Biggest Turkish IPO in Two Years to Fund Financial Center

Turkey’s largest listed state bank is offering shares this week in the country’s biggest initial public offering in two years to help pay for a new international financial center in Istanbul.

Turkiye Halk Bankasi AS will seek to raise 250 million liras ($142 million) by selling 185.5 million shares in real estate unit Halk GYO by tomorrow, according to details in an e-mailed company presentation received yesterday. The sale will be Turkey’s largest since Bizim Toptan Satis Magazalari AS, a wholesale chain of stores, was listed in February 2011 after raising $266 million, according to data compiled by Bloomberg.

“The Istanbul Stock Exchange sees this as a sign that big IPOs are starting,” Sertac Fuad Karaagaoglu, the listing director at the Istanbul Stock Exchange, said in e-mailed comments yesterday. “We have significant expectations for public offerings in 2013.”

The Istanbul Financial Center project is part of Prime Minister Recep Tayyip Erdogan’s plan to boost Turkey’s regional importance and make the economy one of the world’s 10 biggest by 2023. Construction has already begun on the Asian coast of Istanbul, a city of 13 million, in a district called Atasehir. Turkish shares were the second best performers worldwide last year with the benchmark ISE Index surging 61 percent in dollar terms.

New Headquarters

Proceeds from the Halk GYO stake sale will be used to finance the construction of two towers and three buildings in the planned financial center, according to Kazim Simsek, the unit’s chief executive officer.

“We expect more than 200 million liras in annual rental revenues from the five buildings,” Simsek said in a phone interview on Feb. 12. “Rent paid by Halkbank will comprise about 45 percent of this figure.”

Halkbank will move its headquarters to a 46-story tower in the financial center when construction is completed in the last quarter of 2016, Simsek said. Halk GYO’s Atasehir land has a gross rentable area of 238,788 square meters and will have a value of 2.4 billion liras after an estimated development cost of 650 million liras, according to company documents.

Halkbank’s stake in the unit will decline to 71.9 percent from 99.8 percent after the sale, with 28 percent of the unit traded publicly.

Rental Income

Halk GYO posted net income of 30.4 million liras in 2011 and 9.9 million liras for the first nine months of 2012, according to company reports. Rental income will rise more than 10-fold to 266.6 million liras in 2017, from an estimated 21.8 million liras in 2012, the company estimates.

“After the projects are developed, net asset value will be tripled, at least,” Bulent Sezgin, managing director of corporate finance at Halk Yatirim Menkul Degerler AS, the lead manager of a 26-member consortium arranging the sale, said in a phone interview yesterday.

The IPO is priced at a 33 percent discount to net asset value, according to the company.

“Considering a company which may not be able to generate positive cash flow for two years, I’d have liked to see a more attractive discount,” Kurthan Atmaca, an analyst at Ekspres Invest in Istanbul, said in a phone interview yesterday. “Still, this is a positive development for the real estate industry to attain greater depth.”

Turkey completed its largest real estate IPO in December 2010 when Emlak Konut GYO, a developer tied to the state housing authority TOKI, sold 625 million shares to raise $676 million. The shares have gained 65 percent from the offer price.

Previous IPOs

Investors in most real estate IPOs in Turkey since 2010 would have lost money had they held on to the shares through today.

Torunlar GYO, which went public with a $272 million share sale in 2010, has declined 2.5 percent from the offer price. Kiler GYO plunged 57 percent and Akfen GYO 31 percent since their listings in 2011. TSKB GYO, Reysas GYO and Marti GYO, all listed in 2010, have lost 20 percent, 23 percent and 64 percent, respectively, according to data compiled by Bloomberg.

A successful IPO at Halk GYO may pave the way for future share sales, according to Simsek, the CEO. The company may seek a loan of between 100 million liras and 150 million liras in 2015 or 2016 as the financial center project nears completion, he said.

A total of 14 IPOs and three secondary share sales were held in Turkey last year, according to data compiled by Bloomberg. The biggest was technology retailer Teknosa Ic ve Dis Ticaret AS, at 98 million liras, the data show. The stock has jumped 22 percent this year while the ISE Index dropped 0.3 percent. The average size of the 14 IPOs was 24.1 million liras.

The government sold a 24 percent stake in Halkbank in a secondary public offering in November, raising 4.51 billion liras ($2.55 billion).

Before it's here, it's on the Bloomberg Terminal.