Banks Said to Back Plan to Resolve Turkey's Biggest Default

(Bloomberg) -- Banks that provided a $4.75 billion loan to the owner of Turk Telekomunikasyon AS are backing a proposal that would settle Turkey’s biggest default, people with knowledge of the matter said.

Under the plan proposed by an advisory group for the lenders, creditors would get control of Ojer Telekomunikasyon AS, or Otas, which took out the loan, through a special purpose vehicle, said the people, asking not to be identified because the talks are private.

Shares in the phone operator rose the most since it listed in 2008 as an agreement would end a year-long impasse between creditors and Turk Telekom. The companies have been locked in talks since Otas failed to pay a September 2016 installment on the loan, the country’s biggest ever syndicated facility. Banks, government officials and the companies were due to meet Tuesday to discuss the new proposal, the people said.

Turk Telekom shares rose as much as 10.1 percent to 6.31 liras in Istanbul, the most since the Ankara-based company sold shares in an initial public offering. Akbank rose as much as 2.6 percent, Garanti 2.3 percent and Isbank 2.1 percent apiece.

Otas Loan

Under the proposals, banks would each have a share in the SPV relative to the amount they lent to Otas, the people said. No official notification has been made on the process and/or outcome of the plan, Turk Telekom said in emailed comments.

“By acquiring the company, banks may be allowed to cancel the provisions which were booked previously and which are net income positive,” Istanbul-based equity brokerage Garanti Securities said in an emailed note. “On the capitalization front, acquiring a non-financial company is negative for banks’ capital adequacy ratios and the outlook is not clear as to whether or not they can recover the loan.”

Banks with the largest exposure include Akbank TAS with $1.7 billion, Turkiye Garanti Bankasi AS with almost $1 billion and Turkiye Turkiye Is Bankasi AS with around $500 million. Lenders are said to have hired Lazard Ltd. and Raiffeisen Investment AG last year to help with negotiations.

The Turkish Treasury, which has a 25 percent stake in Turk Telekom, and Saudi Telecom Co., which owns 35 percent in Oger Telecom Ltd. that controls Otas, are also involved in the negotiations.

Akbank, Garanti Bankasi and Isbank put their exposures under a so-called watch list for potential souring assets and booked around 10 percent to 30 percent provisions for the loan, Garanti Yatirim said. The provisioning “corresponds to the value of the collateral based on the current market value of Turk Telekom,” the company said.

©2018 Bloomberg L.P.

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