Turkey sovereign wealth fund turns into debt fund - report

Turkey’s sovereign wealth fund has turned into the country’s biggest source of financing after the central bank’s foreign currency reserves turned negative, the trade deficit widened and revenue for the tourism industry slumped, Sözcü newspaper reported.

The fund’s balance sheet took a big hit in 2019 and those financial problems intensified last year as it got saddled with more and more debt and revenue fell, according to Nedim Türkmen, a writer for Sözcü and a specialist in taxation.

“If the fund was a commercial enterprise, it would have been technically bankrupt,” Türkmen said. “It has to find capital … It is not a very sustainable situation.”

The fund’s net profit dropped by an annual 48 percent to 8.85 billion liras ($1.19 billion) in 2019. Its financial situation appears to have worsened last year due to the COVID-19 pandemic and a slump in the value of the lira, as costs rose at a faster pace than revenue, Sözcü reported.

The financial position of banks controlled by the fund - which include the country’s three main state-run lenders - probably led to a sharp deterioration in the fund’s balance sheet in 2020, Türkmen said. Most of the debt at the fund belongs to these firms and the maturity of that borrowing is largely short term, he said.

Turkish state-run banks Ziraat, Vakıfbank and Halkbank helped spearhead a borrowing boom by businesses and consumers in 2020, offering cheap credit and helping to restructure troubled loans. The banks also helped the central bank defend the lira as it slumped to record lows against the dollar by engaging in cross-currency swaps.

The Turkey Wealth Fund was established in 2016 and comprises the country’s largest state-run enterprises, which the Treasury previously controlled. President Recep Tayyip Erdoğan became its chairman in 2018 after he won enhanced executive powers at an election.

Opposition politicians say that the governing Justice and Development Party (AKP) has taken state-run companies away from parliamentary oversight and its balance sheets have therefore become opaque.

The fund has sunk into a “swamp of debt” since its establishment, said Özgür Karabat, a parliamentarian for the main opposition Republican People’s Party (CHP), Sözcü reported.

Few details are known about the fund’s current finances, but loans were pumped into the economy in 2020, meaning the banking system is owed 3.77 trillion liras compared with 2.73 trillion liras in 2019, Karabat said. A debt crisis could ensure this year, he said.

The wealth fund sought to sell bonds to foreign investors late last year to help strengthen its finances and grow its business. It abandoned the plans citing global financial conditions, saying it will seek to raise the funds this year instead.

The fund is also considering selling stakes in some of its assets, which include Turkish Airlines and Turkcell, the country's biggest mobile phone company, CEO Zafer Sönmez said last month.