Reform underwrites Turkey's service sector

Published: 15 September 2008

HSBC helps set the pace for growing Turkish insurance sector

With emerging markets competing for position amid a global economic slowdown, the pressure on Turkey's economy is evident. After attaining a 6.9 per cent growth in GDP in 2006, Turkey's GDP growth declined since late last year.

Despite the current economic and political uncertainties, analysts believe Turkey's economy is heading for recovery with 2009 GDP growth expected to average 4.9 per cent.

One of the country's key economic drivers in recent years has been its expanding services industry as the Turkish economy shifts to a closer alignment with its European neighbours. While agriculture and trade have dropped in recent years, manufacturing, construction and services have become crucial economic drivers.

Sources: CBRT, Treasury, Ministry of Finance, HSBC Turkey forecasts

The Turkish economy is expected to recover, spurred by on-going government-led market, labour and economic reforms that have helped make the country an attractive global investment destination. Among the sectors gaining from these initiatives is the insurance industry.

The Turkish insurance market offers strong potential in the non-life and pension segments, on a backdrop of rising disposable income, growing insurance culture, and low penetration levels. New insurance laws implemented in 2007 aimed to bring the insurance sector to a par with international standards. The reforms have renewed foreign investor interest in a sector, which used to be dominated by local pension and insurance players

Taking advantage of Turkey's strategic location at the crossroads of Western Europe, the Balkans, the Middle East and the Caucasus, and its market base of over 70 million people, HSBC anticipated the growth potential of the Turkish insurance sector.

HSBC enjoys a unique reputation in the Turkish financial services market thanks to its advisory roles in a number of landmark transactions. In one recent transaction, the bank advised Polis Bakim ve Yardim Sandigi (PBYS), a state-owned police charity fund, on the sale of its life and pension subsidiary, Ankara Emeklilik.

Market share advantage

Though a comparatively small player in the Turkish insurance sector, Ankara Emeklilik is an established name in Turkey's life insurance and pensions market with approximately EUR35 million in assets under management and over 58,000 pension fund members

HSBC Turkey Manager for Corporate Finance Gokhan Saydar said the transaction attracted both domestic and international interest. The successful bidder was Netherlands-based insurance group Aegon, which provides life insurance and pension services in Asia, Europe and the United States.

Mr Saydar said Aegon was keen to establish a presence in Turkey as part of its strategy to tap into the fast-growing pension market and complement the expansion of its business into Central and Eastern Europe.

"Aegon has a keen interest in making further acquisitions. They want to use their Turkish operations as a stepping stone to expand their activities into the Balkan and East European markets so they believe their acquisition of Ankara Emeklilik would provide a platform for this expansion policy," Mr Saydar said.

Room for growth

"Ankara Emeklilik is a cornerstone transaction demonstrating HSBC Turkey's deal execution capabilities and origination skills. It was the first deal to be brokered solely by HSBC Turkey," said Mr Saydar.

PBYS appointed HSBC as its financial adviser in November 2006, reflecting the client's trust in HSBC's extensive Turkish coverage and market reach. "The main reason for the appointment was definitely because of HSBC's local expertise, global reach, and seamless execution," said Mr Saydar.

HSBC is among the largest international banks in Turkey, with a local network of 311 branches. The bank's local knowledge and international reach were a deciding factor in the appointment, since PBYS wanted to find an international investor who could expand Ankara Emeklilik.

     Gokhan Saydar, HSBC Turkey Manager for Corporate Finance

HSBC Turkey was involved in all stages of the deal starting from the structuring of the business, until the last stage of closing. Having established a reliable reporting and IT platform in the company, HSBC Turkey devised marketing documents and identified potential buyers.

"Beginning in the second half of 2007, we contacted over 75 insurance companies, private equity funds and insurance advisers to present this opportunity. Apart from our distribution capabilities, we demonstrated our strong cooperation with our London investment banking colleagues who also helped improve the efficiency of the execution," Mr Saydar said.

HSBC guided PBYS throughout the negotiations as the firm was unfamiliar with the process. The Bank also responded to over a thousand queries from bidders in the due-diligence process.

After a challenging selection process, the negotiating team reached an agreement with Aegon. In February 2008, the Dutch investors announced its intention to acquire a 100 per cent stake in Ankara Emeklilik. Five months later, following regulatory approvals, the acquisition was completed.

Signs of an emerging economy

"The Ankara Emeklilik transaction has paved the way for further foreign investment in the Turkish insurance sector," said Mr Saydar, adding that, "the Turkish market is continuously expanding in both its life and non-life segments, and there's abundant room for growth."

* Already announced (execution date)
** Expected
Source: Turkish government, companies, HSBC