Dec 13 2017

Turkish wealth fund in talks with sanctioned Russia firm for financing

Turkey’s sovereign wealth fund is in talks with the Russian Direct Investment Fund (RDIF), which is barred from raising capital in Western markets under U.S. sanctions, to cooperate in bilateral project financing.

The fund, whose board members include a senior adviser to President Recep Tayyip Erdoğan, is also holding discussions with state-run Chinese bank ICBC and Singapore wealth fund Temasek, said Himmet Karadağ, the Turkish fund’s acting chief, according to Reuters.

It was the first time Turkish officials have announced that they were holding negotiations with the RDIF, which has $10 billion of capital under management. Karadag did not provide further details about the possible cooperation.

Erdoğan, who enjoys close political relations with Russian President Vladimir Putin, is pushing to establish the wealth fund, created in 2016, as a centrepiece for economic growth.

The $45 billion fund, which comprises the assets of government-controlled businesses such as Turkish Airlines, has a mandate to raise financing for large-scale infrastructure projects and invest in financial markets.

China is already cooperating with the Russian fund -- it extended $11 billion in loans to RDIF and Vnesheconombank, Russia’s state development bank, in July via China Development Bank. But the cash was renminbi-denominated, meaning the lending fell outside the U.S sanctions regime. 

Erdoğan's relations with Putin have warmed considerably in recent months as ties with the United States became mired in political tension over a New York trial and over U.S. support for Kurdish forces in Syria.

Turkey's shift eastwards, which also includes buying Russian S-400 rockets, has raised calls among some Western politicians to reconsider the country's membership of NATO. Turkish and Russian officials are due to finalise the S-400 deal next week.

Turkey's wealth fund is also the subject of controversy. Opposition politicians say it was established to evade parliamentary oversight and control of state-owned assets.Two of the companies it owns have also been implicated in a scheme to evade U.S. sanctions on Iran.

As well as Turkish Airlines, the government has transferred the assets of Turkish state-run banks Halkbank and Ziraat Bank to the fund. Both companies have been implicated in the Iran sanctions-busting scheme during a New York trial of Halkbank executive Mehmet Hakan Atilla, who is charged by U.S. prosecutors of illegally funnelling hundreds of millions of dollars through the U.S. banking system on behalf of the Islamic Republic. Halkbank has denied that it has done anything illegal.

Halkbank’s alleged role , which could result in multi-billion fines, threatens to scupper any chance of the wealth fund securing borrowing on international markets, hence the need to turn to other forms of financing, Ahval columnist Mark Bentley, a former financial journalist at Bloomberg, wrote in an analysis last week.

Bloomberg had reported in October that the fund was in talks with ICBC and other international institutions for a $5 billion loan. Karadağ and board member Yiğit Bulut, who also serves as an economic adviser to Erdoğan, met ICBC officials on Oct. 4 in Istanbul, Bloomberg said. The wealth fund had also previously agreed a tentative accord with Temasek unit Surbana Jurong to build an industrial hub in southeastern Turkey.

The fund has also been in talks with the sovereign wealth fund of Qatar, which has close political and economic relations with Turkey, Bloomberg said.

It also wants to establish a pool of capital to finance a domestic car project, Karadağ said, according to Reuters.