Koc Joins Garanti as Companies Draw Erdogan Ire Over Protest

As he denounced extremist groups, opposition parties and international media for stoking the protests of the past few weeks, Turkish Prime Minister Recep Tayyip Erdogan spared some of his ire for local companies.

Koc Holding AS (KCHOL), whose businesses range from makers of cars and fridges to financial services, and Turkiye Garanti Bankasi AS (GARAN), the biggest lender, were among the targets. Addressing hundreds of thousands at an Istanbul rally on June 16, Erdogan referred to a Koc-owned hotel in central Istanbul that allowed its lobby to be turned to an infirmary for protesters sprayed with pepper gas during clashes with police the previous evening.

“We know who cooperated with terror in their own hotels,” he said. “They will have to account for it.”

While there’s been no action against any of the companies, the rhetoric raised concerns in a country with historically an uneasy overlap of business and politics. Media group Dogan Yayin Holding AS (DYHOL) was hit by a $3.8 billion tax fine in 2009 after its newspapers got embroiled in a row with ministers over coverage. The government said it resulted from a routine inspection.

After the first week of protests, Erdogan singled out Garanti Chief Executive Officer Ergun Ozen, saying he would oppose any bank manager who stood with the protesters.

Photographer: Kerem Uzel/Bloomberg

Turkish police stand behind riot shields outside a graffiti-damaged Turkiye Garanti Bankasi AS bank branch near Taksim Square in Istanbul, Turkey, on Tuesday, June 11, 2013. Close

Turkish police stand behind riot shields outside a graffiti-damaged Turkiye Garanti... Read More

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Photographer: Kerem Uzel/Bloomberg

Turkish police stand behind riot shields outside a graffiti-damaged Turkiye Garanti Bankasi AS bank branch near Taksim Square in Istanbul, Turkey, on Tuesday, June 11, 2013.

Ozen had described himself as a “capulcu,” meaning riff-raff or looter, mimicking what Erdogan initially had branded the demonstrators. Cem Boyner, chairman of retail chain Boyner Buyuk Magazacilik AS (BOYNR), earned a similar rebuke from the premier.

Vendetta Target?

The protests created a “growing risk that certain high-profile individuals and business entities accused of backing the protesters may become the target of a political vendetta by the government in the aftermath of the crisis,” Wolfango Piccoli, an analyst at London-based political-risk assessor Teneo Intelligence, wrote in a June 16 report.

Garanti and Koc shares have underperformed this month, both dropping more than 17 percent as of the close in Istanbul today, while the benchmark ISE-100 Index (XU100) declined 15 percent.

“Investors are very hesitant in the short-term to buy companies that have been criticized,” Berra Doganer, CEO of Turkish Yatirim AS, a brokerage in Istanbul, said by e-mail. Still, “their price levels could offer opportunities to buy for medium and long-term investors,” she said.

Erdogan clashed with Koc before. In 2008, Honorary Chairman Rahmi Koc said he would never hire people with moustaches or beards. The mustachioed Erdogan, whose party has roots in Islamist movements, accused him of “primitive” discrimination.

Ataturk Roots

A Koc Holding communication department official, who didn’t want to be identified because of company policy, declined to comment when contacted by telephone yesterday.

Koc, which has joint ventures with Fiat SpA (F) and Ford Motor Co. (F) and runs Turkey’s only oil refiner, is one of the country’s older business groups, with roots in the early years of the secular republic founded by Mustafa Kemal Ataturk in 1923.

In February, Erdogan’s government canceled a $5.7 billion sale of rights to operate toll roads and bridges to a group including Koc, which had won an auction against two rival bidders two months earlier. It said the price was too low.

Garanti has been caught in the middle of the political battleground because, even as Erdogan was rebuking its CEO, the bank was targeted by the anti-government protesters. Their anger was directed not at Ozen, but at billionaire Ferit Sahenk.

Sahenk’s Dogus Group, one of Garanti’s main shareholders in partnership with Banco Bilbao Vizcaya Argentaria SA (BBVA), also owns television stations including news channel NTV. Like other Turkish broadcasters, NTV’s lack of coverage on the first night of the protests over the development of Istanbul’s central square later made it and associated businesses a target.

Boycott Risk

Clients canceled 1,500 credit cards and pulled as much as 40 million liras ($21 million) from Garanti in the week through June 4 to protest the coverage on Dogus media, Ozen said.

“Certain companies or shareholders have unwillingly found themselves between two fires as the political environment got increasingly polarized,” Eli Koen, the co-head of emerging Europe equities at Union Bancaire Privee in London, said by e-mail on June 13. “Any company that falls on the wrong side of either party in this conflict carries a risk of boycott.”

Erdogan and other ministers have criticized banks more broadly for being part of an “interest-rate lobby” seeking to exploit the unrest by pushing borrowing costs up and boosting profits. Erdogan urged depositors to move their money from private to state banks.

“Our bankers are living in a glass castle,” Deputy Prime Minister Ali Babacan said on June 14. “If you live in a glass castle you should not throw stones at anybody otherwise the consequences will be bad.”

Riff-Raff

Erdogan draws his strongest support from among the poorest sections of Turkish society.

Economic growth exceeding 5 percent a year during his decade in power has propelled him to three successive election victories, the last one with 50 percent of the vote in 2011. Boyner is also a former politician. His New Democracy movement won less than 1 percent in the 1995 election.

Boyner displayed support for the protesters by carrying a placard that read: “I’m neither right-wing nor left-wing, I’m riff raff” during demonstrations on June 4.

Five days later, Erdogan told a crowd in Ankara: “Don’t help these riff-raff prosper. You know, these people have made a living for years off the people’s back.”

To contact the reporter on this story: Ercan Ersoy in Istanbul at eersoy@bloomberg.net; Firat Kayakiran in Istanbul at fkayakiran@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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