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DE RUEHIT #1048/01 1640942
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FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC 5217
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUEHAK/AMEMBASSY ANKARA 5209
RUEHDA/AMCONSUL ADANA 2226

UNCLAS SECTION 01 OF 02 ISTANBUL 001048 
 
SIPDIS 
 
TREASURY FOR CPLANTIER 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN TU
SUBJECT: TURKEY'S HOLDINGS BRACE FOR A BRAVE NEW WORLD 
 
Sensitive but unclassified.  Not for internet distribution.  This 
cable has been coordinated with Embassy Ankara. 
 
¶1. (SBU) Summary: The positive evolution of Turkey's macroeconomic 
environment over the past four years, together with the prospect of 
EU accession, has prompted Turkish companies at all levels to 
redefine their corporate strategies.  Whereas previously it was rare 
for a CEO to look out beyond a one- or two-year time horizon, now 
companies are increasingly trying to develop long-range strategies. 
The effort has been particularly marked among the giants of Turkish 
industry, the large holding companies or conglomerates that have 
long dominated the industrial and commercial landscape. 
Increasingly, in contrast to their earlier tendency to diversify 
into a range of sectors, they are seeking to identify key niches 
where they can build on their natural competitive advantages, in a 
development that symbolizes the "normalization" of the Turkish 
economy. 
 
¶2. (SBU) This cable focuses on Turkey's four largest holdings: Koc 
Holding, Sabanci Holding (Koc's closest rival), Dogan Holding, and 
Dogus Holding.  Subsequent messages will look at specific sectors, 
small and medium enterprises, and other economic actors.  End 
Summary. 
------------------------------- 
Holdings in the Turkish Economy 
------------------------------- 
 
¶3. (SBU) Holdings have defined the Turkish economy since soon after 
the start of the Republic.  Initially encouraged through concessions 
provided by the Turkish government, they were a vehicle through 
which the country realized its strategy of rapid industrialization 
through import substitution.  Subsequently benefiting from their 
size and access to capital, the holdings diversified into a wide 
range of industries to cushion themselves from the vicissitudes of a 
Turkish economy that was characterized by rampant inflation and 
repeated boom and bust cycles.  By owning companies in different 
sectors, a holding could balance out these cycles: if one sector did 
poorly one year another sector might act as a counterbalance. 
Analysts have predicted that as the economy becomes less volatile, 
holdings will no longer need such insulation from economic shocks, 
and will increasingly specialize in particular sectors of the 
economy. 
 
¶4. (SBU) The persistence of these highly-diversified conglomerates 
in Turkey long after this business model was discredited in other 
industrialized countries is also attributable to foreign direct 
investors' need for a local partner to navigate the shoals of 
Turkey's  anti-foreigner regulatory and judicial systems.  In other 
words, the big groups added value as "fixers" for foreign 
multinationals. 
 
¶5. (SBU) The last two years have provided hints that Turkey's 
newfound macroeconomic stability has permitted the start of a move 
towards greater specialization by the big Turkish groups.  The chief 
economist at one local brokerage noted to us that the the "holdings 
are trying to evolve.  Some are adjusting successfully to new 
economic realities, and others are not."  In this analyst's view, to 
date only the Dogan and Dogus Groups have successfully carried out 
this specialization, while the bluest of Turkey's Blue Chips- Koc 
and Sabanci-have had more difficulty, perhaps stemming from their 
larger size and more complicated organizational structure. 
 
----------- 
KOC HOLDING 
----------- 
 
¶6. (SBU) Koc Holding is the flagship of Turkish industry. 
Established in 1926, it operates in sectors including automobiles 
(in partnership with Ford), durable goods, food, retailing, energy, 
financial services, tourism, construction and information 
technology.  Five of Turkey's top ten private industrial companies 
are Koc companies.  Koc enjoyed the largest revenue of any holding 
in 2005, with $18.2 billion in earnings.  With Koc Holding's exports 
accounting for around 10% of Turkey's overall exports, the group 
enjoys important political and economic influence in Turkey.  In 
line with the Group's expansion plans, Koc undertook two major 
acquisitions in 2005: a majority stake in Turkey's fifth largest 
bank Yapi Kredi, in partnership with their Italian partner 
Unicredito (Euro 1.16 billion) and a 51% stake in Turkey's largest 
refinery Tupras ($ 4.14 billion), significantly increasing its 
involvement in the energy sector.  Koc executives describe their 
strategy as one of positioning themselves in sectors that are close 
to the consumer, so as to benefit from thir longstanding strength 
in consumer goods.  Anaysts at local brokerages are mixed in their 
assesment of these efforts: some argue that the holdin remains too 
large and unwieldy, and believe that while it struck a savvy deal 
for Yapi Kredi, it overpaid for Tupras and will have difficulty 
making a profit.  That difficulty may be accentuated by the Turkish 
 
