Özelleştirme ve özelleştirmede yatırım bankalarının rolü ve Petlas uygulamalı örneği
Privatization and the role of investment banks in the privatization process and Petlas case study
- Tez No: 36751
- Danışmanlar: PROF.DR. NAZIM EKREN
- Tez Türü: Yüksek Lisans
- Konular: Bankacılık, Ekonomi, Banking, Economics
- Anahtar Kelimeler: Belirtilmemiş.
- Yıl: 1994
- Dil: Türkçe
- Üniversite: Marmara Üniversitesi
- Enstitü: Sosyal Bilimler Enstitüsü
- Ana Bilim Dalı: Belirtilmemiş.
- Bilim Dalı: Belirtilmemiş.
- Sayfa Sayısı: 154
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Özet (Çeviri)
BRIEF TRANSLA TION OF MASTERS THESIS INTO ENGLISH PRIVATIZATION AND THE ROLE OF INVESTMENT BANKS IN THE PRIVA TIZA TION PROCESS & PETLAS CASE STUDY GOSCAKARAVÇ ADVISOR: PROF.DR.NAZIM EKREN May 1994CONTENTS 1. Privatization; Short Definition and Aims 3-4 1.1 Short Definition of Privatization 3 1.2 Aims 4 1.3 Disadvantages of Privatization 4 2. Major Privatization Methods Used in Türkiye 5-10 2.1 Private Placement, Public Offering and Other Methods 5 2.2. Current Projects 10 3. Privatization in Türkiye 11-14 3.1 Legal Framework and Privatization Agencies 11 3.2 History of Privatization in Türkiye 12 3.3 Privatization Procedures in Türkiye 13 3.4 Incentives and Grants Provided for Foreign Investment by the Turkish government. 14 4. Role of Investment Banks in Privatization Process 15-26 4.1 Investment Banks 15 4.2 Capital Markets in Türkiye 17 4.3 An Outlook in Economic Growth of Türkiye 18 4.4 Role or Importance of Financial Advisor in the Privatization Process 26CONTENTS 1. Privatization; Short Definition and Aims 3-4 1.1 Short Definition of Privatization 3 1.2 Aims 4 1.3 Disadvantages of Privatization 4 2. Major Privatization Methods Used in Türkiye 5-10 2.1 Private Placement, Public Offering and Other Methods '5 2.2. Current Projects 1 0 3. Privatization in Türkiye 11-14 3.1 Legal Framework and Privatization Agencies 11 3.2 History of Privatization in Türkiye 12 3.3 Privatization Procedures in Türkiye 13 3.4 Incentives and Grants Provided for Foreign Investment by the Turkish government. 1 4 4. Role of Investment Banks in Privatization Process 15-26 4.1 Investment Banks 15 4.2 Capital Markets in Türkiye 1 7 4.3 An Outlook in Economic Growth of Türkiye 1 8 4.4 Role or Importance of Financial Advisor in the Privatization Process 265. An Application of Privatization-Petlas 27-39 5.1 General Information on the Company 27 5.2 Industry 27 5.2.1 World Tire Industry 27 5.2.2 Turkish Tire Industry 30 5.3 Company 33 5.3.1 Fields of Activity, Capital 33 5.3.2 Distribution of Profit 33 5.3.3 Production and Technology 34 5.3.4 Investments in Progress and Planned Investments 35 5.3.5 Sales and Marketing 36 5.3.6 Personnel and Collective Agreements 36 5.4 Financial Condition and Valuation of Petlas 36 5.4.1 Valuation Techniques 36 5.4.2 Valuation Result 37 Results 39-401. PRIVATIZATION.SHORT DEFINITION AND AIMS 1.1 Short definition of privatization As far as economics are concerned, privatization is the limitation or abolishment of government involvement in economic operations. At the end of the seventies, more than half of the country's manufacturing industry was state owned, with new ones being established. Turkish State Economic Enterprises (SEEs) were set up and operated as a civil service. Economic goals were overshadowed by social and political goals. The philosophy behind these SEEs was to provide raw material for the smaller free enterprises which were barred from importing their requirements from abroad. The inefficiencies of the overmanned SEEs were putting a pressure on the economy as a whole while taking away the free enterprises competitiveness in international platforms. The main policy of the eighties were all geared to minimize the role of the government, and prepare the economy such as to pass thefunctions carried out by the SEEs to private investors hands. While taking the measures to improve the economy, certain decisions were reached to make SEEs market oriented to its possible extent. In 1980, government subsidies to SEEs were. removed and they were forced to adopt a pricing system compatible to the market conditions. The decision reduced the drain from the Treasury which had been a heavy burden in the seventies to a large extent. Between 1 980 and 1 986, the overall borrowing requirement of the SEEs fell from 6.6 percent of the GNP to 3.8 percent. In 1 984, Housing Development and Public Participation Administration was set up as the legal authority to assume ownership and management functions for SEEs in the process to privatization. A privatization master plan was.. developed by JP Morgan 1 986. The administration was split into two separate units as Public Participation Administration ahd Housing Development Administration in 1990. PPA currently employs 56 people in its privatization department. First privatization operations began by the sale of small scale enterprises, including some animal feed plants, between 1985 and 1986. In 1987, PPA began selling SEEs in private placements. The first SEE to be floated in the Istanbul Stock Exchange was Teletas, which was offered to public in 1988.1.2 Aims: The privatization program has been implemented since the mid 1 980s on an accelerated basis * To minimize state involvement in the economy, * To accelerate the further establishment of market mechanisms within the context of liberal economic policies * To confine the role of state in the economy to areas like health, education, national security, large scale infrastructure investments and to provide the suitable legal and structural environment for free enterprise to operate. * To enhance competition in the economy, * To decrease the financing burden of State Economic Enterprises on the national budget, * To broaden and deepen the existing capital market by promoting wider share ownership, * To provide efficient allocation of resources. 