Not another Turkey as Koza Gold completes IPO

By bne IntelliNews February 26, 2010

Guy Norton in London -

After its previous attempt floundered amid a sharp market sell-off in 2008, Turkish gold miner Koza Altin Isletmeleri (Koza Gold) finally managed to make it onto the Istanbul Stock Exchange in February - just. Bankers hope the IPO presages a revival of new issues on the Turkish equity markets after a relatively lean spell since the financial crisis in 2001.

The TRY662.4m ($436m) flotation of 34.5% stake in Koza Gold marked the largest IPO in Turkey since the $1.9bn Turk Telekom sale in May 2008. The share offering was marketed at TRY36.80-46 per 100 ordinary Class B shares and was eventually priced at the bottom end of the range in early February, to give it a market capitalization of around $1.5bn.

International investors bought 40% of the shares, while domestic institutional and retail investors bought 47%. Affiliates of the firm's owners mining company Koza Madencilik and printer Ipek Matbaacilik took up the 13% balance. Goldman Sachs and JPMorgan acted as the international bookrunners, while Ak Yatarim and Is Yatarim were the domestic bookrunners.

Koza Altin had originally looked to IPO in 2008, but its attempt was stymied by a 25% fall in the Turkish stock market in the run-up to pricing. The Turkish equity market is particularly vulnerable to shifts in global risk appetite, as more than 70% of the free float on the Istanbul bourse is foreign owned, while the Turkish stock market's relatively high level of liquidity makes it easy for foreign buyers to offload their holdings when the going gets tough.

Recently, though, the outlook for Turkish equity issuance had looked brighter, with the ISE-100 index having climbed by 115% in the 12 months prior to the Koza Gold sale. However, the global market sell-off in early February, which saw the Turkish market drop by 5% in the last trading day before the Koza Gold offering was priced, meant that the issue had to be pitched at the cheap end of its pricing range. Gold prices were also hit in the run-up to pricing, with the previous metal hitting a three-month low of around $1,060 per ounce.

Golden boy

Founded in 2005, Koza Gold holds 20 operating licences and over 520 exploration licences covering over 170,000 hectares throughout Turkey in the Aegean and Marmara regions, the Black Sea region, and Central and Eastern Anatolia. Koza Gold currently owns two operating mines - an underground mine at Ovacik, and a mine at Mastra where Koza utilises both underground and open-pit mining methods. As a result of acquisitions and exploration activities, since 2005 the company's gold resource base increased more than sixfold to 8.1 million ounces from 1.3 million ounces.

What's more Koza Gold has a consistent track record of profitability supported by relatively low production costs. In the first nine months of 2009, the production costs were just $249/oz, in the lowest quartile of the GFMS (Gold Fields Mineral Services Limited) production cost curve. Moreover, in the nine months to September 30, Koza Gold generated Ebitda of TRY159.3m versus TRY124.9m in the whole of 2008.

It's now hoped the IPO of Koza Gold will kick start the new issue market. In the 1990s, there were an average of 25 IPOs a year in Turkey, but that figure had fallen to just half a dozen since 2001.

Other deals in the IPO pipeline include a sale of shares by logistics firm Latek Lojistik, which has mandated Galata Menkul Degerler and Meksa Menkul Degerler to advise it on selling a 26.4% stake that will finance its expansion plans. Latek is looking to be the third logistics operator to list in Istanbul. A number of REITs (real estate investment trusts) are also mulling IPOs.

Meanwhile, Economy Minister Ali Babacan says that Turkey is looking to revive its stalled privatization programme with an IPO of the country's largest lender, Ziraat Bank, in what would be the first major state sale since 2008. Ziraat has traditionally been the lender of choice to Turkey's agriculture sector. Babacan says that the government will also sell further shares in Halkbank and Vakifbank, where the government sold 25% stakes in 2007 and 2005 respectively.

News of the growing new issues pipeline adds grist to the Istanbul Stock Exchange's campaign launched in October 2009 to encourage more Turkish companies to float on the Istanbul bourse. According to Huseyin Erkan, president of the ISE, there's a discrepancy between the size of the Turkish economy and the number of companies that are listed. "The Turkish economy is big, but the capital markets do not reflect that." Among the Istanbul Chamber of Industry's top 500 list, less 100 are listed on the ISE. The Istanbul bourse is looking to boost listings to 1,000 by 2023, from around 330 at present.

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