Turkey Wake up call: Macro, Political and Equity News, 24th March

This analysis by GLOBAL Securities is presented to you by Raiffeisen Centrobank AG. Raiffeisen Centrobank AG acts solely as a distributor of this analysis and has not introduced any material changes to the content of this analysis or any recommendation included herein.

Wake – up call

BIST dropped 1.81% yesterday after another volatile day, chasing the global peers. Index opened gap lower and tested its daily bottom of 82.5k in early hours before staging a gradual rebound. New moves from major central banks encouraged buyers in the afternoon and a quick rally carried the benchmark BIST100 to positive territory to a daily peak of 86.5k. But the market changed course again, in sync with U.S. futures, and closed the day lower. It was the 5.85% drop in the banking index that most weighed on the broader market amid selling pressure on GARAN, HALKB, and ISCTR. Aviation stocks, EREGL, SAHOL, TOASO, ARCLK, and Sisecam names were among the weakest non-financials while TCELL, TTKOM, KOZAL, GUBRF, retailers, drug/sanity product makers, and foodstuff producers topped the gainers. Coming to this morning, our local macro agenda is muted apart from Treasury's issue of 3-year TLREF-indexed bonds and separate offer of 2-year sukuk papers via a direct placement today, wrapping up this month's heavy borrowing programme. Domestic redemption is only TL1.48bn for the week while the total for the month stands at TL25.96bn vs a domestic borrowing target of TL20.0bn while Treasury has already raised TL15.42bn in the four auctions held so far. BIST is off to a gap higher open this time given the 3% jump in U.S. futures and strong gains in Asian benchmarks as global markets stage a rebound from their 4-year lows. Lira is also stronger as the greenback snaps its recent rally and the USDTRY pair is at 6.5424 vs 6.5771 at yesterday's closing bell.
Macro and Political News:
(+) Turkey brings in more stringent virus measures as death toll rises to 30… The Turkish government has been extending its measures against the coronavirus outbreak, from suspended flights and limited work hours to more stringent disinfection works, as the death toll increased to 30 on March 22 with a total of 1,236 cases. The Turkish government has been implementing strict measures since the outbreak of the novel coronavirus, from flight bans to schools temporarily closing. In this regards, Turkish Airlines will halt all its international flights as of March 27, except those to Hong Kong, Moscow, Ethiopia, New York, and Washington, its CEO said on March 22 while cargo flights and domestic flights will continue. The carrier was not using 85% of its planes, its board chairman said earlier on March 22.
Turkey is also allowing civil servants to work from home and in shifts as part of coronavirus measures, according to a presidential decree published on the Official Gazette on March 22. The flexible work arrangements apply to employees of public institutions and organizations, the decree read. The decision for state workers, who were previously being considered for administrative leave, will be valid until a new one is made, it added. The Banks Association of Turkey (TBB) also decided to limit the work hours of bank employees. According to the decision, which was sent as an advice to all banks, bank employees will now work from 12:00 p.m. (0900GMT) to 05:00 p.m. (1500GMT). Many banks abided by the TBB’s decision, limiting their work hours, including Garanti BBVA, Turkiye Is Bankasi and Yapi Kredi Bankasi. Also Capital Markets Board postponed the publication date of listed companies’ financials for one month.
(=) Turkey and Russia hold 2nd joint patrol in Syria’s Idlib… The Defense Ministry announced that Turkish and Russian troops held the second round of joint patrols in Syria’s northwestern province of Idlib on Monday. The ministry said in a statement that the second Turkish-Russian joint ground patrols were held with the participation of land and air elements on the M4 Highway in Idlib under the scope of the Moscow Agreement. The Russian defense ministry said they were forced to cut the patrols short due to security concerns. The first joint patrols held earlier this month were also interrupted.
Turkey and Russia, which back opposing sides in Syria’s war, agreed on March 5 to halt military activity in the northwestern Idlib region after an escalation of violence displaced nearly a million people and brought the two sides close to confrontation. The deal addresses Turkey’s main concerns, stopping a flow of refugees and preventing the deaths of more Turkish soldiers on the ground. As part of the agreement, Turkish and Russian forces will carry out joint patrols along the M4 highway linking Syria’s east and west, and establish a security corridor on either side of it. The first patrols took place on March 15. The M4 motorway connects the port city of Latakia to the Iraqi border while the M5 forms the backbone of the country’s highways, connecting economic hub Aleppo to the central cities of Hama and Homs, the capital Damascus and to the Jordanian border farther south.
(+) Turkish consumer confidence index improves in March… Turkish consumer confidence in the economy improved this month despite coronavirus fears, national statistical body data revealed Monday. The consumer confidence index rose to 58.2 points in March, from 57.3 in the previous month, a 1.7% month-on-month increase, according to the Turkish Statistical Institute (TurkStat). The index value is calculated through cooperation between TurkStat and the CBRT by measuring consumer tendencies. The number of people unemployed expectation index climbed 7.2%, hitting 57.6 in March, indicating that more people were expected to lose their jobs. The number of people expecting a better financial situation for their household in the next 12-month period rose 2.3% on a monthly basis to 78.6 in March. Last month’s general economic situation expectation index of 75.9 slipped 0.5% this month to 75.6. The probability of saving index – showing consumers' tendency to save money over the next 12 month-period – fell the most with a 5.8% decrease from February to 21.2 this month. Last year, the index value ranged between 63.5 and 55.3 – the highest being in April and the lowest in May. The consumers’ assessments and expectations in nearly 20 economic and financial categories are measured in monthly tendency surveys. The consumer confidence index calculated from the survey results is evaluated within a range of 0-200, indicating an optimistic outlook when the index is above 100, and a pessimistic one when it is below.
(=) Turkish Treasury borrows TRY4.8bn from domestic markets… The Turkish Treasury borrowed TRY4.8bn from domestic markets on Monday. The ministry re-issued a fixed coupon government bond with a maturity of two years (574 days) and 6.9% coupon payment every six months. Simple interest in the tender was 10.65%, and compound interest was 10.94%. The total tender amounted to TRY6.3bn with a 75.7% accepted/tendered rate.
Sector and Company News:

