Fitch Ratings has upgraded the Republic of Turkey’s Long-term foreign currency Issuer Default Rating (IDR) to ‘BBB-’ from ‘BB+’ and the Long-term local currency IDR to ‘BBB’ from ‘BB+’. The Outlooks on the Long-term ratings are Stable. The agency has also upgraded Turkey’s Short-term foreign currency IDR to ‘F3′ from ‘B’ and the Country Ceiling to ‘BBB’ from ‘BBB-’.

RATING RATIONALE
The upgrade to investment grade reflects a combination of an easing in near-term macro-financial risks as the economy heads for a soft landing and underlying credit strengths including a moderate and declining government debt burden, a sound banking system, favourable medium-term growth prospects and a relatively wealthy and diverse economy.

Fitch believes that the Turkish economy is on track to return to a sustainable growth rate, having narrowed the current account deficit (CAD) and lowered inflation after overheating in 2011. The agency forecasts GDP growth of 3% in 2012, 3.8% in 2013 and 4.5% in 2014. Achieving such a rebalancing without a recession – helped by a strong trade performance, while unemployment is at an 11-year low – points to enhanced economic flexibility and resilience.

Fitch expects the economy to remain more volatile than investment grade peers, but believes sovereign creditworthiness has become more resilient to shocks. At some point, an external financing shock and a recession are likely. However, the agency believes the country’s strong sovereign, bank and household balance sheets, and economic and exchange rate flexibility provide important buffers against shocks spreading into a wider financial crisis.

Turkey’s public finances are a key rating strength. Government debt dynamics are favourable due to a low general government budget deficit, which Fitch forecasts at 1.9% of GDP in 2012 (not counting privatisation receipts) and trend GDP growth above the real interest rate. Fitch estimates the general government debt/GDP ratio will be 37% at end-2012, down 9pp since end-2009, while it projects the ‘BBB’ range median at 41% of GDP, up 7pp since 2009.

The government extended the average maturity of debt to 4.5 years in mid-2012 from 3.5 years in 2009, while reducing the FX share to less than 30%. Lower budget deficits and debt maturities have reduced Turkey’s gross fiscal financing requirement to a projected 9% of GDP in 2012 from 17% in 2010. A relatively deep local capital market supports financing flexibility.

Turkey’s sound banking system underpins the rating. It has a capital adequacy ratio of 16.3%, is moderate in size and has a low non-performing loan ratio of 2.8%. However, credit growth has been brisk in recent years (although it slowed to 14% in September 2012), raising the loan/deposit ratio to above 100%. Household debt is low at only 18% of GDP.

Favourable growth prospects support the credit profile. Turkey’s potential growth rate of 4%-5% is boosted by demographic trends, an entrepreneurial culture and financial deepening. It improved its ranking to 43rd (out of 144) in the World Economic Forum’s latest competitiveness league table, up from 59th in 2011/12. GDP per capita is above the ‘BBB’ median. Turkey also outperforms the peer median on four out of six of the World Bank’s governance indicators.

Nevertheless, Turkey’s external finances remain a key rating weakness. Fitch forecasts the CAD at USD58bn (7.3% of GDP) in 2012, albeit down from USD77bn (10%) in 2011. The agency forecasts it to remain at USD63bn (7.2%) in 2013 which, together with maturing external debt payments, exposes the country to shocks to global liquidity. Nonetheless, foreign exchange reserves (including gold) have increased by USD24bn year to date to USD112bn and Turkey did not suffer a sudden stop to capital inflows during the Lehman or eurozone crisis stress tests. Turkey’s net external debt/GDP ratio is likely to trend up gradually over the forecast horizon.

Turkey also has a track record of volatile inflation and GDP growth, reflecting its low savings rate and dependence on external financing, as well as domestic policy management. Fitch forecasts inflation to decline to 7.4% at end-2012 and 6.5% at end-2013, from 10.5% at end-2011, but still well above the central bank’s inflation target of 5%. Although the new policy framework has traction and has helped to rebalance the economy under challenging conditions, it has failed to hit the inflation target and has been relatively discretionary and unpredictable.

