Ancient centre

IFR Russia and CIS Loans Roun
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Emerging Markets

The Istanbul Exchange originated as one of the most prominent associations of bankers, and was established in 1866 by the Sultan of the Turkish Empire. The present Istanbul Exchange (ISE), which was re-establihed in 1986 as a modern and electronic exchange, has achieved phonomenal growth in those 22 years, in which time more than 300 Turkish companies have raised over US$37bn.

For blue chips wishing to list on ISE there must be evidence of at least three years’ operations, with the last two years showing profit.

Market capitalisation of the publicly offered shares of the corporation must be at least YTL20m and the rate of the nominal value of these shares to paid-in or issued capital must be at least 25%. If this rate is below 25%, market capitalisation of the publicly offered shares must be at least YTL38m.

The only securities exchange in Turkey, ISE believes its listing fees are much more competitive than those on exchanges in the other mature markets, with an initial admission fee of US$2,500 and an annual fee of US$500.

The ISE Foreign Securities Market targets blue chip companies operating outside Turkey, most of which are established in Europe and Asia. These companies have listed on ISE as this is the regional exchange providing them with with the best prospects for liquidity.

ISE is actively involved in regional financing, and participated in the share capital of Baku Stock Exchange in Azerbaijan and the Kyrgyz Stock Exchange.

It has been a leader in its region, initiating the establishment of the Federation of Euro Asian Stock Exchange (FEAS), which today includes 32 exchanges and seven Central Securities Depositories as members. FEAS aims to promote fast growth and harmanisation of its members’ systems, to attract issuers and investors from South East Europe, the Middle East, the Caucasus and Central Asia. ISE has been continuously elected to the presidency of FEAS since its inagaration in 1995.

Islamic traded products are also a natural product for ISE to deliver. Turkey’s population is 99% Muslim, so such products should find good liquidity here.

The exchange has also been watching the trend of consildation among exchanges with interest. As a mutual set-up without ownership rights, ISE is non-purchasable at present, but it can participate in other exchanges share capital, and has stakes in Baku and Kyrgyz Exchanges.

A word on the credit crunch

Today, the world is seeing the after effects of a rapid expansion in the credit markets. An abundance in global savings, mostly due to the rapid increase in oil prices and the recent meteoric rise of the Chinese economy, led to this global expansion of credit. This has resulted in the proliferation of credit lines, mostly for trade financing, direct investments and naturally portfolio investments.

The credit lines can only be sustained as long as it is possible to maintain repayments. As soon as doubt creeps in regarding the ability of borrowers to make these repayments, it triggers a chain reaction in the availability of credit, with commensurate contraction in trading and investments.

This has been the story of this credit crunch. Such global shrinkage has the immediate result of causing a slowdown in the production of goods and services.

It has also undermined the availability of higher education, which has caused a swelling of the labour market. With less jobs available, unemployment increases and family income goes down. A drop in direct and portfolio investments leads to diminishing asset values, which also undermines family savings.

The forthcoming recession will be felt first in trading, transport and tourism, before spilling into production of other services and then goods. The decreased production of necessities will lead to growing inflationary pressures.

The Turkish economy will get its share of exposure to the credit crunch. Most of the credit in Turkey has been utilised in trade financing, with some also used to finance production for export demand, and some for stimulating internal consumption. Turkey will witness a contraction in trading and production for export markets and and a smaller contraction in internal consumption.

But inflationary pressure will hit at the same time as a slowdown in industrial output and employment.

This will eventually feed through to reeuced demand for energy and oil imports – from Turkey, and globally. As global demand for oil and credit decline, the ground will be preparing for the downturn in global economies to be reversed.

Interview by Solomon Teague