ISTANBUL 00001048  002 OF 002 
 
 
lira's depreciation in May 2006, as Koc financed the acquisition 
largely with foreign-exchange denominated loans.  Koc CEO Mustafa 
Koc told the Ambassador that the recent depreciation of the lira is 
taking a toll on his group for this reason. 
 
--------------- 
SABANCI HOLDING 
--------------- 
pdate Research 
¶6. (SBU) Also dating to the 1920s, Sabanci Holding is the largest 
holding in Turkey by asset size.  With revenues exceeding $10 
billion in 2005, Sabanci is especially active in the financial 
services, with presence as well in the food and retail, cement, auto 
and tire, and textile and chemicals sectors.  This expansion follows 
a new strategy based on a more decentralized management style. 
Sabanci is according more autonomy to the heads of its business 
units, in order to increase efficiency and improve decision-making. 
In contrast to Koc's aggressive expansion over the past year, 
Sabanci has adopted a more measured approach, staying on the 
sidelines for a number of recent privatizations, though it is 
rumored to be interested in the upcoming sale of regional 
electricity transmission networks. 
 
------------- 
DOGAN HOLDING 
------------- 
 
¶7. (SBU) Dogan Holding, though slightly smaller than Koc and 
Sabanci, is the most profitable of the largest publicly traded 
holdings.  Revenues increased in 2005 to $ 7.8 billion, producing a 
net profit of $474 million, a stellar 142% increase over 2004.  At 
the start of 2005, Dogan was engaged in three core lines of 
business: financial services, media, and oil and gas distribution. 
It exited the banking sector in 2005, however, and now focuses 
primarily on media and energy (oil and gas distribution), as well as 
to a lesser degree on insurance, tourism, industry and commerce. 
Analysts have applauded Dogan's strategy, noting that it secured a 
premium for its Disbank franchise, and that with a still embryonic 
advertising market, the holding's focus on media offers significant 
upside.  Dogan has a dominant position in media, helped both by 
restrictions on foreign ownership in the sector and by the 
competition authority separating print from broadcast media in its 
analysis. 
 
------------- 
DOGUS HOLDING 
------------- 
 
¶8. (SBU) Dogus Holding is the only entirely privately held holding 
amongst the largest four.  It is active in the finance, automotive, 
construction, tourism, and media sectors.  It has exited from a 
number of consumer areas, selling its Tansas supermarket chain.  In 
2005, the group also sold a 50% share in Garanti Bank to GE Capital 
of the U.S., thereby reducing its presence in financial services. 
As of end 2004 (the last year for which statistics are available), 
the Group's total assets were $23.9 billion, with total revenues of 
$5.9 billion and a net profit of $326 million.  Local economists 
note that the Sahenk family has historically chosen excellent 
executives, who are steering Dogus in a successful direction, even 
though all the company's ventures have not been successful. 
 
------- 
Comment 
------- 
 
¶9. (SBU) Our contacts argue that "it still makes sense to continue 
with a holding model," though it needs to evolve to adapt to new 
economic realities.  That process appears to be beginning, as 
Turkish holdings identify their core businesses, and divest 
themselves of non-core assets.   They continue to forge strategic 
partnerships with foreign firms to survive in an ever-more 
competitive international market and can still take advantage of 
foreign firms' need for a local partner.  Despite Minister Babacan's 
professed desire for "Greenfield" investors, wholly-owned 
subsidiaries of multinationals are still rare in Turkey.  The large 
groups' size and access to capital - compared to smaller Turkish 
companies -- gives them a natural advantage in that process, so that 
holdings are likely to remain a fixture of the Turkish economy for 
years to come.  End Comment. 
JONES