The two-notch upgrade of the local currency IDR to ‘BBB’ opens up a one-notch uplift above the foreign currency IDR to reflect the sovereign’s somewhat greater capacity to finance itself in Turkish lira than in foreign currency, due to its power of taxation, the strong banking system and deep local capital market. The lengthening in maturity of local currency debt has further reduced its financing risks. The country’s relatively weak external finances also weigh less heavily on the local currency rating.

RATING OUTLOOK – STABLE
The main factors that could lead to positive rating action, individually or collectively, are:
- A material and durable reduction in the CAD, though Fitch does not anticipate this in the near term.
- A track record of lower and more stable inflation.

The main risk factors that could lead to negative rating action, individually or collectively, are:
- A ‘balance-of-payments crisis’ triggered by an external shock or a domestic policy mistake.
- A worse-than-expected increase in external debt ratios over the medium term, for example related to rapid credit growth and larger CADs.
- A major political shock with a material adverse impact on the economic and fiscal outlook.

KEY ASSUMPTIONS AND SENSITIVITIES
The ratings and Outlooks are sensitive to a number of assumptions.
- Fitch’s economic and fiscal projections are based on the assumption that budget outcomes are broadly in line with the Turkish government’s Medium-Term Program 2013-2015, consistent with a declining government debt/GDP ratio.
- Fitch assumes that the eurozone remains intact and that there is no materialisation of severe tail risks to global financial stability that could trigger a sudden stop to capital inflows to countries like Turkey with large CADs and net external debtor positions. Such a scenario would likely trigger a downgrade.
- Some escalation in regional instability cannot be discounted and is within the tolerance of the rating. However, Fitch does not expect the civil war in Syria to draw Turkey into a full-scale military conflict. If such an event took place and had a significant economic and fiscal impact it could lead to a downgrade.
- Fitch assumes that Turkey’s membership of the Financial Action Task Force (FATF) is not suspended in February 2013 (as FATF threatened in October 2012 if Turkey failed to “adopts legislation to remedy deficiencies in its terrorist financing offence” and “establishes a legal framework for identifying and freezing terrorist assets consistent with the FATF Recommendations”); or if it is suspended, that does not precipitate countermeasures that materially adversely affect the capacity of Turkish entities to access international financing. If such a downside risk materialised it could lead to a downgrade.

• Building new chocolate and compound factory in Eskişehir, Central Anatolia, Turkey
• Production facility with an initial capacity of 15,000 tonnes to open mid-2013
• Tapping the potential of a fast growing local chocolate market

Zurich/Switzerland, October 31, 2012 – Barry Callebaut, the world’s leading manufacturer of high-quality cocoa and chocolate products, announced today the building of a factory for chocolate and compounds in Eskişehir, Turkey. The new facility will serve as a basis to participate in the further growth potential of the Turkish chocolate market as well as to capture opportunities in the regional market.

Situated in Turkey’s Central Anatolia region, the location in Eskişehir is close to existing and potential confectionery customers of Barry Callebaut. The total investment is about CHF 15 million (EUR 12 million / USD 16 million). The new factory will have an initial capacity of 15,000 tonnes and offer about 50 new jobs. Barry Callebaut’s new site in Turkey is scheduled to open mid-2013.

Juergen Steinemann, CEO of Barry Callebaut, said: “The building of a new state of the art chocolate factory in Turkey is another major step in tapping the potential of a rapidly growing region. It’s in line with our strategy to further expand our geographic presence to markets that offer above-average growth opportunities. The new production facility will also help to foster our position in the region.”

To further grow in the Eastern European region, Turkey is an important market for Barry Callebaut. Currently the yearly chocolate consumption is rather low with less than 2 kg per capita; but it is growing very fast at an annual rate of +7% per annum.[1] There is an increasing demand for high-quality chocolate and compound products as well as for technical services and new innovations.

China’s largest power plant equipment producer Harbin Electric has entered into a partnership deal with Turkey’s Hattat Holding’s company of  Hema Endustri for the manufacturing of boilers, generators, turbines and other components to be used in power plants utilizing resources such as hydro, wind, coal, natural gas, as well as nuclear to generate electricity.

Planned to be completed within two years, the plant valuing USD 250 million will be located in the Western Turkish province of Tekirdag and will employ over 2,000 people. The companies will have equal shares in the investment which will help reduce Turkey’s equipment and machinery imports in a strategic sector.

