Non-Financial Sector Debt: Impending Risks

Previously we noted that Turkey debt will draw attention as global monetary conditions were set to be less friendly to developing economies than it had been in the past. Following the Trump win, we have seen a bond rout in the United States, resulting in higher yields that simultaneously putting emerging market assets to the fire.

We think it is time to place some emphasis on Turkish corporates debt as pundits tend to conceive about increasing financing costs of those businesses which would ultimately cause a protracted earnings recession.


Turkish non-financial companies’ open FX position rose to $212.8 billion (+1.2% m/m, +17% y/y) in September according to the data released by Turkish central bank. This has been intensely pointed by the critics that each TRY0.01 deprecation against the US dollar would accretive to financing expenses TRY2.1 billion, give or take. Our prospect is for increased inflationary pressure.


FX-denominated liabilities of Turkish non-financials have been steadily rising since late 2010 when the central banks of developed economies introduced ZIRP world. Eased global monetary policy conditions paved the way for Turkish corporates since domestic savings are enough to finance Turkey’s economic growth. By this one could assert that one of the pillars of Turkey’s economic success has been the private debt. Assets, on the other hand, have also risen, been more volatile, but more importantly on the decline over the past several months, which might be explaining the weakness in Turkish lira. Note that FX assets were $98.6 billion in September (-5.1% y/y) and liabilities climbed to $311.4 billion (+9% y/y).


The crucial point of this article is offer here. As visualized in the chart above, companies’ investments abroad are on the rise while their FX deposits as well as export receivables are declining. We find Turkish corporates growing their investments abroad noteworthy. On a separate note, deposits, export receivables, and DIAs were $67.1 billion, $10.6 billion and $20.7 billion, and of total assets, representing 68%, 10.8% and 21%, respectively.


Finally, on the liabilities side, it’s loans, the loans, nothing but the loans. Accounting for 90% of total liabilities, Turkey’s real sector has a payable book of $280 billion to the banks, while import payables have been clearly declining mostly due to slowing domestic demand for imported goods. FX loans growth around 9% is also alarming given the volatility in exchange rates.

Nevertheless, the data suggests that there is no sign of a maturity mismatch as 79% (25%) of assets (liabilities) is set to mature in one-year period, which means Turkey’s corporates only have a short-term net FX open position of $1.3 billion. However, it has noted by many economists that a significant part of the long-term liabilities is typical one-year-plus-several-days debt which papers over the cracks.

Sahibinden: On the Cusp of Becoming Turkey’s First Unicorn is an online shopping in platform in which people and businesses buy and sell real estate, cars and broad variety of goods and services, headquartered in Istanbul and owned by Aksoy Group. Sahibinden’s e-commerce business relies solely on third-party sales in Turkey, in other words, a model similar to Alibaba is being followed. We’ll covering the details about the company for the remainder of this article, but let’s take a look what see in Turkey’s demographics and how capable it is when it comes to fueling growth in e-commerce business.

Turkey’s Demographics

Turkey Demogprahics and Internet Users

As summarized on the figure above, Turkey’s young and fast-growing population and internet accessibility will be the key driver of the growth and deliver favorable conditions for companies that want to tap into a dynamic market of eager new consumers. Thus, it is not hard to imagine the country in the coming years with half of its population shopping online.

Turkey’s e-commerce business volume is expected to be around $10.2 billion, however, representing only 1.8% of total volume in retail sector. Considering the fact that online shopping accounts for +4% of total business across the emerging markets, Turkey still has a huge room for growth. In 2015 multi-channel online retailing business saw an increase of 45% on annual basis, also building a supportive case for our investment thesis for Sahibinden.

Turkish Online Marketplaces

Turkish ecommerce market is dominated by online marketplaces and multi-category retailers. Turkey some online retail heavyweights whose business include first-party sales (like HepsiBurada, Trendyol, Markafoni) while some others solely rely on third-party sales (like Sahibinden, GittiGidiyor, N11, Letgo). HepsiBurada is a typical multi-category retailer while Trendyol and Markafoni stand for online fashion stores. The distinguished feature of Sahibinden that it is also involved in real-estate and vehicle sales.

Turkish internet companies have received remarkable investments to date. The following is a list of the biggest deals ever made in Turkish tech space.

Turkey Top Web Deals

About Sahibinden

Sahibinden differs from other e-retailers owing to its exposure to intermediary of real property trades. As its name, which means “by owner” in Turkish, suggests that Sahibinden is well-developed positioning in its market. When search engines and social media sites excluded, Sahibinden tops the most popular keywords league table.

Its solid position in property sales over the internet provides significant advantages to Sahibinden. As well known, the core business of online marketplaces is mediating the trade where they charge traders with fees establishing the main source of revenue for themselves. Some other businesses have different streams such as ad sales, real estate listings, motors listings, financing fees, off-platform payment fees etc. These so-called non-marketplace revenues should be expected to be high in Sahibinden given its concentration on property trade.

In a nutshell, Sahibinden is well-positioned business with diversified revenue streams in a fast-growing environment.


This is where we feel like we are the end of our rope, since lack of data remains as a pretty straightforward issue for valuing the company. At this stage, we will be applying some peers’ (Ebay, Alibaba and MercadoLibre) data gathered from Statista and the US SEC (Note that shares of all the peers mentioned is traded in Nasdaq, with quotes of EBAY, BABA and MELI, respectively).

