Yapi Kredi Sigorta’s Sale Seen Enhanced by Pension Spinoff

Yapi & Kredi Bankasi AS, the Turkish bank part-owned by UniCredit SpA, may add value in the sale of insurer Yapi Kredi Sigorta AS by spinning the pensions unit off amid government incentives to encourage savings.

“The more attractive asset here is the pensions unit,” Ates Buldur, an analyst at Credit Suisse Securities Ltd. in Istanbul, said today by phone. “Private pensions in Turkey offer substantial growth, with the government building a new system.”

Yapi Kredi Sigorta, which owns 99.9 percent of pension fund manager Yapi Kredi Emeklilik, said last week a new company will be set up to own the life and pensions unit after parent Yapi Kredi bank put the insurance units up for sale. Yapi Kredi controls 94 percent of Yapi Kredi Sigorta, according to the bank’s website.

Turkey’s new law on pensions, which goes into effect in January, stipulates that the government will match 25 percent of individual contributions to pension plans. The law also exempts contributions from a 15 percent withholding tax on financial gains. The measures aim to lure more individuals to private pensions in an effort to increase Turkey’s savings rate. At 12.7 percent of gross domestic product, the savings rate is at its lowest since 1980, according to a World Bank report. It compares with China’s 53 percent.

Valuable Assets

Private pension holdings by individuals were 20.1 billion liras ($10.5 billion) on Dec. 26, or about 2.5 percent of Turkey’s gross domestic product, according to the latest data from the pension monitoring center’s website. Yapi Kredi Emeklilik is the fourth-largest pension fund manager in the country, with 2.6 billion liras of assets under management.

“With Turkey being a growth market and both units being valuable assets, I would think global players would show strong interest,” Recep Demir, an analyst at Garanti Yatirim Menkul Kiymetler AS, the investment arm of Garanti Bankasi AS, Turkey’s largest bank by market value, said today in a telephone interview. “The units may fetch $1 billion.”

Yapi Kredi Sigorta generated 959.4 million liras of premiums in the first 10 months of 2012, up 21 percent from a year-ago and had a seven percent market share, according to Insurance Association of Turkey’s website.

The pension and non-life units together had an enterprise value of 1.3 billion liras at the end of the third quarter of 2012, according data compiled by Bloomberg. With a market capitalization of 1.7 billion liras, the price-to-earnings ratio was 22, while Anadolu Hayat Emeklilik AS, Turkey’s largest pension fund, had a price-to-earnings ratio of 16.

Aksigorta AS was the latest Turkish non-life insurer to attract a foreign buyer, with Brussels-based Ageas buying a 31 percent stake for $220 million from Haci Omer Sabanci Holding AS. in February last year. The U.S. insurer Cigna Corp. bought a 51 percent stake in Finansbank’s pensions and life insurance unit Finans Emeklilik & Hayat for 95.6 million euros ($125.2 million) in November.

Yapi Kredi Sigorta shares traded 1.2 percent higher at 16.45 liras at 3:33 p.m. in Istanbul today, taking their gain this year to 71 percent. That compares with a 52 percent increase in Turkey’s benchmark ISE-100 Index. Yapi Kredi bank shares were unchanged at 5.22 liras.

“The parent Yapi Kredi Bank increased its sales options with this separation,” Demir said. “Different institutions will be interested in the different units and with more flexibility, their value is bound to increase.”