ISTANBUL, Oct 2 (Reuters) – Turkish listings have raised more than $2 billion this year and are on track to reach their highest total in 16 years, as strong demand from local retail investors gives credit-hungry companies a key financing option offers.
Smaller companies are leading the way, being driven to list shares in search of alternative sources of funding after Turkey’s years of interest-cutting and credit-tightening policies made it harder for them to get bank loans.
However, international investors who would normally target larger listings are shying away from the Istanbul market as high inflation makes it difficult to analyze companies’ profit margins and valuations, analysts say.
The rush of smaller companies that have held initial public offerings this year have raised an average of about $60 million each and have targeted almost exclusively local retail investors, company filings show.
Istanbul was the most active among the 16 stock exchanges in Europe, the Middle East and Africa tracked by the World Federation of Exchanges.
However, larger companies have not been so lucky with IPOs. The lack of interest from foreign funds and accounting uncertainty fueled by high inflation have made it more difficult for investors to value Turkish assets.
The annual inflation rate rose to nearly 59% in August and is expected to rise further next year. In June, authorities made a U-turn toward more orthodox economic policies, including raising interest rates to try to lower inflation expectations.
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Another financing route, Eurobonds, is available to some large companies and was recently opened after a year-long hiatus.
But companies in the middle of their industry have few options, a local corporate finance consultant said.
“Either they have to resort to expensive bank loans … or limit their business activities, which is the aim of economic policy. The government has hit the brakes, no more easy financing,” said the adviser, who did not want to be named.
The dynamics of Turkish IPOs have changed significantly in recent years due to the withdrawal of foreign investors. The share of foreign institutional investors in new IPOs has fallen to just 8% from 78% in 2018, while the share of local retail investors has increased from 11% to 69%.
Musfik Cantekinler, a veteran of Turkish corporate finance who now runs a private practice, cites limited bank financing as a reason why many Turkish companies have rushed to go public.
“The taps of bank funding have been closed for some time and IPOs are now a source of funding. However, some of those competing for one are not really ready yet.”
The rise in the number of retail investors in stocks, which more than doubled to more than 10% of the adult population last year, was a boon for IPO hopes, even as foreign investors declined.
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The Istanbul Stock Exchange saw 36 initial public offerings in the first nine months of the year, the second highest number since records began in 1990, and at least 20 more are awaiting regulatory approval.
The total value of IPOs is over $2 billion and is on track to reach its highest value in 2007. However, the average size has become smaller as the IPOs are targeted at retail investors, who tend to buy fewer than 100 shares.
“If there are no serious institutional investors involved, it will be difficult to have a healthy market structure. There are concerns that companies that lack strong operational and financial performance may struggle to maintain their market capitalization after listing,” Cantekinler said.
Additional reporting by Ebru Tuncay. Editing by Mark Potter
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