There are several metrics to look for when valuing a marketplace, but Gross Merchandise Volume (GMV) appears to be the most important metric. We have gathered data on publicly traded comps (MELI, EBAY) and found the valuation multiple is 0.8x the run rate GMV. However, note that there have been transactions that took the metric up to 2x.

Another important input is that Turkey’s e-commerce represent only 1.6% of total traded which is remarkably low, even compared to the emerging markets, like Brazil, where 3.2% of total shopping is done online. With that being said, e-commerce volume growth in Turkey as almost doubled that of global, which builds a supportive case for a premium valuation.

According to the official statistics, total e-commerce volume is expected to be $10.2 billion in 2016 in Turkey. Sahibinden’s market share is not higher than 5% but remember that Sahibinden’s non-marketplace revenue base is stronger than those of its competitors. So, the market share should not be what is driving the valuation strategy.

Due to similarities between two companies we chose to use MercadoLibre for valuation comparison purposes. Both companies operate in developing economies (MercadoLibre operates in Latin America countries, Argentina and Brazil represent 80% of the revenues) with middle-income populations. We think the valuation would be a function of number of Internet users and nominal GDP per capita. MercadoLibre operates in a region with number of internet users of 340 million whose income averages $6.900 per annum while 40 million users averagely earn $8.700 in Turkey. Given MercadosLibre’s average stock market valuation of $5.8 billion last year, Sahibinden could worth $860 million.

One critical point is that MercodoLibre generated a GMV of $7.1 billion last year, which means that the company is valued at 0.8 times GMV. Our estimated worth for Sahibinden would possible signal a considerably premium valuation on this multiple, which is, in our view, justified given Turkey’s e-commerce business’ potential growth. Also, increasing risk appetite in global funding market could lead a significant markup for Sahibinden, and then, we might able to see it among so-called unicorns, a term being used for tech companies whose valuation exceed $1 billion. Though there is not enough data making it hard to fully assess, Turkey’s strong demographic profile and its strong positive relative to other prominent e-commerce companies make Sahibinden a good play for venture capitalists looking for multi-million investments in emerging markets.

Q4 2015 GDP: Robust but Vulnerable

At 4 percent, Turkey GDP’s growth rate remained robust despite a challenging year, primarily driven by strong private and public consumption, and higher gross fixed capital formation in the public sector. In 4Q 2015, the economy expanded by 5.7% y/y comparing favorably with consensus of 5%. That said, adjusted for seasonality and working-day effects, economic activity grew by 0.7% y/y, and note that there were more working days in Q4 2015 compared with Q4 2014.

The expenditure breakdown of the data showed that the main driver of the pick-up in headline GDP growth in 4Q was consumption which generated 3.8% of the total 5.7% GDP growth. The public expenditures and investments were also positive while the economy saw negative impact from net exports. Yet some problematic details clearly remained in 2015 as the fastest growing components were purchases of goods and services by the government (9.7%) and the fixed capital formation by the public sector in construction sector (8.4%). Since the government appeared to be the engine of the economic expansion, not much room is left for the argument that Turkey performed astonishingly in a multi-election year. Furthermore, the both components discussed above posted significantly declines in the final quarter, proving that pork barrel spending implied to help secure reelection (for purchases of goods and services 3.4% in 4Q versus 11.4% in 9M and for investments in construction by the public sector 1.7% in 4Q versus 10.4% in 9M).

The sectoral breakdown of the economy is given below.

Turkey - Sectoral Composition of GDP

On a positive note, manufacturing sector’s contribution to GDP increased by 30 basis points in 4Q 2015 y/y, however, failed to make a positive impact for the full year. Interestingly, 13.8% of the total output generated in 2015 came from financial services, making the industry the fastest-growing segment of the economy. Agriculture had been strong for the 9M 2015 period, but showed weakness in the final quarter.

We believe it is needed to highlights the ongoing trend in the adjusted GDP to reveal underlying drivers behind the economy. The following table is given to this end.

Turkey - Changes in Components of GDP

The most troubling data point was slowing consumer spending that recorded only 0.3% Q/Q growth. The contribution of net exports to the economy was at stake. Turkey will be in need for a recovery in Europe in order to keep its net exports adding value to its economy.  Again, the government clearly has been the “strongest” foundation of the economy in the past four years.

Turkey - Private Sector Investment Expenditures

The critics of Turkey’s economic growth in the recent years argue that it lacks rising fixed investment spending, citing the current business standards negatively influencing the investment decision primarily due to deteriorating judiciary situation. The chart above shows the private sector investment expenditures has remained below its 2Q 2011 for the past 18 consecutive quarters. Thus, double-digit unemployment figures are here to say for another while.

Turkey - Real versus Potential Output

According to our estimates*, Turkey’s real GDP in 4Q 2015 outstripped the potential output which may lead further inflation pressures going forward. We wonder, then, if the monetary policy committee used this as an input before deciding to engineer the interest rates at lower level in a surprise move last week.

Consensus expectations for 2016E growth is at 3.6%. We believe downgrades for this year’s economic growth are very likely as well as we project Turkish economy expanding at pace of 3.4% in 1Q 2016.

*The potential output is estimated with Hodrick-Prescott filter. Despite the fact that 1600 is frequently used for quarterly data as a value for λ for quarterly data, Turkish central bank economists suggest that the optimum value for λ for Turkish economy studies is well below 1600.