1.3 Disadvantages of Privatization Employment problems resulting from the SEE reform program and privatization will be resolved by the establishment of a social security and welfare system with the support of international organizations where necessary, comprising such measures as early retirement, unemployment benefit, redundancy payments, re employment schemes, and so on. Solutions will be sought with the agreement of workers, employers, and unions.1.2 Aims: The privatization program has been implemented since the mid 1 980s on an accelerated basis * To minimize state involvement in the economy, * To accelerate the further establishment of market mechanisms within the context of liberal economic policies * To confine the role of state in the economy to areas like health, education, national security, large scale infrastructure investments and to provide the suitable legal and structural environment for free enterprise to operate. * To enhance competition in the economy, * To decrease the financing burden of State Economic Enterprises on the national budget, * To broaden and deepen the existing capital market by promoting wider share ownership, * To provide efficient allocation of resources. 1.3 Disadvantages of Privatization Employment problems resulting from the SEE reform program and privatization will be resolved by the establishment of a social security and welfare system with the support of international organizations where necessary, comprising such measures as early retirement, unemployment benefit, redundancy payments, re employment schemes, and so on. Solutions will be sought with the agreement of workers, employers, and unions.Table 2. 7. 1. Private Placements1.2 Aims: The privatization program has been implemented since the mid 1 980s on an accelerated basis * To minimize state involvement in the economy, * To accelerate the further establishment of market mechanisms within the context of liberal economic policies * To confine the role of state in the economy to areas like health, education, national security, large scale infrastructure investments and to provide the suitable legal and structural environment for free enterprise to operate. * To enhance competition in the economy, * To decrease the financing burden of State Economic Enterprises on the national budget, * To broaden and deepen the existing capital market by promoting wider share ownership, * To provide efficient allocation of resources. 1.3 Disadvantages of Privatization Employment problems resulting from the SEE reform program and privatization will be resolved by the establishment of a social security and welfare system with the support of international organizations where necessary, comprising such measures as early retirement, unemployment benefit, redundancy payments, re employment schemes, and so on. Solutions will be sought with the agreement of workers, employers, and unions.3.2 History of Privatization in Türkiye The privatization program being implemented by the Public Participation Administration in Turkey was launched in 1 984 as a key aspect of the libera! economic policies initiated in the early 1 980's. According to these policies the role of the state in the economy should be limited to essential sectors, such as defense, health, education and infrastructure, which the private sector is unwilling to invest in due to low profitability and the large scale of enterprise concerned. With the aim of achieving and fostering healthy economic development, financial and institutional adjustments were made, and preparations launched for privatizing state-owned companies (known as SEE's) an their subsidiaries. The privatization program being implemented in Turkey has been applied to a total of 112 full or partially owned organizations since 1985, and 69 of them have been privatized by means of block sales, public offerings, combinations of the two or sales of assets. The public shares in 43 of these 69 companies have been entirely transferred to the private sector, while the public share in the rest has been reduced to less than 10 %. 121.2 Aims: The privatization program has been implemented since the mid 1 980s on an accelerated basis * To minimize state involvement in the economy, * To accelerate the further establishment of market mechanisms within the context of liberal economic policies * To confine the role of state in the economy to areas like health, education, national security, large scale infrastructure investments and to provide the suitable legal and structural environment for free enterprise to operate. * To enhance competition in the economy, * To decrease the financing burden of State Economic Enterprises on the national budget, * To broaden and deepen the existing capital market by promoting wider share ownership, * To provide efficient allocation of resources. 1.3 Disadvantages of Privatization Employment problems resulting from the SEE reform program and privatization will be resolved by the establishment of a social security and welfare system with the support of international organizations where necessary, comprising such measures as early retirement, unemployment benefit, redundancy payments, re employment schemes, and so on. Solutions will be sought with the agreement of workers, employers, and unions.3.2 History of Privatization in Türkiye The privatization program being implemented by the Public Participation Administration in Turkey was launched in 1 984 as a key aspect of the libera! economic policies initiated in the early 1 980's. According to these policies the role of the state in the economy should be limited to essential sectors, such as defense, health, education and infrastructure, which the private sector is unwilling to invest in due to low profitability and the large scale of enterprise concerned. With the aim of achieving and fostering healthy economic development, financial and institutional adjustments were made, and preparations launched for privatizing state-owned companies (known as SEE's) an their subsidiaries. The privatization program being implemented in Turkey has been applied to a total of 112 full or partially owned organizations since 1985, and 69 of them have been privatized by means of block sales, public offerings, combinations of the two or sales of assets. The public shares in 43 of these 69 companies have been entirely transferred to the private sector, while the public share in the rest has been reduced to less than 10 %. 