Cukurova reportedly seeks $3bn loan to power Turkcell stake repurchase

By bne IntelliNews March 13, 2013

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With investors eyeing an end to the long-standing dividend block at Turkey's biggest mobile operator, Turkcell shares saw their biggest gain in six months on March 12 on the back of unconfirmed reports that Cukurova Holding is ready to borrow up to $3bn to fund the repurchase of its 13.7% stake in the company.

In talks with several banks on financing for a deal to take back the contested stake from Russia's Alfa Group, Cukurova has increased to as much as $3bn the funds it's seeking, two unnamed sources told Bloomberg. The company is talking with lenders including Standard Bank and Sberbank on financing, which may include loans and fiduciary notes, the sources claimed.

That volume of the deal would allow the Turkish shareholder to complete the purchase no matter the valuation put on it by the UK's Privy Council, which ruled in late January that Cukurova should have the opportunity to do so. The court is due to decide on the amount it must pay the Russian company, which seized the stake in 2005 after Cukurova defaulted on $1.35bn of loans.

Making its January 30 ruling, the court added that the Turkish holding must be given the chance to buy back the shares "on appropriate conditions," but said it needs more information from the parties before it can make a final decision on "the basis and terms of such relief." It is now due to deliver that ruling this month.

Cukurova is pushing for the deal for relief from forfeiture to be concluded at Libor +1%, which would see it pay a total of $1.6bn to take the stake back. Alfa is pushing for at least Libor +8%, which would total $2.9bn. "If the debt amount is less than $2bn, we think it would be taken positively by the market as Cukurova will, in our view, be able to pay that amount and hence the path to dividend payments would be open," VTB Capital wrote on March 5. "Were the amount to be closer to $3bn, we think there would be uncertainty over Cukurova's ability to pay and, hence, the news would be taken negatively by the market."

At the same time, the report of the raised loan target goes some way to balancing the additional risk to Cukurova's ability to buy back the stake that appeared on March 11, when the East Caribbean Supreme Court ordered BVI-registered Cukurova Telecom Holdings - which controls Turkcell and in which Cukurova has a 51% stake - to pay another major Turkcell shareholder, TeliaSonera, close to $1bn. The Swedish TeliaSonera holds 38% in Turkcell, and alongside Alfa's investment arm Altimo has battled Cukurova for control of the Turkish mobile for almost a decade.

Analysts suggest the decision could wreck the chances of Cukurova being able to finance the deal with Alfa, and thus risked prolonging the boardroom block on dividend payments that has lasted for several years. "Were Cukurova to be loaded with additional payments under the East Caribbean Supreme Court jurisdiction, that could threaten its ability to pay for relief from forfeiture and hence might delay the dividend," wrote VTB Capital.

However, the suggestions that Cukurova has lifted the amount it is looking to borrow - it was reported to be in talks over a $2bn loan last month - gave minorities a boost. Turkcell rose 4.3% to TRY12.05 in Istanbul trading, the biggest gain since August on a closing price basis, reports Bloomberg.

On top of that, one of the sources claimed that Cukurova already paid Alfa group $330m in late February as part of the plan to repay the debt. Indeed, the company is also reported to be already arranging plans for any cash it has left after buying the Turkcell stake back. The sources say it may use any spare funds to acquire a 46% stake in digital TV platform Digiturk, from its partner Providence Equity Partners.

With the price of Turkcell shares having been held back for years by the dispute, as well as clear determination in Ankara that control of the country's biggest mobile operator should not end up in Russian hands, Cukurova owner Mehmet Emin Karamehmet is reportedly ready to do whatever he must to reclaim the shares. "Cukurova would not want to lose control over Turkcell so it will pay whatever amount the Privy Council sets," a source told Reuters on February 5, pointing out the upside potential of Turkcell shares once the shareholder dispute is resolved.

Cukurova may pledge as collateral for loans its holdings in oil explorer and producer Genel Energy sources claimed last month. It may also consider putting up stakes in Swiss lender Banque de Commerce & de Placements and steel pipemaker Noksel Celik Boru.

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