Sweden’s Telia In Talks with Turkish Sovereign Wealth Fund for Turkcell Stake

(Bloomberg) -- Telia Co. is paying a hefty price for giving up on Turkey.

The former Swedish phone monopoly on Tuesday said it is in advanced talks to sell its stake in Turkey’s largest mobile-phone operator to the nation’s sovereign wealth fund for $530 million -- a 54% discount to the market value of Turkcell Iletisim Hizmetleri AS, according to Renaissance Capital.

An exit could end a 15-year-old feud for control of Turkcell that has resulted in ongoing spats over board representation, the size of dividends and other issues that have hampered the Istanbul-based carrier’s operations. It has also tied up cash Telia could’ve used to expand closer to home in Nordic and Baltic countries, while the decline in the lira would also have diminished returns.

“The shareholder deadlock, lack of liquidity, and a history of foreign-exchange devaluations warrant a discount, but we had valued this stake at only a 20% discount, so this price is a clear disappointment,” said Stefan Gauffin, an analyst at DNB Nor ASA in Stockholm. “Telia has been willing to exit Turkcell for a long time, but there were no buyers due to the shareholder deadlock.”

Read more: Telia’s Turkcell Plan May Ease Shareholder Dispute, Analysts Say

Turkcell fell 1.2% by 12:25 p.m. in Istanbul on Wednesday after rallying as much as 6.7% on Tuesday, when Bloomberg reported on the talks, valuing the company at 32 billion liras ($4.6 billion). Telia declined 0.7%.

A sale to Turkey’s sovereign wealth fund would pave the way for the fund to act as “peacemaker” to resolve the ownership impasse, said RenCap analyst Alexander Vengranovich.

Turkcell’s labyrinth-like shareholding is at center of a three-way tussle between Telia, Russian businessman Mikhail Fridman’s LetterOne Holdings and Cukurova Holding AS, owned by Turkcell founder Mehmet Emin Karamehmet. Telia holds 24% of Turkcell via Turkcell Holding AS. Cukurova owns 13.8%, which is pledged to Turkey’s largest bank TC Ziraat Bankasi AS after it defaulted on a $1.6 billion loan, while LetterOne has a 13.2% holding.

‘Corporate Governance’

The dispute started when Fridman’s company seized Karamehmet’s stake, saying Cukurova defaulted on a 2005 loan agreement for which the shares were pledged as collateral. An international arbitrator ordered Fridman to return the stake to Cukurova in exchange for $1.6 billion, which was financed by a loan from Ziraat Bank. Ziraat is also owned by the wealth fund.

Buying Telia’s stake will be a first for Turkey’s wealth fund after it was allowed to take over private companies as part of a series of measures to help the economy survive the coronavirus pandemic. Parliament voted in April to enable the fund to inject cash or acquire controlling stakes in strategic firms.

“The potential transaction is positive for Turkcell’s investment case as it should end the multiple disputes between Telia and Cukurova Holding over control of Turkcell, which historically has generated difficulties in
corporate governance for the company,” said Vengranovich of RenCap.

©2020 Bloomberg L.P.