art of forfaiting
Turkey: forfaiting
market saviour?
Amid the gloom that has shrouded the forfaiting market for much of the time since September 2008, Turkey
has consistently proved to be a source of optimism and deals, writes Richard Willsher.
T
he main drivers for the country’s popularity
have been its economic fundamentals. In
short, it is a classic emerging market. This
year it is expected to achieve GDP growth of 6.5%.
Although inflation is stubbornly pegged at a little
above this level, the country is sucking in foreign
direct investment at the rate of $20bn annually.
A recent report by The Economist noted that
Turkey is now the world’s biggest exporter of
cement, the second-largest exporter of jewellery
and is “Europe’s leading maker of televisions and
DVD players, and its third-biggest maker of motor
vehicles.” While it exports mostly to European
countries, it is rapidly expanding export markets
throughout the Middle East, Russia and Central Asia.
In October 2010, Moody’s revised Turkey’s
sovereign Ba2 local and foreign currency government
22 TFR December 2010/January 2011
bond ratings from ‘stable’ to ‘positive’. In November,
the rating agency issued a credit opinion that
concluded: “The Turkish economy has experienced
a V-shaped recovery after the 2009 recession and is
currently the fastest-growing economy in the OECD.”
Furthermore, and of particular interest to the
western banking and forfaiting community, Moody’s
added on 22 November an improved ‘stable’ outlook
for the Turkish banking system, stating, “Turkish
banks have shown resilience during the recent global
financial crisis, as evidenced by their balance-sheet
strength, which has been supported by appropriate
loan-loss provisioning, a solid capital base, and
recurrent earnings generation. Financial sector
reforms that were enacted following the 2000-2001
financial crisis set the foundations for the stability of
the banking system today.”
Perfect match
Pretty glowing stuff. And it is easy to appreciate that in
order to achieve its export led economic growth, the
country’s manufacturers have needed to import capital
goods, particularly production machinery, as well as
raw materials such as minerals that it cannot produce
itself. Moreover, Turkey imports substantial quantities
of oil to power its vibrant economy. All of these lend
themselves to import financing on credit terms that
can typically be provided by the forfaiting market.
“Turkish banks are quite used to the forfaiting
product,” says IFA board member Sema Zeyneloglu
of Rabobank. “They have been involved on the
primary side of market for many years and are
accustomed to use alternative forms of forfaiting
to provide their clients with funding. In addition,
many of those banks have their secondary market
operations outside Turkey, so they are also familiar
with how that side of the market operates.
Meanwhile, the volume of trade finance in Turkey has
held up well even in the crisis. It may have decreased
somewhat, but deals continued to be done.”
Deferred payment letters of credit (LCs)
probably account for the largest value and deal
volume, in particular big ticket Middle East oil import
LCs and those relating to steel and scrap metal.
Inevitably these are short term, varying from 30 days
to one year in duration.
However Muzaffer Aksoy of ABC International
Bank in Istanbul notes that his bank is financing
imports of capital goods with tenors of up to 36
months at present. He expects that terms are likely to
push out to five years before too long, with traditional
‘10 x 6’ promissory note structures being used.
Capital-goods imports typically originate from
Germany, Italy and Switzerland and bankers and
brokers in those countries confirm that Turkey has
been a main source of new trade business over a
number of years. In terms of guarantors or issuers
of notes, the government-owned banks, such as
Halk and Vakifbank, and the private banks Akbank,
Isbank, YKB, Garanti are popular.
Risk and pricing
As yet, the market is very limited for the corporate
risk, but Akbank’s Istanbul-based Vice President
for financial institutions, Altug Ülker, confirms that
some Italian exporters have accepted short-term
notes issued by strong corporate names without the
support of a bank guarantee. These are, however,
likely to be sold back to Turkish banks in the
secondary market, it ought to be said.
One very large feature of the primary and
secondary market in Turkish risk is bank fund
raisings via syndicated loans. Some argue that this
sort of financial transaction is not ‘real’ or ‘pure’
forfaiting. Nonetheless, it represents an elephant in
forfaiting’s parlour that can’t be ignored.
And, in many ways, trade in syndicated loans
conditions the pricing of trade deals and vice versa.
Altug Ülker notes that lately, following the Irish crisis,
Turkish pricing has increased as holders of Turkish
bank loans aim to sell before their year-end. However,
he expects pricing to tighten in the new year.
Deferred payment LCs probably
account for the largest value
and deal volume, in particular
big ticket Middle East oil import
LCs and those relating to steel
and scrap metal.
All agree that the outlook for Turkish paper is
quite buoyant for the foreseeable future. Zeyneloglu
is confident that Turkey will remain a mainstay of
the forfaiting market. “It is one of the traditional
markets from which I would expect to see a
continued, regular flow of business. The banking
system is quite sophisticated and Turkish banks
are very well known in the international banking
environment and there are always buyers that are
happy to buy Turkish bank risk.”
ABCIB’s Muzaffer Aksoy expects pricing to
come down as more banks become buyers of
paper, a view shared by Akbank’s Altug Ülker,
especially as the country’s sovereign credit rating
continues to strengthen.
In summary, with uncertainty over the Irish crisis
and widespread fear of contagion from the sovereign
debt crisis in Europe, markets may not yet be ready
to branch out to embrace more exotic country risk,
longer credit terms and tighter pricing.
But in credit terms as well as geographically, Turkey
sits between Europe, the Middle East and the CIS
countries. For this reason, it is well placed to continue
supporting the forfaiting market with both trade deals
and syndicated loans for some time to come. q
Richard Willsher is a financial journalist and trainer,
perhaps best known for the seminars that he
conducts with the IFA. He can be contacted by
emailing rdw@richardwillsher.com
For more information about the International
Forfaiting Association see: www.forfaiters.org or
e-mail info@forfaiters.org
www.tfreview.com 23