Mobile  |  About us  |  Photos  |  Videos  |  Subscriptions  |  RSS Feeds  |  Today's Paper  |  Classifieds  |  Contact Us
The Daily Star
SUNDAY, 20 APR 2014
07:01 AM Beirut time
Weather    
Beirut
21 °C
Blom Index
BLOM
1,214.01down
Middle East
Follow this story Print RSS Feed ePaper share this
Turkish lira inflicts pain as debt costs swell
Bloomberg
File - Foreign currency exchange rates are displayed on a screen outside an exchange office in central Istanbul January 29, 2014.  (REUTERS/Murad Sezer)
File - Foreign currency exchange rates are displayed on a screen outside an exchange office in central Istanbul January 29, 2014. (REUTERS/Murad Sezer)
A+ A-

Ercan Cercioglu is holding off on investing in new technology for the Turkish maker of car parts that he runs as the lira’s slide makes it harder for companies to service foreign-currency debt.

The cost of importing raw materials like steel jumped as the lira tumbled 13 percent in the past six months, according to Cercioglu, chief executive officer of Aydin, Turkey-based Jantsa Jant Sanayi ve Ticaret AS. The company, whose third-quarter financial debt was 41 million liras ($19 million) and was almost fully denominated in foreign currencies, is hesitating to pass additional costs onto customers, he said.

“Foreign-currency debt used to be less costly for companies, but now many will post FX losses,” Cercioglu said in a phone interview on Feb. 5. Jantsa has shelved some investments as it “waits for stability, to see what’s ahead,” he said.

Net foreign-currency debt of Turkish companies surged 21 percent to $170 billion last year through November, according to central bank data. Their Polish counterparts held the equivalent of $23 billion of foreign-exchange liabilities that month, up 13 percent, official data shows. The debt burden for businesses from Istanbul to Ankara may have worsened in December as a graft probe entangling the government sent the lira sliding 6 percent that month.

It took a surprise central bank interest-rate increase on Jan. 29 to halt a rout that drove the currency to successive record lows. A more than doubling of the benchmark rate to 10 percent turned it into the world’s best-performing emerging-market currency from the second worst.

Even after the recovery, the exchange rate’s implied volatility is the fourth-highest among developing nations at 13.7, surpassed only by South African’s rand, Argentina’s peso and Brazil’s real. The lira weakened 0.3 percent Friday morning to 2.2168 per dollar. It slumped to a record 2.3900 on Jan. 27.

“I hope the lira settles at around 2.1 per dollar,” Erol Bilecik, chairman of Istanbul-based technology company Indeks Bilgisayar Sistemleri Muhendislik Sanayi ve Ticaret AS, said by phone Wednesday. “There definitely is a lack of motivation and energy in the market.”

The foreign-exchange swings are weighing most on small- and medium-sized businesses, which dominate Turkey’s corporate landscape, Suleyman Onatca, chairman of the Turkish Enterprise and Business Confederation, said on Jan. 24. Banks are reluctant to allow SMEs to roll over loans, he said.

Out of every 10,000 companies, only two aren’t SMEs, a classification for businesses employing fewer than 250 workers and/or posting annual sales of under 40 million liras, according to data of the state-run Small and Medium Enterprises Development Organization.

The lira lost a fifth of its value against the dollar and single European currency in the past 12 months.

That’s mirrored drops in South Africa’s rand and the Indonesian rupiah, also victims of souring sentiment in emerging markets amid Federal Reserve reductions of monetary stimulus.

“It is tough to digest such an appreciation in the dollar and the euro,” Onatca said by phone on Wednesday. “I don’t want to talk like a doomsayer, but God help companies with bank debt.”

Turkey’s currency has recovered since the rate decision, while investors piling into the nation’s stocks lifted the Borsa Istanbul 100 Index up 3.4 percent Thursday, the most among 94 global benchmarks monitored by Bloomberg. Yields on Turkey’s two-year notes are down 37 basis points from a two-year high on Jan. 28, to 10.69 percent.

