This record is a partial extract of the original cable. The full text of the original cable is not available.

111346Z Apr 05

UNCLAS SECTION 01 OF 02 ANKARA 002078 
 
SIPDIS 
 
SENSITIVE 
 
TREASURY FOR RADKINS AND MMILLS 
NSC FOR BRYZA AND MCKIBBEN 
USDOC/ITA/MAC FOR DAVID DEFALCO 
 
E.O.12958: N/A 
TAGS: EFIN EINV PGOV TU
SUBJECT: PETKIM: PA GOES ON THE ROAD TO PROMOTE TURKEY'S 
         PETROCHEMICAL COMPANY 
 
 
¶1. (SBU) Summary.  PETKIM (Petrokimya Holding A.S.), Turkey's 
state petrochemical company, is preparing for an IPO of 30 
percent of its shares in late April.   Turkey,s 
privatization officials, together with privatization 
consulting companies, left for the U.S. last week to attend 
an investor,s conference in NYC and Boston.  Petkim's 
"Road-Show" is also headed to London, Frankfurt, Vienna, and 
Stockholm.  Petkim is the youngest petrochemical facility in 
Europe and its operations reportedly conform to EU standards. 
 Though Turkey's privatization track record is dismal, the 
Petkim deal has a reasonable chance of success because it is 
a minority share IPO rather than a block sale.  End Summary. 
 
¶2. (SBU) Petkim is considered a bellwether privatization for 
the Privatization Administration (PA) particularly since it 
recently failed in its second attempt to sell the tobacco 
operations of its state company TEKEL last week (Post will 
report on TEKEL septel).  Last week, the PA started its 
road-show for an IPO of 30 percent of Petkim's shares, aiming 
for share trading on April 21.  The PA currently holds 88.86 
percent of Petkim's shares; the balance is held by a pension 
fund, and 4.14 percent is traded on the Istanbul Stock 
Exchange.   Since January 2003, the PA launched successive 
unsuccessful block sales of Petkim in amounts of 51 percent 
and 88.86 percent.  The winner of the first bid, the Uzan 
Group's Standart Kimya Oil and Gas Company, was unable to 
fulfill its obligations under its bid in 2003, in an early 
indication that the Uzans were running into financial 
trouble. 
 
¶3. (U) The road-show team is composed of Privatization 
Administration (PA) President Metin Kilci, his deputy Osman 
Ilter, Petkim General Manager Kenan Yavuz, and his assistant 
Hayrettin Ozturk.  Representatives of the privatization 
consulting companies will also participate:  Finans Invest 
Ass GM Ismail Erdem (he could be reached at  90 533 261 53 96 
GSM), Ahmet Okcular (Finans Invest), and Kayihan Korkmaz 
(CAIB, Istanbul office).  The team was in NYC on April 7, and 
in Boston on April 8.   Petkim's road-show is also headed to 
London, Frankfurt, Vienna, and Stockholm this week.  PA 
Petkim Department head Mustafa Ozel said that due to the 
strict rules, the team planned to meet only qualified 
investors to disclose company details, but that interested 
parties could contact Ismail Erdem from the domestic 
consulting company &Finans Invest8 on his mobile. 
 
¶4. (U) Petkim is Turkey's exclusive producer of basic 
petrochemicals and major producer of derivatives and 
thermoplastics.  Petkim anticipates strong growth potential 
in the petrochemical sector in Turkey.  The company's main 
complex is located at Aliaga, near Izmir, where it has 
separate facilities for production of ethylene, low and high 
density polyethylene, polypropylene, and other aromatic and 
petrochemical products. 
 
¶5. (U) Petkim has generally been profitable, but posted a 
loss of $57 million in 2003 (most current financial report), 
primarily due to high upstream and energy prices (without a 
commensurate increase in downstream product prices) and weak 
global demand.   The company has announced a net profit of 
$46 million on net sales of $1,056 million in 2004.  The 
company has reduced its employee levels to 3,967 in 2004, 
compared to 6,779 in 1999, partly through sales of paper 
factories. 
 
¶6. (U) Petkim increased revenues by 42 percent and cut 
expenses by 17 percent in 2004, despite the sharp increase in 
oil prices.  The fall in expenses was mainly due to the 
company,s decision to downsize; 13 departments were closed 
and 350 employees left their jobs (retired or laid-off). 
Petkim,s capacity investments in the 2001- 2004 period 
amounts to $330 million, $100 million of which was made in 
¶2004.  Petkim financed all these investments internally. 
Petkim works at 100 percent capacity and is able to sell all 
of its production.  Petkim currently accounts for 30 percent 
of the Turkish petrochemicals market and plans to increase 
its share to 50 percent.  Petkim's exports amounted to $182 
million as of 2004 and the company has targeted $220 million 
in exports in 2005. 
 
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Potential Hurdles 
------------------ 
 
¶7. (U) The "Petrol-Is" labor union's report on Petkim claims 
that the petrochemical industry needs new investments to 
increase the quality of production.  According to the report 
PETKIM's total assets reached $1.2 billion in 2004 and the 
company has a $500 billion production capacity.   The same 
report says that Petkim should not be privatized.  Petrol-Is 
Labor Union is against PETKIM's privatization and is expected 
to challenge the privatization process again. 
 
¶8. (U) The same report points out that PETKIM used to meet 85 
percent of the domestic demand in its early years.  However, 
being part of the privatization portfolio since 1987, the 
company did not invest in any new capacity expansion and this 
in turn has caused its market share to decrease to 30 
percent, as of 2004.  Petrol-Is leader Mustafa Oztaskin was 
reported saying that, from their perspective, a public 
offering of the shares was no different from a block-sale and 
the union would continue challenging the decision. 
 
¶9.  (U) After repeated delays and few successes, the GOT and 
the PA have identified 2005 as a critical year for 
privatization in Turkey.  Market analysts comment that the 
sectoral growth potential and the recent increase in 
Petkim,s profit performance makes Petkim, along with 
steelmaker Erdemir and telecom provider Turk Telecom, 
particularly attractive to foreign investors.  Privatizations 
have faced resistance from the judicial system and labor. 
Several large privatizations have been blocked by Turkish 
court rulings in recent years.  Labor unions oppose 
privatization because employees fear they will no longer 
benefit from public sector employee status.  However, 
Petkim's employees' status as public sector employees will 
not change in Petkim's minority share IPO. 
 
¶10. (SBU) Minority share IPO's like Petkim's seem to be 
easier for the PA to pull off for two reasons.  First, the 
state retains effective control.  And second, by allowing the 
stock market to value the shares, the PA is less open to 
charges of selling state assets too cheaply, since Turkish 
courts and prosecutors have tended to doubt that block sales 
with small numbers of bidders reflect the true value of the 
state companies. 
 
¶11. (U) Detailed information is available in English at the 
PA/Petkim web sites: 
 
http://www.oib.gov.tr/ index eng.htm 
http://www.petkim.com.tr/petkimweb/main.aspx 
 
EDELMAN