16 Nisan 2011 Cumartesi

Turkey’s credit rating dilemma continues

Wilfried Verstraete, the group's CEO.

Wilfried Verstraete, the group's CEO.
Turkey is still as risky to investors as two North African countries, Egypt and Libya, recently rocked by turmoil, according to Euler Hermes Group, the French credit insurance company that has recently started to use its independent name in the country.

Tunisia, Morocco, Bahrain and Oman, the other countries in the region facing political turmoil, are less risky, according to the current ratings of the group, which have been kept unchanged since February. Turkey must take steps forward including increasing the transparency of enterprises and challenging the current account deficit, executives of the group told the Hürriyet Daily News & Economic Review Thursday at a meeting in Istanbul.

The group announced it would continue its Turkey operations under the name Euler Hermes after a five-year period when it acted under the Allianz brand. “There are sentimental effects with the county ratings,” said Wilfried Verstraete, the group’s executive officer, told the Daily News after the meeting.

“The way we rank countries’ risks is mostly related to its companies’ ability to meet the financial and legal criteria,” he said. Turkey still needs to take steps further, “although it’s going in a good direction,” said the CEO.

On the Hermes scale, Turkey ranks as a “C,” which signifies “high external transfer and convertibility risk and well-below-average business environment.” Algeria, Egypt and Libya are rated the same while Tunisia and Morocco are rated “B” and Oman is “BB.”

Verstraete said one of the reasons for Turkey’s low rate is reasoned by the lack of financial information about the firms that do not trade on the Istanbul Stock Exchange.

Currently Moody’s rates Turkey’s credibility with Ba2, two notches below investment grade, with a positive outlook. Standard & Poor’s rates the country an equivalent BB, also with a positive outlook, and Fitch Ratings ranks the country at BB+, a notch below investment grade, according to Bloomberg data. At the end of January, Moody’s downgraded Egypt's government bond to the level of Turkey. Fitch also changed its Libyan rating three notches, to BB from BBB.

Turkish industrialists and businessmen’s concerns about the international credit rating agencies are continuing, Ümit Boyner, president of the Turkish Industry and Business Association, or TÜSİAD, told the Daily News in November. The association will conduct research on international rating agencies to see if they are under political influence, Boyner said after her meeting with Central Bank Gov. Durmuş Yılmaz.

Associate Professor Orhan Erdem, from the Finance Department of Istanbul Bilgi University, said he has conducted recent research on the ratings of countries and their economic indicators and developments. “The results showed a correlation of Western economies’ ratings and economic performance at nearly 80 percent, while Turkey’s ratings and economic performance had almost no correlation at all.” According to the professor, “The rating systems are not transparent enough yet.”

David Santos, the country manager of Euler Hermes, told the Daily News that “another reason for Turkey’s C rating in the country risk map stems from the high current account deficit.” According to Santos, the current account deficit will rise due to peaking prices of oil caused by the North African turmoil. In response to a question on the positive indicators of the Turkish economy in recent years, Santos said, “The developments will be evaluated and the risk map will be updated soon.”

Turkey’s current account deficit has widened from a year earlier, according to the Turkish Statistics Institute, or TurkStat. The deficit rose to $7.3 billion in January from $3.9 billion in the same month in 2010, according to the Central Bank’s official website.

“We have been stating for the last 1.5 years that Turkey’s rate should be increased to investment level,” said Olgay Büyükkayalı, emerging market strategist at Nomura Group, headquartered in Tokyo, speaking with Daily News in a phone interview. Büyükkayalı noted, however, that Turkey’s skyrocketing foreign deficit causes delays in any possible increase in Turkey’s ratings. Büyükkayalı warned, “If the current account deficit rises at this rate, I do not foresee a possible increase in the ratings of the country in the short run.”

Euler Hermes launches Turkish branch

One of the world’s leading credit insurer firms, Euler Hermes, an Allianz company based in Paris, has launched its Turkish branch officially with a press meeting in Istanbul on Thursday. Wilfried Verstraete, group chief executive officer of the firm said “With 52,000 clients worldwide, 40 million firms in our risk database and 2.2 billion euros of equity globally, we aim to increase our share in the Turkish credit insurance sector.” The company has been active in Turkish market since 2005 and has reached 70 firms in the domestic market through Allianz.

Talking about the growth strategy of the firm in Turkish market, Verstraete said, “We would like to adopt the Turkish market and focus on the key regions economically; the Aegean in the west and the Marmara in the northwest of the country.” The chief executive noted that the focus of the firm would be high-trade sectors in the domestic market such as metallurgy, telecoms, electronics, information technology, food and textiles.

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