Turkey Wake up call: Macro and Political News, 26th February

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Wake – up call

BIST retreated 0.37% yesterday as weaker mood in global peers erased earlier gains. BIST100 opened higher and climbed to 116k in early trades before turning south and falling further after 1PM. A recovery attempt could not be sustained and the market closed slightly lower. Banks underperformed with the 0.76% drop in their sector index amid pressure on ISCTR and AKBNK while VAKBN and HALKB fared somewhat better. THYAO, PGSUS, KOZAL, BIMAS, MAVI, TAVHL, SAHOL, and TUPRS topped the decliners among non-financials while TCELL, ASELS, AEFES, TOASO, OTKAR, and TRKCM stood out as best gainers. Today, our local macro agenda showcases the summary minutes of the latest Monetary Policy Council meeting to be released at 2PM local time. Traders will also eye President Erdogan’s remarks during his speech at the weekly AK Party group meeting in the Parliament at 11AM. BIST is off to a negative open on the overnight 3.2-3.4% plunge in main U.S. indices from the time we left as coronavirus outbreak haunts the sentiment while S&P futures are staging a partial recovery of some 0.6% gain this morning. Asian markets are almost all trading in the red while lira is also weaker with USDTRY pair at 6.1548 vs 6.1350 at yesterday’s closing bell.
Macro and Political News:
(+) Erdogan: Turkey in touch with Russia to solve Idlib crisis… President Erdogan that said Turkish officials are constantly in touch with Russian counterparts regarding the ongoing developments in Syria’s Idlib province and Libya. The president said he plans to have a face-to-face meeting with his Russian counterpart to finalize the details of a road map for de-escalating violence in the regions. Speaking to reporters ahead of his departure for an official visit to Azerbaijan on Tuesday, Erdogan said solving the Idlib crisis is a priority for Turkey. Erdogan noted that Russia gives maximum backing to the (Bashar) Assad regime, including air support, adding that Turkey has sufficient evidence proving Russia’s support to Assad regime forces even though they deny providing assistance. He stressed that a Russian delegation will arrive in Turkey on Wednesday to discuss Idlib, while he highlighted that he may meet with President Vladimir Putin on March 5 in Istanbul or Ankara. Erdogan said, in reference to a meeting with French, German, and Russian leaders, there is no agreement on holding a four-way summit.
(+) Erdogan: A Russian delegation to visit Turkey for talks on Idlib… President Erdogan said on Tuesday that a Russian delegation will visit Turkey on Wednesday to discuss the latest situation in Idlib, northwestern Syria. Erdogan underscored that the government tries to determine our road map by negotiating with Russia at the highest level, adding that Turkey is working closely with Russia to resolve issues in Idlib and Libya.
(=) Russia not working on 4-way Syria summit… The Kremlin said on Tuesday it was working to organize a summit with Turkey and Iran to discuss the conflict in Syria’s Idlib region but was not organizing a separate mooted four-way summit that would gather France, Germany, Turkey and Russia. President Erdogan said that there was not yet full agreement on holding a proposed March 5 summit with Russia, France and Germany, but that he might meet Russia’s Vladimir Putin on that date. Asked about Erdogan’s comments, Kremlin spokesman Dmitry Peskov said there were no discussions underway to hold a summit with France and Germany. Russia was only considering an Idlib summit with Iran and Turkey. Peskov said that there were currently no discussions about a possible meeting between Putin and Erdogan.
(=) Turkish spokesman: Very critical stage in Idlib… Ibrahim Kalin, Turkey’s presidential spokesman, said on Tuesday that there is very critical stage in Idlib, a de-escalation zone in northwestern Syria, at the moment, as the fighting is going on in the region. Speaking at an interview with CNN International, Ibrahim Kalin also said that the military situation on the ground in northwestern Syria remains very critical. He stated that Turkey has 12 military observation posts in the Idlib area and some of those military posts have been now surrounded by the regime forces; so Turkey has to take action to protect its soldiers there. The Turkish official also underlined that the regime has been attacking civilians and civilian infrastructures brutally over the last few months.
(+) Turkey and Azerbaijan eye USD15bn trade volume… Turkey and Azerbaijan on Tuesday are set to sign a preferential trade agreement towards reaching a USD15bn trade volume target. The signing will take place during a visit to Azerbaijan by Turkish President Erdogan, at a high-level strategic cooperation council meeting co-chaired by Erdogan and his Azerbaijani counterpart Ilham Aliyev, with the participation of Turkey's Trade Minister Ruhsar Pekcan. Trilateral and quadrilateral mechanisms established with Azerbaijan are considered important mechanisms promoting regional stability, peace, and prosperity.
(+) Turkish Treasury borrows over TRY6bn from domestic markets… The Turkish Treasury borrowed TRY6.32bn (USD1.04bn) from domestic markets this week. The Treasury and Finance Ministry announced that some TRY3.26bn in two-year fixed coupon rate Treasury bills - reopen, semi-annually, fifth issue - were sold in an auction on Monday. The Treasury bills will be settled on Wednesday and mature on Oct. 20, 2021. The total tender amounted to TRY6.6bn with a 49.3% accepted/tendered rate. The Treasury said the term rate of the 602-day Treasury bills was accepted at 5.75%, while the annual simple and compound interest rates were 11.51% and 11.84%, respectively. In another auction on Tuesday, the Treasury issued two-year Turkish lira overnight reference rate (TLREF)-indexed Treasury bills - semi-annually, reopen, and second issue – totalling TRY3.06bn. The bonds will be settled on Wednesday with a maturity date of Jan. 26, 2022. The total tender in the second auction amounted to TRY5.76bn with a 53.2% accepted/tendered rate. The term rate of 700-day government bonds was accepted at 2.50%, while the annual simple and compound interest rates were 9.99% and 10.37%, respectively.
