Sino-Turkish deal, coronavirus could open the way for Chinese takeovers

A deal agreed by Turkey and China last month that was largely overshadowed by news of the coronavirus could lead to Chinese firms taking much bigger stakes in Turkish companies struggling to cope with the fallout from the pandemic.

Turkey's sovereign wealth fund (TVF) is headed by President Recep Tayyip Erdoğan with his son-in-law, Treasury and Finance Minister Berat Albayrak, as his deputy.

Founded in 2016, the TVF’s roughly $60-billion portfolio includes stakes in Turkey’s largest public bank, Ziraat, the national gas company Botaş, Turkish Airlines, the postal service, mining and chemical giant Eti Mine, Türksat satellite services, the stock exchange, the national lottery, and more.

The $5-billion agreement TVF signed on March 26 with China’s state-funded insurance company, the China Export Credit Insurance Corporation, Sinosure, said Sinosure would provide insurance and financing to Chinese enterprises for projects in Turkey’s energy, petrochemicals and mining sectors.

Sinosure CEO Wang Tingke said during the signing ceremony that Chinese companies had a great deal of interest in Turkey and that he would recommend Chinese contracting and investment companies to the TVF and support them with loan guarantees from financial organisations.

The deal comes amid a steady increase in Chinese involvement in Turkey’s economy.

The TVF borrowed $1 billion from Chinese banks in February last year to buy shares from three contractors linked to the Turkish government, which had taken on the construction of the Istanbul Finance Centre. The purchase helped save the three companies, while the TVF became the biggest shareholder in the centre.

The TVF said in October it planned to partner energy, petrochemical, mining and logistics projects in Turkey. The agreement with Sinosure means the TVF will be able to work with Chinese companies, which could be made partners in projects in these sectors, or purchase Turkish companies outright. Sinosure will provide financing, guaranteed loans and export insurance for Chinese investors.

Meanwhile, media reported that during a conversation with Erdoğan last month, Minister of Energy and Natural Resources Fatih Dönmez shared information on the activities of Eti Mine, Eti Boron, and Eti Silver, all companies that have been transferred to the TVF. The minister also told

Erdoğan about a boron-based cleaning product, which prompted the president to order the immediate launch of an advertising campaign for it, media said.

Turkey has the world’s largest reserves of boron and is the mineral’s biggest exporter. China is the biggest importer. Eti Maden, the Turkish company that produces boron, is controlled by the TVF.

Turkish media said Chinese companies were looking to enter the market of drone and cargo transportation, as well as online sales. Turkey’s largest online shopping site, Trendyol, was purchased last year by China’s global shopping portal, Ali Baba.

A Chinese consortium this year also bought a 51-percent share in the Marmara highway project that connects Istanbul’s Yavuz Sultan Selim Bridge and the new Istanbul Airport, for $689 million.

Meanwhile, Chinese companies are reported to be interested in a project to build a shipping canal bypassing Istanbul’s Bosporus Straits. Bloomberg also reported in February that the operator of the new Istanbul Airport was in talks with Chinese banks to refinance 5.7 billion euros ($6.2 billion) of existing loans.

Chinese companies are likely to prove the biggest competitors to Turkish firms in the construction sector, which are saddled with large dollar and euro-denominated debts they are struggling to repay after sharp falls in the lira from 2018 onwards.

As a result of the coronavirus pandemic, the share values of many Turkish companies have hit rock bottom. Sinosure’s agreement with the TVF is likely to boost Chinese stakes in embattled Turkish companies and lead to a possible string of takeovers.