Investments in the fast growing country’s energy sector over the next decade are expected to reach USD 100 billion and to have an installed capacity of at least 125,000 MW by 2023, the centennial of the Republic.

Source : Sabah

Sumitomo Rubber Industries is establishing a new joint venture company in Turkey as part of our Group’s efforts to expand and develop our global tire business. The new company will serve as a strategic base for both production and sales of tires bound for the Middle East, North Africa and Russia, where we anticipate continued market growth, as well as for markets in Europe.

Sumitomo Rubber Group is expecting a significant increase in tire sales in emerging markets, such as the Middle East, North Africa, and Russia, and we believe that supplying tires from Turkey, which is nearer to these markets in addition to Europe, will enable us to reap enormous benefits in terms of lead times and transportation costs. In addition, with Japanese-owned automobile makers also expected to increase production in Turkey, we can also look forward to increased sales of both OE and replacement tires in the Turkish market.

Today, Sumitomo Rubber signed a joint venture agreement with our Turkish partner, Abdulkadir Özcan Otomotiv Lastik (AKO). The new company is to be established in October of 2012 and is scheduled to begin production by July of 2015.

New Company Profile

AKO Company Profile

UK-based RES Energy is set to construct a 48 megawatts (MW) wind energy plant in the Black Sea province of Samsun, part of a company goal to increase its wind capacity inside Turkey by between 50 and 100 MW per annum.

Construction for the planned plant in Samsun’s Havza is to begin by mid-2014 and is expected to be finished in 2016. The EUR 75 million Havza plant is the company’s first investment in the Black Sea region, representing an interest in diversifying investments across the renewable energy-rich Anatolia. The RES Havza wind plant will produce 126 gigawatts (GW) of electricity per year, capable of meeting the electricity power needs of 69,000 households. RES will provide 15-20 percent of the plant financing from company coffer, while the rest will be financed through long-term loans. The company has already initiated contacts with local banks for loans.

Accompanied by local and foreign company officials, RES CEO Jean-Marc Armitano met with reporters in Istanbul on Wednesday to share the details of his company’s plans for Turkey. Celebrating their 30th anniversary this year, RES has been active in Turkey since 2009. Currently, the company holds licenses to produce 170 MW from wind energy in Turkey.

Source : Today’s Zaman

Turkey’s online food ordering firm Yemeksepeti.com has just received a USD 44 million cash boost to fuel its international push with the addition of US-based equity company General Atlantic as a minority stakeholder. With a user base reaching 1.5 million people, Yemeksepeti.com provides online food ordering and delivery service, processing tens of thousands of orders daily.

“The fund injection will drive Yemeksepeti.com to new growth markets,” said Yemeksepeti.com CEO Nevzat Aydin on the deal yesterday, without disclosing the share percentage. “We are closely watching the Middle Eastern and North African markets. Expanding into South America and Southeast Asia is also a probability, Nevzat hinted about the company’s future plans. The partnership deal will not change the current management structure of Yemeksepeti.

Promising startups in Turkey’s growing high-tech and e-commerce sector have been subjects of acquisition and partnership deals in recent years. Last year, local auction site Gittigidiyor.com’s majority stakes were acquired by eBay, while Amazon partnered with online florist Ciceksepeti.com. The same year, South African Naspers bought 70 percent shares of Turkish online shopping club, Markafoni, through its subsidiary MIH-Allegro.

Turkey has 36.5 million internet users and the fast growing e-commerce reached a volume of approximately USD 12.7 billion according to 2011 figures.

Source : Zaman

Improving macroeconomic stability and increasing accessibility of the financial sector catapulted Turkey’s rank by 16 places in this year’s Global Competitiveness Index, securing the 43rd spot in the 144-country survey prepared by the World Economic Forum.

Turkey surpassed world’s leading emerging economies, the BRIC countries (Brazil, Russia, India, and China), with the exception of China, and positioned itself as a highly competitive economy on a solid macroeconomic footing. As the main reason of this huge jump upward, the report points to Turkey’s vibrant business sector which derives important efficiency gains from its large domestic market (ranked 15th), intense local competition (16th) and developed infrastructure (51st). The country ranked 59th in the previous report, consisting of 142 countries, and 61st in the 139-country report covering 2010-2011.

