirmed that it had restructured some $5.5 billion in debts with more than a dozen lenders.

Turkey’s companies had earlier hoped that this would be the best year ever for IPOs. At the start of the year, about a dozen were in the works, aiming to raise as much as $4 billion collectively, according to Istanbul-based brokerages Unlu & Co. and Is Investment. That would have beaten a record set in 2007.

Deals Flop

But two deals in February -- for utility Enerjisa Enerji AS and health care provider MLP Saglik Hizmetleri AS -- only attracted interest at the bottom of their proposed marketing ranges. And MLP Saglik had to cut its asking price by 21 percent even to achieve that much.

A combination of factors, including appetite for risk globally, have weighed on Turkish stocks over the past month. But both the lira and the Borsa Istanbul 100 Index -- which is down 13 percent year-to-date -- are among the worst performers worldwide. Foreign investors sold $810 million worth of Turkish equities this year through April 27, according to central bank data. The price-to-expected earnings valuation multiples of Turkey’s benchmark equity gauge is now at its lowest level since 2009.

Yet none of this seems to be discouraging Sok Marketler. The IPO plans are drawing “heavy interest” from investors and a postponement is not foreseen, Sok CEO Ugur Demirel told reporters in Istanbul. “The company operates in a defensive sector, thus is less vulnerable to market fluctuations, and we believe that will be the case for the shares as well.”

Strateji Portfoy’s Cetinceker agrees that Sok Marketler’s size may protect it. However, he warned that external factors may lead to a “lowering of the price range, similar to what we have seen at Enerjisa’s and MLP Saglik’s IPOs.”

Sok’s sister company, Penta Teknoloji, is also confident it can go ahead with IPO plans. “Preliminary talks during the ongoing roadshow shows we have a good interest for the IPO,” CEO Mursel Ozcelik said on Tuesday.

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