Turkey’s IPO Boom Gives Cash-Strapped Firms Access to Funds

Turkey’s initial public offering market is taking off as companies with limited options for fresh financing seek to take advantage of local investors’ appetite for new issues.

(Bloomberg) — Turkey’s initial public offering market is taking off as companies with limited options for fresh financing seek to take advantage of local investors’ appetite for new issues.

More than 20 companies have so far completed the process of listing and have started trading in Turkey during 2023, raising about 26 billion liras in total, or about $1.33 billion, based on the average exchange rate this year. That’s already ahead of last year in both dollar and local-currency terms and the most in liras in records going back to 2010 on the Turkish Capital Markets Board’s website. 

The pace is picking up as companies look to domestic savers for capital at a time when accessing loans in Turkey has become harder. The central bank’s management of loan rates since last year has left banks with little incentive to lend to second-tier clients, while regulators were also pressuring commercial lenders to prioritize exporters and smaller businesses that account for nearly three-quarters of the job market. 

“IPOs are the easiest and most available source of financing for companies at most favorable costs,” said Tuna Cetinkaya, assistant general manager at the Info Yatirim brokerage. “So there are many more companies looking to tap locals’ appetite, and we’ll likely see more companies getting listed this year than 2022.” 

Read More: Nice Credit If You Can Get It in Turkey’s Micromanaged Economy

With at least 10 more firms having announced the start of the process to get listed, and many more waiting in line, the market is on track to narrow the gap with, and potentially surpass, 2021’s record number of 52 IPOs, data from Borsa Istanbul show. In 2022, there with 40 IPOs worth a total 19.3 billion liras.

While local buyers have been enthusiastic for IPOs, foreign investors have largely remained on the sidelines. Concerns over Turkey’s unorthodox economic policies and a weakening currency have sent foreign ownership in Turkish stocks to a record low of 27%, and it continues to hover near those levels. Total foreign investment in Turkish stocks stands at about $23.2 billion, down from about $78 billion a decade ago.

Should there be a return to conventional economic policies, that may increase foreign investors’ appetite for Turkish equities, also possibly reflecting on IPO markets as well, according to Cetinkaya.

Investors and strategists have raised bets on a gradual return to economic orthodoxy after President Recep Tayyip Erdogan revamped his cabinet when he won another five-year term in May. He has also signaled some “flexibility” in monetary policy, seen as opening the way for a shift from unconventional measures that stoked an inflation crisis. The appointment of two former Wall Street bankers to the country’s new economy team has fueled optimism in Turkish stocks, even if international investors remain cautious. 

IPO Index

The Borsa Istanbul IPO Index, which tracks stocks that have listed in the past two years, has soared 2,060% since the start of 2020, when local mom-and-pop traders’ frenzy for Turkish stocks began to climb amid rising inflation and diminishing returns from fixed-income products as the government kept interest rates low. 

That raised questions regarding the sustainability of the move. Lackluster returns in fixed-income assets in recent years and high inflation have made stocks the most favorable investment option for local investors. That said, local appetite for stocks started to dwindle ahead of the elections amid a surge in lira deposit rates.

While the IPO index is down 6.9% this year, short-term spikes in the first few trading days of newly listed stocks still continue to a large extent, keeping demand from domestic retail investors strong.

(Updates with data on foreign investment in sixth paragraph.)

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