Otas Lenders Are Said to Seek State Control of Turk Telekom

Banks are said to prefer state option over Saudi Telecom offer
Otas is said likely to miss two more loan repayments

Banks that provided a $4.75 billion loan to the owner of Turk Telekomunikasyon AS see a government takeover of the operator’s management as the best way of resolving Turkey’s largest debt default, according to three people familiar with the matter. The stock rose.

Lenders favor this outcome to another proposal of a cash injection into Otas, which owns 55 percent of Turk Telekom and has missed two payments on the loan it took out in 2013, the people said, asking not to be identified because negotiations are ongoing. Turkey’s Treasury, which owns 25 percent in Ankara-based Turk Telekom, has the right to dismiss existing board members if Otas cannot agree to a restructuring plan with the banks.

Having Turk Telekom’s management under the single control of Treasury may facilitate an ownership change in the country’s largest telecommunications company and make it easier to handle any potential talks with future investors over the stake held by Otas, the people said. The government can also extend Turk Telekom’s concession to keep operating beyond the contract’s 2026 expiry, clearing the way for a longer repayment period should the loan be restructured, they said.

Turkey’s Treasury in June gave Otas until early October to resolve the issue, or face losing control of the board, other people have said. Otas, a special-purpose vehicle based in Ankara under the full name Ojer Telekomunikasyon AS, missed two payments worth $580 million in the past year. 

Shares Gain

Turk Telekom’s shares rose as much as 4.7 percent, the most since Aug. 28, and were trading 3.3 percent up at 6.63 liras as of 4:08 p.m. in Istanbul.

On July 25, the operator raised this year’s guidance for sales growth to as much as 11 percent from an earlier 9 percent as second-quarter profit beat estimates. Turk Telekom will probably return to a profit of 1.58 billion liras this year, according to the mean of estimate of 15 analysts surveyed by Bloomberg, after a loss of 724 million liras in 2016.

The default by Otas wouldn’t cause losses for the Turkish government, Prime Minister Binali Yildirim told reporters in Ankara on Monday. “We, as the government, have the right to step in the case of a default, according to the contract.”

An offer of a cash injection into Otas by Saudi Telecom, which has an indirect stake in the company through its 35 percent holding in Otas’s parent Oger Telecom Ltd., is still on the table, the people said. Riyadh-based Saudi Telecom offered to inject $750 million into Otas to cover the missed installments and restructure the remaining $4 billion of the loan into two new facilities that will mature as far out as 2026, other people with knowledge of the matter said Aug. 17.

The Treasury can replace as many as seven directors from Saudi Telecom and Oger Telecom on the 12-member board at any time from Oct. 2, the people said. Lazard Ltd. and Raiffesen Investment AG, which were hired to advise the banks on the negotiations, will prepare a report to respond to the proposal from Saudi Telecom, which won’t be affected should Turk Telekom’s management change, one of the people said.

Turkey’s three biggest lenders, Akbank TAS, Turkiye Garanti Bankasi AS and Turkiye Is Bankasi AS, have the largest exposure among the 29 banks in the syndication. The banks have rejected two previous offers by Saudi Telecom.

Akbank rose as much as 2.1 percent, Garanti 2.8 percent, and Is Bankasi 1.3 percent.

Otas will most likely miss two more payments totaling $478 million due Sept. 30, the people said. The slump in the Turkish lira has hit the revenue it gets from Turk Telekom’s dividends, making it more difficult to repay the dollar-denominated loan.

Turk Telekom, Turkey’s Treasury, Otas, Saudi Telecom and the three banks declined to comment.

Credits: Bloomberg