Turkcell prepaying Chinese Development Bank loan and intensifying cooperation with Huawei

Turkcell prepaying Chinese Development Bank loan and intensifying cooperation with Huawei
By Akin Nazli in Belgrade February 12, 2020

Turkey's leading mobile phone operator Turkcell has announced that it will on March 23 prepay $329mn covering two final principal payments on a Chinese Development Bank loan that will mature on September 16. The telco provided the details on February 11 in a stock exchange filing.

The payments of €148.4mn and $166.7mn are due in June and September.

The prepayment will increase the average borrowing maturity of Turkcell to five years from four years, the company said in the filing, adding that Turkcell differentiates positively from its peers with its 1.0x net debt/Ebitda ratio as per the latest financial statements disclosed publicly.

“The loan was utilized under the credit agreement disclosed on September 17, 2015,” according to the filing.

On September 17, 2015, Turkcel said in a stock exchange filing that it obtained a €500mn loan from Chinese Development Bank (CDB) with an availability period of two years to refinance its existing loans and another €750mn loan with an availability period of three years to finance its procurements from Chinese companies for its infrastructure projects. Both tranches have a maturity of 10 years with a grace period of three years and an annual cost of Euribor+2.20%.

Swapped into lira

In July 2016, Turkcell swapped the €500mn loan into Turkish lira for a maturity of five years with an average annual interest rate of 10.27%.

In May 2017, Turkcell fixed the annual cost of the loan at 10.1% in Turkish lira terms and extended the maturity of the swap transaction to 2025.

In August 2019, Turkcell said that that the annual interest rates on USD- and EUR-denominated loans taken out as part of an existing €750mn loan agreement with China Development Bank, which stood at Libor+2.22% and Euribor+2.20%, had been revised down to Libor+2.17% and Euribor+2.15%, respectively.

On February 12, Seth Wang, a Huawei Turkey official, said that Turkcell has signed an agreement with Chinese telecoms giant Huawei to use the Huawei Mobile Services (HMS) app ecosystem.

Huawei developed HMS after US President Donald Trump placed a ban on the Chinese company using Google's Android.

Turkcell will be the first non-Chinese operator to use HMS. It will be the third software for mobiles, following Apple and Google software, used by Turkcell.

‘Reliable business partner’

Turkcell said last year that Huawei has been a reliable business partner and its partnership with the Chinese company was set to continue, Reuters noted.

Turkcell is targeting sales of more than one million Huawei phones in a period running from April to the end of 2021, Turkcell CEO Murat Erkan said at a ceremony held in Istanbul to sign the HMS agreement. 

In Turkey, there are a total of 4.6mn mobile phone subscribers with an Huawei identity and 2.3mn of them are active.

Turkey is also one of the largest markets for Chinese social media app TikTok.

In October 2018, Turkcell and Chinese technology giant Huawei signed an agreement to collaborate on “smart cities equipped with 5G technologies”.

In March 2019, Turkcell utilised loans of $225mn and €35mn with a maturity of October 2026 as part of a credit agreement with China Development Bank.

Also in March 2019, Turkcell’s consumer finance unit Turkcell Finansman signed a €100mn loan agreement with Bank of China.

In December 2019, Turkcell signed a memorandum of understanding (MoU) on a €500mn loan from the China Development Bank.

In a December presentation for investors, Turkcell said it was targeting revenue growth between 13% and 16% over 2020-2022. It forecast that the company’s capital spending would be around 16-18% of sales revenues during the next three years.

In January-September 2019, Turkcell’s revenues rose 18% y/y to TRY18.4bn, while its profit increased 115% y/y to TRY2.5bn. Turkcell recorded a TRY772mn profit from the sale of its 41.45% stake in Fintur to Sweden’s Sonera Holding in April 2019.

As of end-September, the carrier had a total of 34.4mn mobile customers.

Turkcell will release its Q4 financials on February 20. The telco will attend on February 24-26 the J.P. Morgan Global Emerging Markets Conference in Miami.

The consensus estimate for Turkcell’s Q4 profit stands at TRY737mn.

 

Last October, Turkcell distributed a dividend of around 3% per share from its 2018 profit (up 2% y/y to TRY2.02bn).

Sweeden’s Telia Sonera is the largest shareholder in Turkcell with a 24% indirect stake while Cukurova Holding, owned by Turkish mogul Mehmet Emin Karamehmet, has a 13.8% stake and Russia's Alfa Group, owned by Russian tycoon Mikhail Fridman, has 13.2%.

Turkish President Recep Tayyip Erdogan is also present on the board of Turkcell, along with two independent members appointed to solve a deadlock among shareholders.

 

Turkcell sold $500mn of 10-year eurobonds with a 5.75% coupon in 2015 and $500mn of 10-year eurobonds with a 5.80% coupon in 2018.

Fitch Ratings and Standard & Poor’s rate Turkcell at BB-/Stable.

In February 2019, Turkcell signed a loan agreement worth $150mn with JP Morgan Chase Bank’s London branch and AB Svensk Exportkredit under a guarantee provided by the Swedish Export Credit Agency (EKN) in order to fund purchases from Ericsson AB and Ericsson Telekomunikasyon.

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