Your next Turkey trip just got much cheaper

This article first appeared in The Edge Financial Daily, on August 15, 2018.
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LAST-minute bargain hunters can swoop on Turkey for a good deal following a plunge in the currency — from vacations at lavish Bodrum resorts to high-end Hermes and Chanel handbags that have suddenly become as much as 25% cheaper than in Paris, Dubai or Beijing.

But on the flip side, corporate profits from selling goods locally are dwindling by the day when converted to home currencies: manufacturing of heavy trucks or industrial machinery, and financial services all stand to suffer.

The effects of the imploding Turkish currency are now rippling through multinational companies, some of which may end up paying a heavy price for having painstakingly built up extensive operations in the country over the past decades. There are a few bright spots, notably companies that produce goods in the country for export.

Spanish bank Banco Bilbao Vizcaya Argentaria SA, German fashion house Hugo Boss AG and French family-controlled cement maker Vicat SA are among European companies with deep roots in Turkey, while Asian giants including Toyota Motor Corp and Japan Tobacco Inc also have a heavy presence in the country. Some have numerous factories there and employ thousands of workers. Here’s a sampling of major companies with exposure:

Banks

European Union banks’ exposure to Turkey totals more than US$100 billion (RM410 billion) and is a growing concern, according to Bloomberg Intelligence. BBVA, UniCredit SpA of Italy and France’s BNP Paribas SA are the most exposed with BBVA owning 49.9% of Garanti and getting about 14% of net profit in the first half from its Turkish subsidiary. UniCredit has almost 41% of Yapi Kredi, while BNP’s local subsidiary is called TEB. Alphavalue has estimated that BNP could exit Turkey entirely.

Carmakers

Toyota makes about 280,000 cars a year at its Turkish plant, which has been in operation since 1994. However, some nine out of ten of those cars are exported to European markets, and it conducts most of its business with suppliers in euros, providing a natural hedge from the country’s currency crisis, according to a spokesman for the Japanese automaker. Toyota recently poured €350 million (RM1.62 billion) into the plant so it can produce the latest generation of vehicles, bringing total investment to €1.7 billion.

Volkswagen AG delivered about 158,000 vehicles in Turkey last year, though that’s a drop in the bucket for a company that produced almost 11 million vehicles overall.  

Daimler AG’s Mercedes-Benz has been producing trucks in Turkey for more than 30 years; they’re sold primarily in the domestic market. It’s investing €113 million  through this year to double capacity at the Aksaray plant, where the company employs about 1,800 workers. 

Industrial

French cement maker Vicat has been active in Turkey for a quarter century with two production sites from which it gets a fifth of its cement sales volume. Chief financial officer Jean-Pierre Souchet said last week the company is “clearly a little bit tense” about the country’s financial situation even as growth was “tremendous” in the first quarter of the year.

Mitsubishi Heavy Industries Ltd may see further delays in orders related to the planned Sinop power station in northern Turkey, said Tomohiko Sano, an analyst at JPMorgan Securities Japan Co. Mitsubishi Heavy and Areva of France signed a US$22 billion agreement in 2013 to build the plant.
 
Airports

Aeroports de Paris SA, the French airport operator, has invested heavily in Turkey in recent years through its 46%-owned TAV Havalimanlari Holding AS, which operates more than a dozen airports across the country as well as hubs from Georgia to Saudi Arabia to Tunisia. The company in February unveiled a plan to buy a minority stake in the country’s third largest hub, Antalya, for €360 million. 

Fashion

Hugo Boss AG, the German fashion company, will have lower costs when expenses are translated into euros. Its largest plant is located in Turkey, with 3,777 employees, where it gets about 15% of its goods. Similarly, Inditex SA, the Spanish owner of the Zara brand, makes about 15% of its goods in Turkey, according to estimates published July 30 by Societe Generale analyst Anne Critchlow. 

Tobacco

Japan Tobacco, which sells its Winston and Camel cigarettes among others in Turkey, holds about 28% of the tobacco market in the country, second behind Philip Morris International. Japan Tobacco said it is keeping an eye on the potential currency implications of the crisis.

Travel companies

Deutsche Lufthansa AG has a 50-50 joint venture with Turkish Airlines called SunExpress, a leisure carrier with about 72 aircraft and more than 3,800 staff. SunExpress carried 8.8 million passengers last year and sales rose to a record amid a revival in tourism in the country compared with a decline in 2016. 

Telecommunications

Vodafone Group plc invested in Turkey as part of a bet by the world’s second-largest mobile carrier on winning more corporate and consumer business from emerging markets. Turkey, which accounted for about 6% of Vodafone’s revenue last fiscal year, was worth £3 billion (RM13.54 billion) or 11 pence per share of the carrier’s value before the lira’s decline, according to James Ratzer of New Street Research.

Telia Co, Sweden’s former phone monopoly, is the largest shareholder of the country’s top telecom carrier, Turkcell. — Bloomberg