(+) Hotel occupancy rate up in January… The hotel occupancy rate across Turkey reached 61.9% in January, up 6.4% from the same month last year. According to the Destination Performance Report prepared by the data company STR for the Turkish Hotel Association (TUROB), the average hotel room price also soared to 68 euros (nearly USD73.7) with an annual increase of 8.9%. The sector’s revenue per available room (RevPAR) increased to 42 euros ($45.5) from 36.2 ($39.2) euros. In January, the occupancy rate was 69% in Turkey’s world-famous touristic city of Istanbul with an annual increase of 9.7%. The average hotel room price in the metropolis hit 82.8 euros ($89.7), rising from the level of 76.6 euros (nearly $83) in January 2019. However, the occupancy rate in the Mediterranean resort city of Antalya in January contracted 0.5% annually from 57.1%. The average hotel price room in Antalya soared to 50.7 euros, indicating an annual increase of 6.8%. The number of foreigners visiting Turkey jumped 16.11% on a yearly basis in January, the country’s Culture and Tourism Ministry said on Feb. 24. Almost 1.8 million foreign visitors entered the country last month. Istanbul continued to be Turkey’s top tourist draw, attracting nearly 57% of all visitors, around 1 million.
(+) State-run lender Halkbank to appear in US court to respond to Iran sanctions charges… Turkish state-run lender Halkbank has agreed to enter a formal plea of not guilty to criminal charges that it helped Iran evade U.S. sanctions, backing down from its previous refusal to answer the allegations, a lawyer for the bank said Tuesday. The bank has maintained that the federal court in Manhattan where it is charged has no jurisdiction over it. To remind, the case, which has caused tension between the United States and Turkey, accuses Halkbank of using money servicers and front companies in Iran, Turkey and the United Arab Emirates to evade sanctions through sham transactions in gold, food and medicine. Also to remind, a court in early December denied Halkbank’s request to make a “special and limited appearance” to have the case dropped without having to formally participate in the proceedings. District Court Judge Richard Berman asked the King & Spalding law firm to gain written authorization from the bank to proceed.
The bank’s attorneys said it agreed to appear at the proceedings at a hearing on Tuesday. Andrew Hruska, the bank’s U.S. lawyer, said at a court hearing that the bank had been reassured it would not give up its right to challenge the court’s jurisdiction by responding to the charges. He said he had been given permission by the bank’s general manager to enter a plea on its behalf, adding that those issues have been resolved and they are ready to proceed. The hearing is scheduled for March 3. The bank’s change of course came after U.S. prosecutors asked the judge to hold it in contempt for failing to respond and impose heavy fines, beginning at USD1mn per day and doubling each week.
(=) Ankara on alert after plane lands due to suspicions of coronavirus among passengers… Turkish Airlines plane flying from Iran to Istanbul was diverted to Ankara on Feb. 25 at the Turkish Health Ministry’s request. The plane, carrying 132 passengers, was flying from Tehran to Istanbul. The plane has landed at the capital Ankara Airport. Some 17 passengers allegedly have fever above normal levels, while some others were travelling from the Iranian city of Qom. All 132 passengers and crew on a flight from Iran to Turkey will be quarantined for 14 days and tested for coronavirus infection. Turkey’s Health Minister Fahrettin Koca confirmed early Wednesday that there are no signs of the deadly novel coronavirus in passengers who arrived from Iran. Mr Koca stressed that the decision to quarantine them was taken in line with recommendations from the Health Ministry’s scientific committee in terms of not taking risks because four of the passengers had cold symptoms and others had visited the city of Qom, the epicentre of the virus in Iran. He added that these passengers are in good condition and that there are no respiratory or similar problems in this sense.
Earlier on Feb. 25, Turkish Airlines announced that it suspended its China and Iran flights - except the capital Tehran - due to the coronavirus outbreak. The carrier also said that based on the decree of Turkey’s official authorities, foreign people who were in China or Iran’s northern city of Qom in the last 14 days will not be granted entry to Turkey. The carrier’s China flights are suspended till the end of this February and Iran flights are cancelled till the 10th of March as the World Health Organization has declared the outbreak an international health emergency.

Sector and Company News:
(=/-) THYAO flight from Tehran to Istanbul made an unscheduled landing in Ankara yesterday due to the fears that some passengers may have contracted coronavirus. Accordingly the company cancelled yesterday’s Tehran-Istanbul flights. Recall that prior to this development the company announced that flights to Iran, except those to Tehran, halted until 10 March. It was also said that flights to mainland China halted until 29 February. Recent news flow about the virus is escalating the selling pressure on airline industry stocks.

(+) OTKAR and commercial vehicle manufacturer Iveco S.p.A. signed an agreement within the scope of the cooperation and supply agreement. According to agreement, OTKAR will produce more than 5k units of Iveco Bus. Agreement period is 5+5 years. The management expect the production to start in 2021. Total CapEx will be EUR26mn. and in its Sakarya plant.

(=) ULKER’s former executive Mete Buyurgan has been appointed as the new CEO of the company.

Dilek Sabanci sold 3.8mn lots of TKNSA shares between TL7.25-7.94 and her shares in TKNSA declined to 0%.

Vakıfbank Personeli Ozel Sosyal Guvenlik Hizmetler sold 5.4mn lots of GUSGR shares between TL2.78-2.85 and its share declined to 5.99% from 7%.