121.2 Aims: The privatization program has been implemented since the mid 1 980s on an accelerated basis * To minimize state involvement in the economy, * To accelerate the further establishment of market mechanisms within the context of liberal economic policies * To confine the role of state in the economy to areas like health, education, national security, large scale infrastructure investments and to provide the suitable legal and structural environment for free enterprise to operate. * To enhance competition in the economy, * To decrease the financing burden of State Economic Enterprises on the national budget, * To broaden and deepen the existing capital market by promoting wider share ownership, * To provide efficient allocation of resources. 1.3 Disadvantages of Privatization Employment problems resulting from the SEE reform program and privatization will be resolved by the establishment of a social security and welfare system with the support of international organizations where necessary, comprising such measures as early retirement, unemployment benefit, redundancy payments, re employment schemes, and so on. Solutions will be sought with the agreement of workers, employers, and unions.3.2 History of Privatization in Türkiye The privatization program being implemented by the Public Participation Administration in Turkey was launched in 1 984 as a key aspect of the libera! economic policies initiated in the early 1 980's. According to these policies the role of the state in the economy should be limited to essential sectors, such as defense, health, education and infrastructure, which the private sector is unwilling to invest in due to low profitability and the large scale of enterprise concerned. With the aim of achieving and fostering healthy economic development, financial and institutional adjustments were made, and preparations launched for privatizing state-owned companies (known as SEE's) an their subsidiaries. The privatization program being implemented in Turkey has been applied to a total of 112 full or partially owned organizations since 1985, and 69 of them have been privatized by means of block sales, public offerings, combinations of the two or sales of assets. The public shares in 43 of these 69 companies have been entirely transferred to the private sector, while the public share in the rest has been reduced to less than 10 %. 123.3 Privatization Procedures PPA first receives the share of a State owned company after a Council of Ministers or PPHC decision. Administration, then, establishes work groups for preliminary company valuation. PPA members, through their presence in the companies' boards try to resolve administrative and legal problems on behalf of the company. Once a sale calendar is made outside consultants and auditors are employed to value the company. Upon the completion of valuations, PPA initiates the tender process for the sale of shares, and carries out the informative and promotional activities. Bidding results are evaluated and the results are submitted to PPHC for approval. When the approval is obtained the sale materializes. Public Participation Organization * Realizes the share transfer operations, * Establishes work groups for preliminary company valuation * Handles and suggests constructive solutions to the legal and administrative problems of the companies under privatization, * Supervises the work of internationally accredited financial consultants and independent external auditors, * Initiates the tender process for the sale of shares, * Deals with the informative and promotional activities of the entire privatization program, * Submits the results of PPA decision for evaluation, and final approval to“ Public Participation High Council (PPHC),. * Conducts the sale operations. 133.4 Incentives and Grants Provided for Foreign Investment by the Turkish government. Incentives and grants provided for foreign investment by the Turkish Government can be analyzed under two categories: Investment Incentives Export Incentives Investment Incentives Investment incentives and exemption vary between regions and industries, but in order to have a feel for their nature a general approach can be taken. Investment incentives include exemptions from custom duties and taxes on imported machinery and equipment, investment allowances of up to 1 00% for approved projects, subsidized loans, and various other exemptions. Depending on the type of the project, exemptions can be issued for taxes, duties and fees on long term loans, and land allocation; employer's obligation of one half of the Social Security premiums; all of the compulsory savings and housing funds for a maximum of three years; subsidy of 30% of electricity consumption; financing fund of taxable income's 25%; and construction tax and taxes of employees in the priority development regions. Export Incentives As investment incentives, export incentives also vary by region and industry. In general, though, they include exemption from duties and taxes on imported raw materials, and semi-finished packaging material used in to-be-exported goods; exemption from taxes, fees, and duties on banking and insurance transactions relating to export loans; subsidized loans from Eximbank of Turkey; long term loans from the encouragement investment and foreign currency earning services fund; and corporate tax exemption for 8% of industrial goods export revenues exceeding US$ 250,000. 14USD 4,000 3,000- 2,000 1,000 0 GNP GROWTH AND PER CAPITA INCOME * estimate % 10 8 6 4 2 0 ”I 1988 1989 1990 ~ PER CAPITA INCOME 1991 1992 1993 CHANGHNGNP 1 Source:The Turkish Economy'93 Pg:29 GROWTH OF GNP BY SECTOR 15 10 4 5 0 - -5 ? 10., rHsssa 1986 1987 mm. 1990 umur 1991 1992 AGRICULTURE m INDUSRY H CONSTRUCTION 111! TRADE __L Source:The Turkish Economy'93 Pg:29 Turkey's economic recovery from 1991's stagnation was due mainly to the strength of private consumption and investment (up 10.6% and 18.1% respectively in 1992). Consumption rose under the influence of large increases in disposable income, probably resulting from anticipation of increasing inflation and easier access to consumer credit. 