WHEN BULLS GROW PAWS

Turkey 2012 | FINANCE | REVIEW: CAPITAL MARKETS

While the İMKB 100 has been sensitive to the 50,000 resistance point, it remains range-bound as it probes the possibilities of breaking through ground at 60,000 and moving on up.

Turkey's capital markets have rapidly developed over the past two-and-a-half decades, increasing both in terms of market capitalization and sophistication. Despite a bear market in 2011 that saw 20.76% wiped off the main index, the İMKB 100, the new year has brought a level of growth back into the market. Although the rally foundered due to financial worries emanating from the eurozone economies in May, the market has shown renewed confidence, testing the critical 60,000 mark once again at the end of 2Q2012.

The Istanbul Stock Exchange (İMKB) began life in 1985, and has rapidly developed into one of the main players in the capital markets game in Central and Eastern Europe (CEE) and the Middle East, with only the Moscow bourse outweighing it in terms of trading volumes and liquidity. The İMKB is composed of four separate markets: the main stock market, the emerging companies market, the bonds and bills market, and the foreign securities market. Although short sales are done on the İMKB, under tight regulations, all derivatives trading is done via TurkDEX, based in the Aegean city of Izmir.

The Capital Markets Board (CMB) is the overall regulator of the sector, with the settlement of all trades performed by Takasbank. The İMKB has 101 registered brokerage houses, though the top 10 account for the overwhelming majority of all trading activity. The main index for the market is the İMKB 100, with the İMKB 30 used to track the influence of large-cap stocks. Foreign interest in the İMKB remains high, controlling 62.4% of the free float at the end of 2Q2012. Although foreign investor interest has declined since the high of 70% recorded in 2007, the long-term nature of many of the underlying shareholdings gives the market a useful level of support.

Some 360 companies are listed on the main market, with more seeking the chance to list. Over the first half of 2012, some 12 IPOs were launched on the market with a nominal value of TL103.65 million, and realizing total revenues of TL354.35 million ($201.74 million). The biggest three IPOs in terms of total revenues for 1H2012 were Özak GYO (real estate), Teknosa (retail electronics), and Polisan (building materials). As of end-1H2012, a further 13 companies have registered their interest in launching an IPO on the main market, though some have been waiting for over 18 months to find the right window of opportunity.

TOP 10 PLAYERS

The market capitalization for the İMKB at the end of 2Q2012 was TL462.21 billion ($255.55 billion). Financial institutions accounted for half of the overall market, with two holding companies, two telecoms companies, and a construction giant rounding up the list. Leading the market is Garanti Bank, which has a market capitalization of TL29.82 billion. Garanti's main shareholders include BBVA of Spain (25.01%) and local holding group Doğuş (24.23%), which has significant interests in the retail automotive industry. Garanti's 51% free float makes it a traders' favorite, and its shares are also listed on the London Stock Exchange (LSE) in the form of global depository receipts (GDRs).

Akbank, controlled by the Sabancı Holding group and Unicredit, comes in second in terms of market capitalization at TL26.48 billion. In March 2012, Citigroup announced that it would draw down its 20% share in Akbank in order to meet Basel III requirements in its home market. Citigroup finalized its sale of 10.1% of Akbank in late May 2012, increasing Akbank's free float from 31% to 42%.

Türk Telekom, the national landline provider controlled by the Hariri family's Oger Telecom, is the third largest on the market at TL20.15 billion. The government still controls a 30% stake in the telecoms giant, and is still mooting a possible secondary public offering (SPO), though this will likely only occur once eurozone instability begins to abate.

İş Bank C-class shares, the most widely traded, had a market capitalization of TL21.60 billion, giving the bank fourth place overall. In early July 2012, the bank had its Long-term Foreign Currency Deposit Rating upgraded to Ba2 from Ba3, with a “Stable" outlook by Moody's, while its Long-term Foreign Currency Debt/Issuer Rating was also boosted from Ba1 to Baa2, with a “Stable" outlook given. The overall group has interests in a wide range of financial services companies, including a majority stake in Turkey's largest development bank, TSKB, as well as in the industrial, glass, and telecommunications markets.

Turkcell, the nation's largest mobile telecoms provider, weighs in at fifth place with a market capitalization of TL20.15 billion. Despite an ongoing dispute over its ownership structure, the management team has quietly gone about creating a regional giant in the industry. Through its partnership with TeliaSonera, Turkcell has operations in Azerbaijan, Kazakhstan, Georgia, and Moldova, while it controls Ukrainian mobile provider Astelit in its own right. The company has made major inroads into the internet market, and is betting on innovation to ensure its ongoing leadership in a competitive local mobile sector.

Halkbank, although still 75% state-owned, comes in sixth with a market capitalization of TL17.69 billion. Following its 24.98% IPO in 2007, the market has long debated when further tranches of the government's shareholding will be released via an SPO. This looks unlikely in the short term.

Seventh place at the end of 1H2012 was Koç Holding, the largest family-led group by market capitalization in Turkey. Koç has maintained its broad market approach, with interests in the financial, energy, consumer, automotive, and investment segments, to name but a few. This is, however, not Koç Holding's only appearance in the top 10. Through its 50% stake in Koç Financial Services, it jointly controls 81.2% of the shares in banking giant Yapı Kredi, which is the eighth-largest company on the İMKB by market capitalization (TL16.12 billion). The other 50% stake in Koç Financial Services is in the hands of Italy's Unicredit, which is keen to retain its shareholding despite troubles emanating from the eurozone crisis in its home market.

Koç Holding's traditional rival in the conglomerate game in Turkey is Sabancı Holding, which weighs in at ninth place with a market capitalization of TL15.51 billion. The Sabancı family still retains a 60.6% share in the holding company. Over the past few years, Sabancı Holding has sought to streamline its business units, concentrating on its interests in the finance, energy, cement, retail, and industrial sectors. It retains a 49% stake in leading banking conglomerate Akbank.

The last of the top 10 is Enka İnşaat, a domestic and international construction giant. It had a market capitalization of TL15.21 billion as of end-2Q2012, and has a free float of 12.66% of outstanding shares. The company's three main operational regions are Turkey, Russia and Kazakhstan, and Europe, while projects in the Middle East, Latin America, and Australasia are also beginning to take off.

© The Business Year