Dunya Executive - - OVERVIEW -

Turkey’s sovereign wealth fund, largely inactive since its founding more than two years ago amid internal debate over its mission and strategy, is close to having its mandate approved by the government, according to a person with direct knowledge of the matter.

The fund, known as TWF, began drafting a new strategic plan immediately after President Recep Tayyip Erdogan overhauled management by replacing the entire board and naming himself chairman last month, according to the source, who asked not to be named citing internal developments that haven’t been publicly announced.

According to the proposal, TWF plans to take on loans and inject capital into some of the companies it owns before later considering cashing out on its stakes in them, the source said. It can also act as an asset management house after its first five years in operation, the person told Bloomberg. Details of the plan could be approved by Erdogan’s government in a matter of weeks, and the pace at which it’s been prepared indicates a change in the way the fund is being run. Last year, the fund’s progress was paralyzed by public and private bickering over its mission and disputes over who should be calling the shots on important projects. Former Chief Executive Officer Mehmet Bostan, the fund’s first, was forced to leave the post after Erdogan said he was “disappointed” with the lack of progress.

Placing Erdogan as chairman leaves no doubt about who’ll be calling the final shots at the fund. As the new chief executive, Erdogan appointed Zafer Sonmez, formerly head of Turkey and Africa for Malaysia’s government investment vehicle Khazanah Nasional Bhd.

Management is considering a variety of options to increase the value of the companies it owns such as Turk Hava Yollari

A.O., or Turkish Airlines, Turkiye Halka Bankasi and Turk Telekomunikasyon A.S.. Raising debt when needed will lower the average cost of capital for the fund while injecting some of that cash into companies would increase their valuations before TWF divests some of its holdings, the source said.

Proceeds from such sales as well as any loans could also be used to invest in other financial assets, an objective the management sees itself meeting at least five years after it begins operations. The TWF will also provide financing for strategic projects critical to Turkey’s economic growth, according to the source. The strategy, although not yet approved, differs markedly from some of the ideas floated earlier. Nurettin Canikli, a former deputy prime minister, once said assets held by the fund could be securitized to raise debt at a lower cost than the Treasury. Himmet Karadag, former acting chairman of the board, said the fund should mobilize resources to stem volatility in financial markets.

Both of those ideas - securitization and market stabilization - will be explicitly excluded from the TWF’s mandate, the person said.

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