194.THE ROLE OF INVESTMENT BANKS IN THE PRIVATIZATION PROCESS 4.1 Investment Banks The period 1960-1980 in Turkey is defined as the 'Planning Era' of the banking system. During this time, specialty banking was emphasized in addition to continued growth in branch banking. Liberalization, restructuring and deregulation measures on the Turkish economy in the 80s forced Turkish banks to face a more competitive and open market environment. This was the time when investment banks, specialized in certain areas established. First investment bank in Turkey was established in 1988 and the others followed in a short while. The Turkish Banking System had 70 banks in Türkiye in 1 992. Of these, 37 are national commercial banks, 12 are investment and development banks and 21 are foreign banks or bank branches. Investment banks are spending considerable efforts to expand and reinforce their organization abroad during the 90s. Their objective is to gain a better competitive edge in international markets and act as a major player in the privatization process which evolves at an accelerated rate especially during 1994.* Investment banks recently focused attention on the newly developing financial markets in Eastern European Countries and the Republics of the Soviet Union. Liberalization and privatization movements in these countries have created some attractive markets for Turkish Banking System which has recently completed its own restructuring process, which in turn makes Turkish banking an attractive partner for these countries. Investment banks in Türkiye and investment banking divisions of some major banks started expanding compensatory/advanced state-of-the-art bank training programs and advisory services to banks and to financial authorities as well as to other corporations in Türkiye and abroad. 15USD 4,000 3,000- 2,000 1,000 0 GNP GROWTH AND PER CAPITA INCOME * estimate % 10 8 6 4 2 0“I 1988 1989 1990 ~ PER CAPITA INCOME 1991 1992 1993 CHANGHNGNP 1 Source:The Turkish Economy'93 Pg:29 GROWTH OF GNP BY SECTOR 15 10 4 5 0 - -5 ? 10., rHsssa 1986 1987 mm. 1990 umur 1991 1992 AGRICULTURE m INDUSRY H CONSTRUCTION 111! TRADE __L Source:The Turkish Economy'93 Pg:29 Turkey's economic recovery from 1991's stagnation was due mainly to the strength of private consumption and investment (up 10.6% and 18.1% respectively in 1992). Consumption rose under the influence of large increases in disposable income, probably resulting from anticipation of increasing inflation and easier access to consumer credit. 194.THE ROLE OF INVESTMENT BANKS IN THE PRIVATIZATION PROCESS 4.1 Investment Banks The period 1960-1980 in Turkey is defined as the 'Planning Era' of the banking system. During this time, specialty banking was emphasized in addition to continued growth in branch banking. Liberalization, restructuring and deregulation measures on the Turkish economy in the 80s forced Turkish banks to face a more competitive and open market environment. This was the time when investment banks, specialized in certain areas established. First investment bank in Turkey was established in 1988 and the others followed in a short while. The Turkish Banking System had 70 banks in Türkiye in 1 992. Of these, 37 are national commercial banks, 12 are investment and development banks and 21 are foreign banks or bank branches. Investment banks are spending considerable efforts to expand and reinforce their organization abroad during the 90s. Their objective is to gain a better competitive edge in international markets and act as a major player in the privatization process which evolves at an accelerated rate especially during 1994.* Investment banks recently focused attention on the newly developing financial markets in Eastern European Countries and the Republics of the Soviet Union. Liberalization and privatization movements in these countries have created some attractive markets for Turkish Banking System which has recently completed its own restructuring process, which in turn makes Turkish banking an attractive partner for these countries. Investment banks in Türkiye and investment banking divisions of some major banks started expanding compensatory/advanced state-of-the-art bank training programs and advisory services to banks and to financial authorities as well as to other corporations in Türkiye and abroad. 154.THE ROLE OF INVESTMENT BANKS IN THE PRIVATIZATION PROCESS 4.1 Investment Banks The period 1960-1980 in Turkey is defined as the 'Planning Era' of the banking system. During this time, specialty banking was emphasized in addition to continued growth in branch banking. Liberalization, restructuring and deregulation measures on the Turkish economy in the 80s forced Turkish banks to face a more competitive and open market environment. This was the time when investment banks, specialized in certain areas established. First investment bank in Turkey was established in 1988 and the others followed in a short while. The Turkish Banking System had 70 banks in Türkiye in 1 992. Of these, 37 are national commercial banks, 12 are investment and development banks and 21 are foreign banks or bank branches. Investment banks are spending considerable efforts to expand and reinforce their organization abroad during the 90s. Their objective is to gain a better competitive edge in international markets and act as a major player in the privatization process which evolves at an accelerated rate especially during 1994.* Investment banks recently focused attention on the newly developing financial markets in Eastern European Countries and the Republics of the Soviet Union. Liberalization and privatization movements in these countries have created some attractive markets for Turkish Banking System which has recently completed its own restructuring process, which in turn makes Turkish banking an attractive partner for these countries. Investment banks in Türkiye and investment banking divisions of some major banks started expanding compensatory/advanced state-of-the-art bank training programs and advisory services to banks and to financial authorities as well as to other corporations in Türkiye and abroad. 