The central bank resisted calls to raise rates since August to support the economy. Growth in the nation of about 80 million people is set to slow to 3 percent this year from 3.9 in 2013, according to the median of 31 forecasts compiled by Bloomberg.

As companies like Jantsa delay investments, that’s a drag on the economy, according to Zsolt Papp, who helps oversee $2.6 billion of emerging-market debt at Union Bancaire Privee in Zurich.

“Some companies with a material currency mismatch in assets and liabilities could be forced to seek restructuring,” Papp said Thursday.

As clients pressure Jantsa to hold prices even as costs rise, Cercioglu is delaying plans to spend more on research and development to enhance productivity. “We want to protect ourselves against a possible crisis.”

Cercioglu isn’t alone in reconsidering business plans. Suleyman Gerdan, chairman of Germaksan Makina Sanayi ve Ticaret Ltd., a machinery maker, cut production and is working at about 35 percent of capacity at its factory in the southern city of Adana following a slowdown in orders.

It will struggle to surpass 2013 sales of 45 million liras this year as costs for everything from electricity to transportation climb, according to Gerdan.

“We recently froze an investment of about 7 million euros ($9.5 million), thinking it’s better to stay liquid,” Gerdan said by phone on Feb. 5. “That investment would have allowed us to expand in Africa. After the surge in the dollar, we can’t see what’s ahead.”

 
A version of this article appeared in the print edition of The Daily Star on February 08, 2014, on page 4.
Home Middle East
 
     
 
Turkey
Advertisement
Comments  

Your feedback is important to us!

We invite all our readers to share with us their views and comments about this article.

Disclaimer: Comments submitted by third parties on this site are the sole responsibility of the individual(s) whose content is submitted. The Daily Star accepts no responsibility for the content of comment(s), including, without limitation, any error, omission or inaccuracy therein. Please note that your email address will NOT appear on the site.

comments powered by Disqus
Story Summary
Ercan Cercioglu is holding off on investing in new technology for the Turkish maker of car parts that he runs as the lira's slide makes it harder for companies to service foreign-currency debt.

The cost of importing raw materials like steel jumped as the lira tumbled 13 percent in the past six months, according to Cercioglu, chief executive officer of Aydin, Turkey-based Jantsa Jant Sanayi ve Ticaret AS. The company, whose third-quarter financial debt was 41 million liras ($19 million) and was almost fully denominated in foreign currencies, is hesitating to pass additional costs onto customers, he said.

Net foreign-currency debt of Turkish companies surged 21 percent to $170 billion last year through November, according to central bank data.

The lira weakened 0.3 percent Friday morning to 2.2168 per dollar.

Out of every 10,000 companies, only two aren't SMEs, a classification for businesses employing fewer than 250 workers and/or posting annual sales of under 40 million liras, according to data of the state-run Small and Medium Enterprises Development Organization.
Related Articles
China burns speculators as $5.5B lost on yuan bets
 
 
Erdogan win seen easing foreign investor exodus
Entities
Advertisement


Baabda 2014
Advertisement
Follow us on Facebook Follow us on Twitter Follow us on Linked In Follow us on Google+ Subscribe to our Live Feed
Multimedia
Images  
Pictures of the day
A selection of images from around the world- Saturday April 19, 2014
View all view all
Advertisement
Rami G. Khouri
Rami G. Khouri
Why Israeli-Palestinian talks fail
Michael Young
Michael Young
Why confuse gibberish with knowledge?
David Ignatius
David Ignatius
Echoes of 1914 characterize the Ukraine crisis
View all view all
Advertisement
cartoon
 
Click to View Articles
 
 
News
Business
Opinion
Sports
Culture
Technology
Entertainment
Privacy Policy | Anti-Spamming Policy | Disclaimer | Copyright Notice
© 2014 The Daily Star - All Rights Reserved - Designed and Developed By IDS