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Galatasaray Rescues Season With $129 Million Deal: Turkey Credit

Galatasaray
Aurelien Chedjou of Galatasaray, right, celebrates scoring the team's first goal during the UEFA Champions League Round of 16 match between Galatasaray AS and Chelsea in Istanbul, Turkey. Photographer: Michael Regan/Getty Images

May 9 (Bloomberg) -- Turkey’s Denizbank AS is helping soccer team Galatasaray salvage its season with a $129 million debt agreement.

The Istanbul-based club reached an accord on May 5 with Denizbank to restructure its debt a week after its hopes of overtaking rival Fenerbahce to retain the league title vanished. The deal extended the maturity of short-term liabilities, lowered interest-rate payments on dollar loans and converted 73 percent of Galatasaray’s total borrowings into liras, the club said in a filing to the stock exchange.

While the club will still pay salaries to players such as former Chelsea striker Didier Drogba in foreign currency, the deal helps “minimize the risk of currency volatility,” board member Adnan Nas said May 7. The team’s debt-to-capital ratio of more than 200 percent is the highest among members of Turkey’s benchmark Borsa Istanbul 100 Index of stocks, according to data compiled by Bloomberg.

“Galatasaray was forced to do this,” Tugrul Aksar, a soccer economist in Istanbul who writes for financial daily Dunya, said in a May 7 phone interview. “All soccer clubs have high short-term borrowings from banks in foreign currencies. The depreciation of the lira is putting significant pressure on their balance sheets.”

Lira’s Depreciation

The lira’s 13.5 percent drop over the past year is the most among emerging-market currencies in Europe, the Middle East and Africa, according to data compiled by Bloomberg.

Galatasaray hired former Manchester City manager Roberto Mancini last year on a $17 million three-year contract, and pays Drogba 10 million euros ($14 million) a year.

“We’re even paying most of our Turkish players in foreign currency,” Nas said by phone from Istanbul. “It would in fact be beneficial to at least convert their salaries into liras as much as possible in time. But it’s a market problem.”

The accord with Denizbank reduced short-term liabilities to a third of Galatasaray’s total debt, from 73 percent in February, the club said. Denizbank’s communications department didn’t immediately return a request for comment.

Before the agreement, Galatasaray’s short-term debt was 14 times higher than its cash resources, with almost 168 million liras ($81 million) due in a year or less.

Manchester United

That ratio, though, paled in comparison with some Turkish peers. Black Sea team Trabzonspor had 90 times more short-term debt than cash last year while Istanbul rivals Besiktas had a multiple of 57, according to data compiled by Bloomberg.

Manchester United, the English defending champion ending the season without a trophy, had 4.7 times more cash and near-cash items than short-term debt at the end of 2013, according to Bloomberg data.

Galatasaray was ordered to pay 123.6 million liras in taxes and fines last month after an investigation by the Finance Ministry. The club said at the time it will seek a settlement.

“No sports club, including Galatasaray, will get financial amnesty,” Finance Minister Mehmet Simsek said on Twitter May 7. “They pay millions of dollars in transfer fees. They must also pay taxes.”

Nas, the board member, said the imbalance between the club’s foreign-exchange revenue and expenditures is a common problem among Turkish clubs.

“Sport in Turkey doesn’t make as much money as in England or Spain, everyone knows this,” he said.

To contact the reporters on this story: Onur Ant in Ankara at oant@bloomberg.net; Selcan Hacaoglu in Ankara at shacaoglu@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net Alaa Shahine, Benjamin Harvey

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