15Grossly inefficient, the SEE's continue to function at great losses (loss/GNP at 2.1% for 1992) with there performance continuously eroding. In efforts to resolve this a number of successful privatization were carried out in the last years with plans for may more. However, these plans have run into various difficulties, in great part because political implications that sell-offs would bring. There has also been large government collective wage increase agreements in 1 993 which have bought and will continue to cause increase in personnel spending. DOMESTIC DEBT intreJgnp % s|^|i gasp? SSK 1 44 - 2 0 1987 1988 1989 199» 1991 1992 1993* DEBT/C.NP *txpecltd INTEREST PAYMENTS /GNP Source:The Turkish Economy'93 Pg:15 As far as the raising of revenues, a principal aspect of Turkey's Budget problems over many years has been the low tax burden (tax revenue/GNP). Although it has risen during the eighties, is lower then in most other OECD countries and still remains below 20 percent. A proposed new tax legislation, intended to resolve this, is being introduced throughout 1993. This includes a set of changes to the VAT regulations which became applicable in November 1993 and has increased the general rate from 12% to 15%. Income form Treasury Bills are now taxable. Though revenues should be strong in 1995, there will be losses due to lower import taxes on EG goods; at the same time, local elections and defense spending will probably cause expenditure to rise. 22MONETARY POLICY AND INFLATION Since taking office two years ago the government has used monetary policy to tackle inflation, presently running over sixty percent. Faced with high interest rates, especially short term rates as a result of PSBR financing, the Treasury aimed to bring these down in an attempt to reduce inflationary expectation. Thus in the first half of 1992 the government tended towards Central Bank financing as opposed to domestic borrowing in meeting its huge borrowing requirements. In order to offset the expansionary effects of excess liquidity caused by its lending the Bank undertook to intervene in both the money market (Open Market Sales) and in the foreign exchange market (by selling dollars). Down in the first months, a shift of emphasis away from Central Bank financing in the second half of 1992 resulted in interest rates payable on government bonds to rise again, reaching 78% in June leveling of around 70 percent at the yearend. To maintain government policy, interest rates on short term deposits were cut at the beginning of 1993 by the public deposit banks. Fearing downwards pressure on the Turkish Lira, from an out flow of hot money, and consequentially imported inflation, the Central Bank started to intervene to protect the TL This has lead to an overvalued TL, (an approximate 1 0% real appreciation's in the first six months of 1 993) and has, among with other reason resulted in a near doubling of the current trade deficit. Inflation and Interest Rates INFLATION ANI) EVTREST RATES 90 T 80 70 60 50 4 40 30. 20. 10. 0 1988 1989 1990 1991 1992 1993» WW HBCP1 -»3 MONTHX - I V**R T- DEPOSITS BIL18 1994» * expected SmıreeıThe Turkish Reonomy'93 Pgil,5 23MONETARY POLICY AND INFLATION Since taking office two years ago the government has used monetary policy to tackle inflation, presently running over sixty percent. Faced with high interest rates, especially short term rates as a result of PSBR financing, the Treasury aimed to bring these down in an attempt to reduce inflationary expectation. Thus in the first half of 1992 the government tended towards Central Bank financing as opposed to domestic borrowing in meeting its huge borrowing requirements. In order to offset the expansionary effects of excess liquidity caused by its lending the Bank undertook to intervene in both the money market (Open Market Sales) and in the foreign exchange market (by selling dollars). Down in the first months, a shift of emphasis away from Central Bank financing in the second half of 1992 resulted in interest rates payable on government bonds to rise again, reaching 78% in June leveling of around 70 percent at the yearend. To maintain government policy, interest rates on short term deposits were cut at the beginning of 1993 by the public deposit banks. Fearing downwards pressure on the Turkish Lira, from an out flow of hot money, and consequentially imported inflation, the Central Bank started to intervene to protect the TL This has lead to an overvalued TL, (an approximate 1 0% real appreciation's in the first six months of 1 993) and has, among with other reason resulted in a near doubling of the current trade deficit. Inflation and Interest Rates INFLATION ANI) EVTREST RATES 90 T 80 70 60 50 4 40 30. 20. 10. 0 1988 1989 1990 1991 1992 1993» WW HBCP1 -»3 MONTHX - I V**R T- DEPOSITS BIL18 1994» * expected SmıreeıThe Turkish Reonomy'93 Pgil,5 23TOTAI.HXKI) KVhXTMKNT (at 19KK price») n.nillion» 19X7 I9»t I9K9 1990 1991 1992 [PRIVATE UPVBUr Source:The Turkish Economy'93 Pg:34 As a whole total investment has risen slowly recently (0.7% 1992). Even with new intensifies for fixed investments introduce in 1993 the increase in total private investment resulted nearly completely from the growth in commercial inventories, in anticipation of a lasting consumer boom. However, private fixed capital investment has risen slightly, its largest proportion going to housing, transport and communications. Even with large government incentives for private investment (over half of which for manufacturing) the slow recovery in private fixed investment was and remains the result of the high level of interest rates. DISTRIBUTION OF FIXED INVESTMENT 11992) Source-.The Turkish Economy'93 Pg:40 20To reverse this balance of payments trend the government has in the last quarter of 1993, with moderate help from the Central Bank now headed by a new governor, started a policy of devaluation. It is expected that the TL's fall will probably continue, though at a slower pace, until the end of 1994 but a significant rise in interest rates is to come in the future. The governments year on year CPI target for 1993 of 68% (up from 62% in 1992) is most likely to be achieved considering that the new VAT rates and that most SEE price increases will either be very modest or postponed until next year, however it is expected to fall in 1994. The WPI in 1993 is expected to be down three points to 58 percent and both