Turkey's financial dreams

By bne IntelliNews May 3, 2013

Tim Gosling in Prague -

Turkey stepped up its bid to build Istanbul into a global financial centre in March and April. It kicked off construction of its planned huge new banking district, finalized the merger of its trading exchanges, and launched a drive to lure foreign listings to the new Borsa Istanbul.

Echoing the political ambitions of Turkish Prime Minister Recep Tayyip Erdogan for the country to become a regional leader, the merged exchange is targeting a major role as a centre for emerging market companies to raise money. That saw Borsa Istanbul move swiftly to sign deals with brokerages from southeast Asia, Africa and the Caucasus on April 10 - just five days after the PM rang its debut gong - enlisting their help in attracting foreign companies to list their shares on the exchange.

Part of an initiative entitled "Listing Istanbul," Borsa Istanbul signed agreements with eight brokerages, including the Turkish unit of Singapore's PhillipCapital Group, Unlu Menkul Degerler - part-owned by South Africa's Standard Bank - and Invest AZ Menkul Degerler, majority-owned by Azeri businessman Elshan Guliyev. The brokerages will undertake "promotional and marketing activities" to encourage foreign companies to consider Istanbul, the exchange said.

Borsa Istanbul was launched on April 5 following the merger of the Istanbul Stock Exchange with the Istanbul Gold Exchange and the Izmir-based Derivatives Exchange. The building of a single trading exchange is a major step in Ankara's push to fill the gap in the market between the trading time zones of London and East Asia. Turkey is racing the likes of Russia for the privilege; Moscow's two major bourses - the RTS and Micex - merged last year to create the Moscow Exchange.

In the push for new listings, Turkey will solicit the help of partners to help lure companies from 45 countries, Borsa Istanbul said at its press event, admitting that the track record for overseas listings is poor. There is only one foreign company - Do & Co, a catering partner to Turkish Airlines - out of a total 332 listings. "An international financial centre implies companies from other countries coming to your market as well," Borsa Istanbul's chairman, Ibrahim Turhan, said, adding that if successful, the exchange could carry out its own IPO by late 2015.

Racing Russia

Turhan also discussed progress in the exchange's bid to join the Euroclear trading system, claiming that joining the world's biggest bond settlement system could increase foreign ownership of Turkish sovereign debt by as much as 50%. "We will be reaching as many as 200,000 new investors with Euroclear," he stated.

Turhan said in March that Borsa Istanbul hopes to reach an agreement with the clearing system by the end of 2013. He told reporters on April 10 that Euroclear representatives are currently on the ground. "Their members are in Turkey as I speak, work continues," he said.

Turkey is lagging Russia in this regard. Euroclear began direct clearing of Russian debt in February, in a move some analysts have estimated could raise fixed-income investment to the country by as much as $30bn. Turkey's government debt market, at $295bn, is almost twice that of Russia's already, while Ankara is pushing hard to make Turkey a major player in unleashing the huge potential of Islamic funding in its neighbourhood.

Another race in which Moscow leads is in the physical construction of a financial district. While the Moscow City development on the edge of the Russian capital's centre is now populated with skyscrapers, the Istanbul International Financial Centre (IIFC) is still a dusty patch of land between the suburbs of Atasehir and Umraniye on the Asian side of Turkey's second city. However, Erdogan is pushing hard to have the $2.6bn project up and running within three years, and construction officially started in March. The 4m-square-metre scheme is planned to have retail outlets and hotels, as well as host the head offices of the country's financial market governing bodies, and state-owned and private banks.

Yet while Russia is ahead in terms of tangibles, Turkey enjoys considerable advantages when it comes to sentiment. The countries are enjoying similar levels of economic growth, but worries over corruption and corporate governance mean Russian stocks are trading at levels last seen at the end of 2009. By way of contrast, the Turkish stock market spent 2012 setting new records, while bonds yields plummeted. At the same time, international lenders are desperately seeking a route into the promising Turkish banking sector; Moscow has witnessed an exodus as twin state giants Sberbank and VTB increasingly dominate.

A 2010 study by Deloitte on Istanbul's prospects of turning itself into a global hub noted how those same advantages offer the city a leg-up in building the necessary "aligned political, legal, fiscal, regulatory and physical environment." The consultants rated Turkey above Russia in terms of legal and regulatory environment, political and economic stability, infrastructure and ease of doing business. "Given its assets," Deloitte's report concludes, "Istanbul has the potential to be truly international - rising above existing centres to match the best in the world."

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