Turkish Fund Managers Push BBVA to Raise Offer Price for Garanti

(Bloomberg) -- A number of Turkish money managers want a higher price for their shares in Garanti, complaining that Banco Bilbao Vizcaya Argentaria SA's buyout offer undervalues the bank and fails to account for a slide in the lira.

Since the Spanish lender announced its bid in November for the 50.15% of Turkiye Garanti Bankasi AS it doesn't already own, the lira has weakened by 30% against the euro. The Turkish bank has reported a jump in earnings in the meantime, with net income tripling in the fourth quarter.

That suggests BBVA is getting too much of a bargain, some money managers say. Garanti shares rose as much as 2.8% on Friday to 12.54 liras in Istanbul, their highest intraday level this year, and above BBVA's offer price of 12.20 liras.

“It would be unfair to leave the offer price unchanged,” said Ahmet Okumus, the founder of RPD Oppportunity Fund LP, who said he holds a 0.8% stake in Garanti. Okumus wrote to the two banks last week, criticizing the price tag.

At the current price, the voluntary tender call looks “dysfunctional,” according to Tufan Deriner, founding partner of Istanbul Portfoy, a unit of Global Yatirim Holding, which holds the fifth-biggest stake in Garanti excluding BBVA, according to data compiled by Bloomberg.

“This entire buyout issue has created an overhang on the stock as it lasted too long,” Deriner said. “It's the most trustworthy banking stock in Turkey and its financials are expected to get better.”

While BBVA's offer of 12.20 liras represented a 15% premium at the time, adjusting for the lira-euro move would take the price to around 17 liras. Turkey's Capital Markets Board approved the deal late Thursday and Garanti investors can tender their shares starting next week until April 29.

A spokesman for BBVA said Friday the bank is offering 12.20 liras a share and will be satisfied with whatever acceptance level it gets.

Istanbul bank stocks are valued at deep discounts to their peers, reflecting concerns over pressures on the Turkish economy and about how the central bank is tackling inflation. The war in Ukraine, which has sent commodity prices soaring, threatens to exacerbate those worries. Shares in local lenders trade at a price-to-estimated earnings ratio of 2.1 times, almost a record low, compared with 8.8 times for the MSCI EM Financials Index.

While Garanti shares jumped on news of the BBVA buyout in November, the Spanish lender's stock initially slumped, with analysts at Citigroup Inc. seeing increasing exposure to an emerging-market country at a time of rising inflation as “risky.” BBVA Chairman Carlos Torres countered that Garanti offers “very attractive” returns on capital.

RPD Oppportunity's Okumus said that while Turkey-specific risks may have increased in recent years, Garanti has repeatedly demonstrated its resilience.

‘Top Position'

That's a view echoed by other fund managers, including Ata Portfoy's Mehmet Gerz, who said his firm left only its Garanti BBVA stake untouched when they reduced the weighting of banks in their portfolios in response to the war in Ukraine. “The buyout offer set a floor for the lender's share price,” he said. “It's our top position.”

And earnings in the sector show signs of improving: Turkish banks posted combined profits of 39 billion liras ($2.6 billion) in January and February, more than four times higher than a year earlier, figures from the industry regulator show.

Over at Tacirler Asset Management, Chief Investment Officer Semih Kara said he isn't tempted to part with his Garanti shares under the current BBVA offer.

“We don't plan to sell our shares at 12.20 liras apiece,” he said, declining to specify the stake. “We've already waited for a long time, we can wait some more.”