UniCredit to Explore Turkey’s Yapi Kredi Stake to Free Up Shares

(Bloomberg) -- UniCredit SpA is in talks about taking direct control of its holding in Turkish lender Yapi Kredi, paving the way for a potential sale or reduction of its stake, people with knowledge of the matter said.

The Italian bank and Turkish partner Koc Holding are in discussions about reorganizing their Koc Financial Services joint venture which owns almost 82% in Yapi Kredi, two people said, asking not to be identified as the talks are private. UniCredit is interested in exiting the venture and taking direct control of its 41% stake, the people said, with one person adding that the Italian bank is considering a structure that would help free up capital.

Both companies are seeking to finalize the changes by the end of the year, allowing UniCredit to decide on the future of its holding in Yapi Kredi without needing to consult Koc, the people said. One option may be a secondary public offering of the stake, two of the people said. Talks haven’t been finalized yet and there’s no certainty they’ll result in a transaction, the people said.

Representatives for UniCredit, Koc and Yapi Kredi declined to comment.

UniCredit reversed earlier losses and was up 1% to 9.81 euros as of 11:40 a.m., giving the bank a market value of 21.9 billion euros. Yapi Kredi fell as much as 4.4% to 2.4 liras in Istanbul. Koc Holding fell of as much as 2.2% to trade 0.4% lower at 17.35 liras as of 12:40 p.m. local time.

“A direct stake would give UniCredit more strategic flexibility and would make it easier for the bank to release capital out of Turkey,” said Hugo Cruz, an analyst at Keefe, Bruyette & Woods. “Therefore it should be welcomed by UniCredit investors.”

UniCredit Chief Executive Officer Jean Pierre Mustier is preparing his next set of targets after exceeding cost-cutting and asset quality goals in the previous three-year plan. Mustier, who spent the first part of his tenure cleaning up bad loans, reducing jobs and strengthening the balance sheet, has already said that he expects to accelerate the run down of non-essential business, adjust its holdings of Italian sovereign debt and improve its capital buffer.

The bank has already taken steps to put itself in a stronger financial position ahead of the plan’s presentation scheduled for December. Earlier this year, it raised about 2.1 billion euros by selling its holding in Banca Fineco SpA. UniCredit’s new business plan will be based on organic growth and will try to simplify the way the bank does business, Mustier said earlier this month.

German Holding

Among the options UniCredit is reviewing to reduce its cost of funding is the creation of a separate holding company in Germany for its foreign businesses, people with knowledge of the matter have said.

UniCredit bought a stake in Yapi Kredi with Koc Holding in 2005 and each investor holds half of the holding through a company jointly managed by the partners. Last year Yapi drained more than 1.5 billion euros from UniCredit, as Italy’s biggest bank surprised investors with an 850 million-euro charge to write down Yapi’s stake and spent more than 600 million euros to subscribe to the bank’s rights issue and buy Yapi additional Tier 1 bonds.

Yapi Kredi is among Turkish lenders that needs to restructure loans as the depreciating lira made it difficult for companies to repay their dollar debt against earnings in liras. High levels of borrowings in the corporate sector, where foreign liabilities exceed assets by almost $200 billion, are increasing risks in the Turkish financial system, as more than half of those debts are owed by domestic banks, Moody’s Investors Service said in May.

The “possible divestment of Unicredit’s stake in Yapi Kredi” is negative news for the Turkish lender and may hamper the stock, said Can Oksun, a trader at Global Securities in Istanbul.

--With assistance from Tugce Ozsoy.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net;Ercan Ersoy in Istanbul at eersoy@bloomberg.net;Jan-Henrik Förster in London at jforster20@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Stefania Bianchi

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