Putin's Economic War Pushes Turkey's Aynes Near Bankruptcy

  • Turkish dairy producer filed to delay bankruptcy on Monday
  • Company said Tuesday it failed to make bond coupon payment

Dairy producer Aynes Gida Sanayi sought to postpone bankruptcy and failed to make a payment on a bond, as Russian President Vladimir Putin’s economic sanctions on Turkey claimed their first high-profile corporate victim.

Aynes’s application to delay insolvency is part of its plan to suspend repayment of bank debt, according to Eren Yazicioglu, the Denizli-based company’s financial coordinator. The private company, which won a national tender to distribute milk to Turkish schoolchildren, missed a 1.83 million lira ($621,000) payment on a 50 million lira bond on Tuesday.

Aynes had just invested in machinery and inventory for its expansion into Russia when Turkey shot down a Russian warplane near the Syrian border last November, putting relations between the two Black Sea powers and trading partners on a downward spiral. Putin retaliated by slapping sanctions on Turkish imports, discouraging Russian tourism to Turkey and withdrawing a visa-free travel agreement between the two countries.

"All the connections were made," Yazicioglu said of Aynes’s plans for expansion in Russia. "But it ended before starting."

Loans Recalled

Banks had begun calling back loans they’d extended to Aynes, according to a person with knowledge of the situation, who asked not to be named because the information was confidential. The company was highly leveraged and was expecting new export markets to compensate for a domestic business struggling under pressures of intense competition and low prices, the person said.

Aynes was also suffering from military operations in southeast Turkey that hampered transportation of goods to neighboring Iraq, its biggest export destination, Yazicioglu said. Turkish forces have been fighting a renewed insurgency of the Kurdistan Workers’ Party, or PKK, in a resumption of sporadic violence since 1984 that’s claimed tens of thousands of lives in parts of the nation’s Kurdish-majority east.

Trucks Obstructed

"Because of the operations and curfews in Turkey’s southeast, our trucks couldn’t get to the other side of the border," Yazicioglu said. "Some had to wait for days. Also, now it’s getting even harder to find a truck driver who will go there - they’re asking for twice the amount they used to."

Aynes has three debts due in the next year, including 50 million liras due in May, 30 million liras in November and 20 million liras due next February, according to data compiled by Bloomberg. In 2014, it was the first Turkish company to receive permission to export milk to Russia.

“We lost time finding an alternative market because of the Russia crisis,” Chairman Nevzat Serin told Sabah newspaper. “Aside from this, because of the embargo, our product went bad at border gates. If we hadn’t postponed bankruptcy proceedings we’d have been stuck. With that precaution at least we stopped the bank payments.”

Russia, Turkey’s biggest trading partner after Germany, has banned imports of a range of Turkish food products since the jet incident. Trade between the two countries was $32 billion as of the end of 2014, according to data compiled by Bloomberg.

An index of 19 Turkish food and beverage companies with shares listed on the Borsa Istanbul has declined 5.6 percent this year, compared with a 2.2 percent gain on the main Borsa Istanbul 100 index. Average profit margin for the food and beverage companies was negative last year, from 16 percent in 2013, according to the latest available data compiled by Bloomberg.

(Earlier versions of this story were corrected for currency conversion, date.)

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