private and public manufacturing prices continue there trend downwards and remain below the CPI rate. FOREIGN TRADE The trade balance has worsened in 1993. The year-end targets have been revised to USD 17 billion from USD 15.2 billion due mainly to the year-end figure for imports by the year end rising to USD 28.5 bn. The effect of this on the current account is that it will reach USD 5 billion, giving a CA/GNP of -3.8%. The target for 1994's current account deficit has been set at USD 4.5 bn. THE FOREIGN ACCOl NT 2.110(1 -14.000 1988 1989 1990 1991 1992 1993* 1994* ? CURRENT ACCOUNT BALANCE W TRADE BALANCE Source:The Turkish Economy'93 Pg:15 24To improve the trade situation plans for more export incentives have been made, these include import tariff exclusion on raw materials for pro-export investments and changes in FX regulations to relive the bureaucratic obstacles to export. More importantly is the devaluation policy being applied as of the third quarter of 1993. However, in combination with a policy of low interest rates there is a risk of a reduction in the inflow of foreign short term capital which is a large part of the capital account that allows for a positive balance of payments. The external debt stock nevertheless, it remains below the fifth percent, one of the criterion for high indebtedness. The structure of the debt has changed recently with the rise in the share of short term debt coming mainly from attractiveness to commercial banks of short position as depreciation of the TL has, for so long been lower then inflation. Turkey has maintained a very good track record of its foreign debt service payments. As far as foreign reserves are concerned the Central Bank and the rest of the private banking system have adequate foreign exchange reserves, a gross total of USD 17 bn. Source:The Turkish Economy' 93 Pg:52 Trade relations are headed by Germany to which one quarter of all exports go, whilst Imports form there only constitute a fifth of the total. Italy, the US, France and the UK are the other major markets for Turkey's exports. 254.4 Role or Importance of Financial Advisor In Privatization The importance of the financial advisor in the privatization process is important especially from two aspects: (i) Valuation of the State Economic Enterprise (ii) Sales- international or domestic Recent years have seen an increasing flow of international capital into Turkish industries. Investment banks have started gathering a staff experienced in cross-border mergers and acquisitions, privatization procedures and the main aim is identifying appropriate partners and supporting domestic firms in their negotiations with foreign investors, or vice versa. Potential bidders for State Economic Enterprises being.privatized will benefit from this expertise to a larger extent with further development in these procedures. 265. AN APPLICATION OF PRIVATIZATION ; PETLAS 5.1 General Information The Company was established as PETLAS Lastik San. & Tic. A.Ş. and registered with registration number 1540 in August 19, 1976. The Company was founded to produce tires and inner tubes and a kinds of related products for all and any transportation vehicles, aircraft, mobile equipment, to trade the same in domestic and foreign markets etc. The Company's factory is situated on a land of 2,570,126 m2 at Gölhisar Location. Construction of Petlas Factory has started in 1976 and Petlas has initiated trial production in 1989 and entered the market in 1990. 5.2. Industry 5.2.1 World Tyre Industry World tyre industry is an oligopoly market where a few major producers are active and the brands, not the countries, are competing. Intense competition in this sector forces the firms to give greater emphasis to the technological innovations and. leads to a substantia] increase in monopolies. Table 5.1 World Tyre Sales Million USD 27Capacity Daily capacity in the world tyre sector is 4,539,000. Due to recent changes, the over capacity of North America and West Europe is being transferred to the Middle Eastern and Asian countries. In Turkey, Lassa and Bridgestone have merged for technology transfer and Brisa, born out of this partnership, has reached to the eighteenth rank in the world sales in 1991. In 1991, with the decreasing demand in the automotive sector in North America and West Europe, production capacities have declined and many workers have been laid off. But the Asian market depicts quite a different picture.. Production and Sales Globally, 30 % of the tires is sold to automobile producers, and 70 % to the replacement sector. Table 5.2 Increase In World Tyre Sales Million USD Source: PPA reports 28Contrasting vastly from Turkey, the global transportation is mainly made on railways rather than roads. That is why a large percentage of the sales in the world tyre market consists of automobile tires rather than commercial tires. Tyre sector is a capital intensive sector with cut throat competition all over the world. The sector is extremely dependent on oil prices and is greatly affected by the economic conditions of the world. Source: PPA reports All the tyre manufacturers sharing the first six ranks in 1991, other than Japanese companies have suffered losses. Employment Approximately 530,000 persons are employed directly in the tyre sector all over the world, headed by the former Soviet Union with 127,333 persons, which probably has over-employment compared to her total production. The former Soviet Union is followed by the West-European countries with 121,644 persons. Use of automobiles in Middle East and Africa is considerably lower than other regions. For instance, in Turkey, one out of every 34 persons owns an automobile. 