MAPA DE ACTORES

ensuring compliance

with ESG criteria in a

manner similar to the

minority investments of

activist funds in widely

held firms in developed

markets.

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Some of Actera’s previous investments include Migros Turk, Digiturk, Medical Park, Biofarma, UN Roro, and Boyner Magazacilik. The sectoral concentration in retail, services, and technology overlaps with that of Turkven.

The PE industry is expected to grow substantially over the coming years. One in every 10 opportunities for PE investment represents a disinvestment or refo- cusing transaction of a Turkish business group, according to Actera. Tradition- ally, the controlling shareholders of Turkish companies were reluctant to share control or sell because this could be interpreted as their business group’s being in financial distress. Business groups have, however, been encouraged to adopt refocusing strategies and divest noncore assets in response to recent increased competition, together with new opportunities arising from the deregulation of protected industries that present a higher return potential. Other opportunities might stem from succession problems in family controlled firms, privatization of state-owned firms, and significant growth opportunities that require a pool of scarce management talent that PE firms can offer with proper incentives for superior performance.

Industry professionals consider PE investments as a key influence for promot- ing sustainable business practices in the long term. PE may be a more effective instrument for ensuring compliance with ESG criteria in a manner similar to the minority investments of activist funds in widely held firms in developed markets. Some of the obstacles to foster growth of the PE Industry, expressed by indus- try professionals include -

Issues Related to the Provisions of the Old Commercial Code4

• Joint stock companies are not allowed to own treasury stocks. This limitation not only prevents a more efficient capital deployment, but also creates costs for investors who would need to use complicated and costly schemes mimicking stock options for setting management incentives aligned with investor interest.

• Commercial law requires a minimum of five shareholders to establish a joint stock company. This requirement sometimes causes problems when shares are disowned by rejection of inheritance by the inheritors.

Issues Related with the Macroeconomic Picture

• High interest rates partly attributable to domestic borrowing are still a barrier to long-term borrowing in local currency. Foreign exchange loans create a risk for companies that generate revenues predominantly in TR.

Human Capital

• The equity research community lacks the incentives and skills required for high quality research output.

• The managerial talent pool is predominantly replenished by executives with experience gained in multinational firms operating in Turkey. Local firms, where owners often occupy executive positions, tend not to culti- vate entrepreneurial managers.

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Smaller local PE houses include Is Girisim Sermayesi, Standard Unlu PE, and Euraisia Capital Partners. International PE funds that have already invested in Turkish companies or are actively looking for deals are listed in table A3.11 in the Appendix. Only a handful of these funds are minority investors or are inter- ested in listed companies. Most funds are looking for buyout opportunities or controlling stakes. Investments generally target mature companies in the expan- sion stage. This is likely to be related to weaknesses in the legislative framework (minority shareholder rights, enforcement of contracts, and judicial efficiency).

E. Development Finance

DFIs provide finance to the private sector in developing countries to support their sustainable economic growth. Five major multilateral and one national DFI have been actively investing in Turkey over the last decade. The development institutions cooperate closely with the Turkish government and its agencies, NGO’s, academia in the country, as well with each other.

Despite their diverse organizational and operational differences, there are many commonalities in DFI investors in Turkey. They all choose sustainable and re- newable energy, access to finance for SMEs, and infrastructure projects as their investment priorities. Although the specifics of projects differ widely in terms of partners, size, and content, the focus remains the same. All DFIs have their own ESG criteria and use their own guidelines to analyze projects prior to approval and during the monitoring period.

During our interviews, the development institutions mentioned that some of the projects were rejected at the initial stage because they did not meet their ESG criteria although they appeared to be financially profitable. These institutions highlight that many Turkish companies mistakenly believe that compliance with law and regulations is sufficient to meet their ESG standards, which is often not the case. We observed that DFIs differ with respect to the strictness with which they evaluate compliance with ESG criteria. Although some DFIs apply a strict evaluation both at the credit approval stage and later, others are less stringent and can deviate from some of their criteria. Further information about DFIs’ ac- tivities is provided in the Appendix In the section on “Development Finance”. The availability of global liquidity at low interest rates has been a factor that reduced the credit volume extended by DFIs in Turkey. Larger companies with access to credit did not want to accept the additional ESG criteria required by DFIs. Consequently, most DFIs diluted their ESG requirements, leading to prob- lems for those DFIs that remained stringent—such as, for example, IFC. The monitoring task is usually carried out by specific missions from other countries as local offices, with the exception of IFC, do not have local capacity.

Industrial Development Bank of Turkey (TSKB)

TSKB was founded in 1950 as the first private investment and development bank of Turkey. The main shareholders of the bank are Isbank with 50.1 percent and Vakifbank with 8 percent. The remaining shares are traded on the ISE. The bank is the 16th largest bank in Turkey with an asset size of $4.8 billion. TSKB is a non-deposit bank. Project and corporate financing are the two main business lines. Project financing activities can be direct or indirect lending to clients ranging from large corporate clients to SMEs.

In recent years, TSKB has focused mainly on energy sector projects. At the

DFIs provide finance