(+) State lenders support economy amid COVID-19… Turkish state lenders - Ziraat, VakifBank and Halkbank - announced packages for supporting economic activities in Turkey, following the recommendations of the Turkish Banking Association (TBB) to tackle the effects of COVID-19 pandemic. TBB recommends easing credit access and providing flexibility to all lenders for their customers “who need additional loans due to a provisional disruption in their revenues-expenses balance, have difficulty in the timely repayment of their liabilities, have the intention to repay their debt on time”.
Three banks said in separate statements that they will postpone loans of individuals and firms and also provide flexibility to their customers. Banks will provide long-term postponements of up to 12 months for some sectors which were affected by the outbreak the most, such as tourism and public transportation. Firms will be given extra credit limit for easing their check payments and operation costs.
Ziraat and Halkbank will open a special credit line for the next three months to continue paying personnel salaries, but on the condition that these firms do not drop the number of employed staff. Berat Albayrak, the Turkish finance and treasury minister, said state lenders fulfil their responsibilities as part of the measures to reduce the effects of the pandemic on the economy, prevent falls in employment, and keep the labour market alive.
(+) Private banks pledge support in face of virus… Four Turkish private lenders and participation banks – Is Bank, AK bank, Zarate Katelin, and Wakif Katelin – on Monday announced packages to support economic activities in Turkey, following the recommendations of the Turkish Banking Association (TBB) to tackle the effects of the coronavirus pandemic. With the contribution of all private sector banks to economic support packages initiated by public banks, both companies and individual customers are expected to survive this difficult period with the least losses. The banks said in separate statements that they will postpone both corporate and personal loan repayments and also provide flexibility to their customers.
The banks will provide long-term postponements of up to 12 months for some sectors affected by the outbreak the most, such as tourism and public transportation. Firms will be given extra credit limits to ease their check payments and operation costs. Taking steps in this direction, Is bank became the first private bank to announce its support, saying all the necessary support, including grace periods, will be assessed on a case-by-case basis. This will be done without any sector distinction, particularly in the tourism, logistics, shopping center, and retail sectors, which have been hurt by the epidemic. The bank said small- and medium-sized enterprises (SMEs) and micro enterprises will be supported in order to fulfil commercial obligations they entered into before the epidemic, and if necessary, maximum efforts will be made for support.
No Isbank customers will be charged through April 30 (including card-to-card transfer) for EFT / wire transfer transactions through digital channels, it said, adding that credit card limits will be increased if customers, especially in their health and food supplies, need it for shopping.

(+) MGROS sold one of its malls located in Izmir, amounting to TL267mn+VAT. Recall that, in the previous years, the Company had announced that they consider to sell Kipa assets to decline the financial leverage. Also note that MGROS has 2.4x Net Debt/EBITDA ratio (including IFRS16 implementation) according to its 4Q19 financials. The amount coming from the asset sale is around 5% of MGROS’ Dec19 net debt (including IFRS16 implementation).

EGEEN, which received notifications from its customers to decrease their production volume, received the notification that the production was stopped from the Evobus & MBT Hosdere customer, which constitutes 5% of the 2019 sales volume of EGEEN. Thus, EGEEN decided to reduce their working time by 50%. During this period, the number of employees in shifts will be reduced, but production will continue with the same shift system.

ENKAI bought 484k lots of its own shares with TL5.59-5.85 price range per share.

(=) TSKB bought 270k lots of TSGYO shares with TRY1.10 per share. Its share in TSGYO reached to 89.09% by this transaction.

(=) ISCTR bought 900k lots of ISGYO shares with TRY1.18 – 1.23 price range per share. Its share in ISGYO reached to 50.46% by this transaction.

(=) ISCTR bought 100k lots of SISE shares with TRY3.72 – 3.82 price range per share. Its share in SISE reached to 67.59% by this transaction.

(=) TRGYO CEO Aziz Torun bought 50k lots of TRGYO shares with TRY1.75-1.77 price range per share. His shares in TRGYO reached to 39.485% by this transaction.

(=) PETKM management decided to delay their annual general meeting due to the pandemic. Recall that its AGM would be held on March 27.

(-) Major capacity grounded for airliners... According to the daily press, PGSUS grounded 56 of 82 airplanes in Sabiha Gokcen Airport and focused more on domestic flights in certain routes. Recall that THYAO management had stated that 85% of their existing capacity has been grounded and THYAO will flight only five international routes until mid-April.

(-) OTKAR is to halt production for two weeks starting from March 25 due to disruptions in the supply chain from European countries.

(=) Turkish banking regulation authority BRSA updated the calculation method for capital adequacy. Accordingly,

 Regarding the conversion rate for foreign currency amounts which is subject to credit risk, banks will be able to use the exchange rate on Dec 31, 2019.
 The securities that banks hold in “fair value through other comprehensive income” accounts, in case their valuation differences is negative by March 23, 2020, will be ignored while calculating capital adequacy.
 Banks will be able to ignore the devaluation of securities, which are in securities portfolio as of March 23, calculating “foreign currency net general position”.

The steps above aim to support banks’ capital adequacies in a regulatory frame during current volatile economic and financial environment.