295.2.2 Turkish Tyre Industry In 1 992, while the world tyre manufacturers were trying to stay afloat either by shutting down factories or reducing capacities, the Turkish tyre sector has recorded a growth of 1 4 %. Furthermore, although the stagnation in the world market is expected to continue in 1992, the Turkish market is expected to grow further by 9 %. Table 5.4 Capacity Utilization In Türkiye during 1992 Source: PPA reports Capacity Similar to most other markets, there is an over-capacity problem in Turkey. With the new investments in 1992, the total capacity reached to 11.5 million units, whereas the domestic. market demand is only. 6.75 million units. Production In 1992, automobile production has increased by 35.6 % and automobile producers worked with 1 00 % capacity. Consequently, tyre production has increased by 14 % and reached 8,577,401 units in 1992. Table 5.9 Domestic Tyre Production 1992-Unit Source: PPA reports 305.3 PETLAS 5.3.1 Fields of Activity, Capital The Company was founded to produce tires and inner tubes and a kinds of related products for all and any transportation vehicles, aircraft, mobile equipment and heavy duty machines, to trade the same in domestic and foreign markets, to acquire process and produce all kinds of raw and auxiliary materials needed for production of the tyre products and to process and/or sell the by products. The Company's capital is TL1.300 Billion, divided to 1,300,000,000 bearer share each with a nominal value of TL 1,000 TL. The Board of Directors consist of seven members elected by the Genera! Assembly of Shareholders for a term of office of three years. Table 5.9 PETLAS PRODUCTION CAPACITY Source: PPA reports 5.3.3 Distribution of Profit Net profit of the Company is equal to the gross profit minus all kinds of expenses accepted by the applicable laws. The legal reserves, first rank of dividends at a rate of 5 %, and payable taxes are set aside from the net profit, and the remaining profit is distributed among the shareholders in proportion to their existing shares. 33Source: PPA reports Sales In 1 992, automobile production has grown by 35.6 % and the original equipment tyre sales has increased by 33 %. In 1 993, a 20 % increase is expected in automobile production. In the tyre sector, sales to automobile producers is. estimated to grow by 23 % in 1993. Table 5.5 Domestic Tyre Sales in Türkiye Number Source: PPA reports Table 5.6 Total Inner Tube Sales in Türkiye Units Source: PPA reports 31Source: PPA reports Sales In 1 992, automobile production has grown by 35.6 % and the original equipment tyre sales has increased by 33 %. In 1 993, a 20 % increase is expected in automobile production. In the tyre sector, sales to automobile producers is. estimated to grow by 23 % in 1993. Table 5.5 Domestic Tyre Sales in Türkiye Number Source: PPA reports Table 5.6 Total Inner Tube Sales in Türkiye Units Source: PPA reports 315.3.6 Personnel and Collective Agreements 1 1 05 employees of the Company are subject to Collective Agreements (union- members) and the Current Collective Agreement has expired on 28.2.1993. Negotiations on the new Collective Agreement which will become effective as from 01.03.1993 are in progress. Total amount of severance pay liabilities towards 1042 employees has been calculated as TL 35.9 billion for 1993. 5.4 FINANCIAL CONDITION AND VALUATION OF PETLAS Financial tables of Petlas including the balance sheet, income statement and ratio analysis are attached. 5.4.1 Valuation Techniques Before explaining different techniques of valuation the following short definition of valuation should be made. A valuation is a determination of the value of the business on a certain date for a specific purpose. The value of a business stems from 1. the value of its operating and non operating assets, and 2. the return on investment those assets can generate. There are several methods by which we may find the value of a company, each of which may be appropriate due to the structure and operation of the specific companies or due to the economic condition in which the valuation is made. A short list of these valuation techniques are given below; 5.4.1.1 Discounted Cash Flow Analysis (Present Value of the Cash Flow) This method finds a wide acceptation and the projected future net cash generation of the company is discounted to today's value through a specific discount factor. The most important factors in this method are the discount factor that is being used and that the net cash generation is a totally different concept than the net profit of the company. Only cash or cash equivalents can be used for reinvestment purposes. The theory is that cash flow represents the recovery of the investment and the receipt of income produced by such investment. 365.3.4 Production and Technology The Company contains the following premises: Factory Building, Administration Building, training building, warehouses as well as lodgings, cafeteria, guest houses, observation towers etc. Production is performed in eight main stages at the factory. Range of products produced by the Company contains inner tubes, tires of passenger cars, tires of pick-up trucks and minibuses, radial tires of trucks and auto buses, conventional tires of trucks and auto buses, tractor front and back tires, tires of mobile equipment and aircraft tires. Table 5.10 PETLAS PRODUCTION Source: PPA reports ”1993/3: As at the end of March 1993 1 993/B : Budgeted for the end of 1993 As at 22.01.1993, Petlas has 199 dealers, which is targeted to reach 425 as at December 1993. 345.3.4 Production and Technology The Company contains the following premises: Factory Building, Administration Building, training building, warehouses as well as lodgings, cafeteria, guest houses, observation towers etc. Production is performed in eight main stages at the factory. Range of products produced by the Company contains inner tubes, tires of passenger cars, tires of pick-up trucks and minibuses, radial tires of trucks and auto buses, conventional tires of trucks and auto buses, tractor front and back tires, tires of mobile equipment and aircraft tires. Table 5.10 PETLAS PRODUCTION Source: PPA reports " 1993/3: As at the end of March 1993 1 993/B : Budgeted for the end of 1993 As at 22.01.1993, Petlas has 199 dealers, which is targeted to reach 425 as at December 1993. 