Turkish Mall Owners Said to Get No Reprieve in Contract Rollback

(Bloomberg) -- Turkish shopping mall investors have yet to win any relief from a government plan to ban the use of foreign currencies in business contracts, according to a draft list of exemptions viewed by Bloomberg.

The document was circulated among some financial institutions and foreign companies for feedback before it gets published in the Official Gazette and goes into effect.

The concessions envisioned in the proposal show the government is preparing to backtrack by providing exemptions to a wide range of companies, including those earning foreign-currency income or handling some financial leasing contracts. The changes are mostly in line with suggestions made earlier by business association Tusiad.

But should the draft remain unchanged, it will spell little relief for shopping mall owners. They have been the biggest critics of the restrictions, warning of chaos in the industry and problems in servicing $15 billion of bank debt.

“If the draft is published in its current shape, it will get banks into trouble,” said Hulusi Belgu, head of an association of Turkish shopping malls. “We have FX debt to banks, and under these circumstances, shopping mall investors will have difficulty in repaying banks. To avoid that, we as investors need to work together with lenders.”

The Treasury and Finance Ministry declined to comment.

Read more: Backlash Grows as Turkey Inc. Fears Cost of Dollar-Contract Ban

The business community met with uproar the Sept. 13 decree forcing firms to convert into liras all contracts for provision of services or products between resident individuals and companies. Besides mall owners, Tusiad cautioned against chaos in pricing and ultimately a spike in the consumer inflation rate, already running at its fastest in more than 15 years.

If an agreement signed last year or earlier and denominated in foreign currencies -- such as a rental contract -- can’t be renegotiated, it will be automatically converted into liras using the official exchange rate on Jan. 2, 2018, according to the draft.

More recent arrangements will use the official rate on the day a deal was inked. When it comes to renewals, service providers won’t be able to adjust the price by an amount bigger than the change in consumer inflation, the draft said.

Below are some of the major exemptions listed in the draft:

  • Firms that act as the local branch of a foreign entity and entities with more than half of their shares held by companies overseas are exempted
  • Some financial leasing contracts would be exempted
  • Agreements for provision of a service that has at least one foreign party or that’s related to exports or other FX-earning activities are also exempted
  • Aviation companies, airlines and firms that provide technical service to the aviation industry would also be granted an exceptional status that gives them some exemptions
  • Public institutions and defense companies in which they hold shares can sign agreements linked to foreign currencies, unless they are related to sales or rent of real estate assets

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