Turkish companies are paying interest, not debt

At a time when it is still trying to emerge out of an economic bottleneck, Turkey recently also had to grapple with rising domestic political tension. Naturally, the growing political tension is not helping the Turkish economy to recoverThe political developments that occured in just the first three weeks of April have the value of five-years’ newsworthy happenings in the context of a North European country. With the narrowing in the economy, the discussions on the reserves of the Central Bank and the increasing tension ahead of the local elections in March, the dollar rate rose to TL 5.85, while Central Securities Depository (CSD) risk assessment components, which measure the actual chance of a country going bankrupt, reached a historical peak at 480 points. It was precisely in such a moment that the country saw discussions over contested election results for the mayoral race in Istanbul. The election row was enough to effectively disrupt the perception of the market even more, causing the total amount deposited in foreign currency accounts owned by both domestic and international investors to reach a historical high.

Hard on Industrial companies
The level of foreign currency purchases has been so high that the percentage of foreign currency deposits held by real persons in banks reached 51 percent in a first-time ever development. To top all of these, main opposition leader Kemal Kılıçdaroğlu was subject of an attack, to which senior government executives did not respond as harshly as many believe they should have; putting off and intimidating investors even more. As a reflection of all these, the interest rates are rising, the inflation and unemployment rates are climbing and hopes for economİc recovery are evaporating. The heaviest toll this situation has taken has been on the companies operating in industrial fields.
Consulting company Besfin has recently completed a survey showing the eroding impact the situation described above is having on Turkish companies. Based on the research conducted by Besfin using data from 8,900 companies, the debt-to-equity (D/E) ratio of Turkish companies is 96 percent while the shareholder equity ratio is at 37 percent. Looking at these numbers, analysts say that Turkish companies are not operating with much leverage. The shareholder equity ratio average of 13 countries is 42 percent and this figure has decreased by 17 base points for Turkish companies operating in the industrial segment.

Debt ratio stands at global average
The study has also upended the belief that Turkish companies are in too much debt. To the contrary, the debt ratios of Turkish companies do not significantly differ from world averages. What sets Turkish companies negatively apart from the rest of the world are the financing expenses they pay back. Turkish companies pay six times the interest paid by their counterparts in Germany and France and 17 times the interest costs paid in Japan, where a low-interest rate policy has been in place. Comparing Turkey with countries that are in the same league, Turkish companies still pay twice or three times the interests paid by Polish, Mexican, Italian, Brazilian, Chinese and Mexican Companies. Besfin CEO Ferda Besli explains: “When funding their assets Turkish companies don’t use much leverage. They make significantly high interest payments. The cash they have at hand is nowhere near enough to decrease their credits.” In other words, Turkish companies are not struggling when it comes to paying back debt, but they are having a hard time affording the interest costs.