Source : Dunya

Virgin Group company Virgin Mobile is eyeing the Turkish market as part of its expansion plan covering Central and Eastern Europe.

The company, serving over 20 million subscribers in 35 countries, launched its business in Poland last week. “The newly-established Virgin Mobile Central and Eastern Europe is looking into expanding into Turkish, Russian and Hungarian markets,” according to the company head, Kristian Myrup.

Virgin Mobile will function as a virtual operator in Poland, selling pre-paid cards, and is likely to do the same in its other possible ventures, including Turkey. Virtual operators use other networks’ existing infrastructure in providing services. Founded by British tycoon Richard Branson, Virgin Group operates in a wide variety of sectors including transportation, telecommunications, retail and finance.

Turkey ranks first in Europe in mobile phone usage, averaging 299 minutes of monthly talk time per subscriber. A country of 74 million, Turkey has 67 million mobile phone subscribers, approximately 39 million using third generation (3G) wireless networks.

Source : Sabah

South Korea’s Hyundai and Ford Motor Corp of USA are increasingly relying on Turkey as a manufacturing and research & development (R&D) base as announcements from the two key companies of the global automotive industry reveal. Hyundai’s manufacturing operations in Turkey, consisting of the i20 hatchback and the soon-to-be-added supermini i10, will be supplemented by an engine production plant and a R&D center, according to Hyundai Turkey’s Director General, Umit Karaaslan.

Emboldened by the free trade agreement signed between Turkey and South Korea last June and generous investment incentive scheme in place in Turkey, Hyundai is taking steps to expand its investments in Turkey, Karaaslan said. “Preliminary studies on setting up an R&D center and engine production in Turkey are underway. Hyundai is ramping up investments in its Izmit plant to increase its annual production to 200,000 vehicles and add a new class of supermini model to replace the i10 in 2013..”, he said, adding that the combined worth of the investments in Turkey to be made by Hyundai and four of South Korea’s leading spare-part suppliers will reach USD 1.1 billion.

Hyundai’s plant in Turkey’s western province of Kocaeli holds the “highest quality production facility” title among all Hyundai plants across the world. If given the go ahead, Hyundai will become the third global auto maker to have a R&D lab in Turkey in addition to Ford and Fiat.

US car maker Ford, active in Turkey as JV formed with Turkey’s Koc Holding under the name of Ford-Otosan, is also prepping up to add new models to its production line in Turkey. “Ford Turkey is the only business in Ford’s European operations that is not posting losses…” Ford Otosan Director General, Haydar Yenigun remarked. The company is building its third manufacturing plant in Turkey in Golcuk, Kocaeli, adjacent to its existing facility producing light commercial vehicles (LCVs) for more than 60 countries. The plant to be built at a cost of about USD 250 million, is expected to be operational in late 2013, the same year the company plans to start the production of the new Transit LCV.

Source : Dunya

Jantsa, a Turkish manufacturer of wheel rims producing mainly for the automotive and defense industry since 1977 and exporting to 80 countries worldwide, is forming a joint venture with Italian CLN Group, its biggest competitor in the global market. Both parties will have a 50 percent stake in JMW, the new joint venture that will be built in the Aegean province of Aydin at a total investment cost of EUR 36 million and will produce 3 million wheel trims annually.

The new plant will focus its production on wheel rims mainly for passenger cars and heavy vehicles and will employ some 400 people. Trial production in the 20,000 square meter Italian-Turkish partnership JMW is slated for this October, while the plant is expected to reach an exports volume of EUR 25 million and a sales revenue of EUR 50 million.

Commenting on the project, Ercan Cercioglu, General Manager of Jantsa and President of the Aydin Chamber of Commerce, said that they decided to join forces with CLN during the 2008 crisis and that JMW will become one of the largest wheel rim plants in the world. During the past ten years, Jantsa has drawn a similar growth pattern with CLN, which has 8,000 employees and a sales revenue of EUR 1.7 billion, according to Cercioglu.

Meanwhile, Gabrielle Perris Magnetto, CLN Group Chairman, said that they have been impressed by Jantsa’s rapid and steady growth, and added “It is excellent to form a partnership with our biggest competitor on the global arena. Jantsa is also a family-run company like us, and has a strong position in the market. We are very content with our joint venture and presence in Turkey.”

Source : Jantsa