34RESULTS Most important factors in the privatization process are timing and planning the program well. Privatization should be considered as a long term strategy and PPA's importance in this strategy should not be neglected. Privatization is a political choice but it should never be forgotten that privatization is not the only solution for better functioning of SEE's. Privatization is a need in terms of democratization of capital and the success it will bring depends heavily on the specific method that will be applied. One of the important points to be emphasized is that privatization is not a transfer to the private sector. Transfer to private sector does not create dispersion of capital and this should be one of the first concerns in the decision process. Priority problem is also important in terms of which SEE's will be sold first and to which entities. Investment banks and other specialized institutions should play a major role in this process and make use of their expertise and experience. Social privatization policy is also important that brings the procedures for the sales of SEE shares to comparatively low net worth individuals. This process is tried to be applied by a program called 'Employee Stock Ownership Plan'. This plan has been applied in the privatization process of Teletas and has been successful. '*- Türkiye is depending on heavily the expertise provided by foreign consultancy and investment companies in order to make use of their placement power especially. However, the image that only foreign companies can handle these is very wrong. The reports that are being prepared by the foreign companies in a couple months are being debated. Another subject to be emphasized is whether the SEE's should be sold to foreigners with block sales method. This method should not be applied especially in terms of the sales of entities that have direct influence to Turkish economy and if they are in the form of monopolies. 395.4.1.2 Gordon Dividend Model This model presumes the equality of the value of a company share with the future dividends that share will generate. This model is being considered by the investors mainly. 5.4.1.3 Price-Earnings Approach This model is widely used by the stock investors and the important factor that should not be forgotten is that this method does not reflect the outputs of the long-term profitability of a. stock. The value of the stock of a company that will generate a huge profit in the proceeding year will be higher than its real value as well as the value being lower if the company will not be profitable in that specific year. 5.4.1.4 Book Value This method is also known as net tangible assets value or adjusted book value. Tangible book value is obtained by reference to the business' most recent balance sheet. In essence, it is the net book value of the business; total assets minus total liabilities, with adjustments made for intangibles such as goodwill. The other valuation methods that are being used in our day are book value, liquidation approach, reproduction or replacement value, factor or formula approach, net assets value and combinations and variations of these methods. s.4.2 Valuation Result Valuation of Petlas through most of these methods is not possible since the Company generates loss since its establishment. The Company may be valued through an expertise report through which the field of the factory, the buildings, warehouses and the machinery are valued and the liabilities are subtracted from this value. The Company is owned by the State and therefore, due to possible effects of Government policies, the management might not, fully and independently, decide on the Company's purchasing and pricing policies. In real terms, the Company is not profitable in its operations. This creates a financial burden on the Company and causes recurring losses. 375.4.1.2 Gordon Dividend Model This model presumes the equality of the value of a company share with the future dividends that share will generate. This model is being considered by the investors mainly. 5.4.1.3 Price-Earnings Approach This model is widely used by the stock investors and the important factor that should not be forgotten is that this method does not reflect the outputs of the long-term profitability of a. stock. The value of the stock of a company that will generate a huge profit in the proceeding year will be higher than its real value as well as the value being lower if the company will not be profitable in that specific year. 5.4.1.4 Book Value This method is also known as net tangible assets value or adjusted book value. Tangible book value is obtained by reference to the business' most recent balance sheet. In essence, it is the net book value of the business; total assets minus total liabilities, with adjustments made for intangibles such as goodwill. The other valuation methods that are being used in our day are book value, liquidation approach, reproduction or replacement value, factor or formula approach, net assets value and combinations and variations of these methods. s.4.2 Valuation Result Valuation of Petlas through most of these methods is not possible since the Company generates loss since its establishment. The Company may be valued through an expertise report through which the field of the factory, the buildings, warehouses and the machinery are valued and the liabilities are subtracted from this value. The Company is owned by the State and therefore, due to possible effects of Government policies, the management might not, fully and independently, decide on the Company's purchasing and pricing policies. In real terms, the Company is not profitable in its operations. This creates a financial burden on the Company and causes recurring losses. 37If we make a list of procedures to be followed in order to be successful in the privatization process following will form the top of the list; 1. Priorities should be clearly set in the privatization process. 2. PPA should act as a separate entity from the government and should not be influenced by political pressures. 3. Privatization process should be handled within the knowledge of the public. 4. If a block sale will be made, the pricing and the purchaser should be analyzed well in order not to create any debate afterwards. 5. Deregulation and decontrols are two indispensable factors in privatization. In addition to those two, price formation procedure should also be liberalized. 6. Laws and regulations concerning privatization should be analyzed well and adaptations should be made when needed. 40
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