Turkish Wealth Fund to Get Critical Role for Post-Pandemic World

(Bloomberg) --

Turkey moved to allow its sovereign wealth fund to take over private companies in distress, revealing a major policy shift that’s set to reshape the economy after the coronavirus pandemic is over.

The fund, known by its Turkish initials TVF, will inject cash or acquire controlling stakes in strategic firms under a framework drawn up by policy makers, said senior officials with direct knowledge of the matter. The ruling party submitted the necessary legislative changes to parliament on Tuesday, according to a copy of the proposed law seen by Bloomberg.

The expectation is that an increasing number of non-financial companies will fall under the direct control of the state in the coming years, said one of the officials, who declined to be identified discussing deliberations that aren’t public.

Turkey is setting in motion a transformation of policy by preparing to wrest back control over swathes of the economy. In a departure from the last two decades of fiscal strategy, it would require the government to borrow more and use the money to rescue or buy companies.

Under President Recep Tayyip Erdogan, in power since 2003, Turkey saw the public sector divest from companies and use the proceeds to more than halve sovereign debt as a ratio of gross domestic product.

The new approach foresees an opportunity in a few years for the Turkish government to use its fiscal room to take over debt and equity from strategic companies that might find it difficult to borrow from abroad -- much like peers from other emerging economies, one of the officials said. Energy, telecommunications and infrastructure companies will be deemed strategic, according to the person.

The wealth fund and the ruling party both declined to comment.

Regulatory Exemptions

The wealth fund, which last reported its equity value at $40 billion in 2017, will be exempt from a myriad of corporate regulations governing its investments in private companies, according to the draft law.

It will no longer adhere to some of the Capital Markets Board’s rules, including mergers and acquisitions, and should get more scope to invest in companies in which it doesn’t have stakes or is a minority shareholder.

It also won’t be bound by a commercial law that requires the TVF to compensate minority shareholders for their losses within a certain period -- if the fund, as the majority owner, pursues policies detrimental to the bottom line.

The fund was established shortly after a failed coup attempt in 2016 and was touted by officials as a panacea for dealing with weaknesses in the economy. It owns stakes in Turkey’s largest companies including flagship carrier Turkish Airlines and Ziraat Bank, the largest state lender.

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