Turkish Companies Vulnerable to Currency Swings

The depreciation of the Turkish Lira has shown the vulnerability of domestic companies to currency risks. More than 120 companies being traded on the Istanbul bourse reported losses in the first half of the year

The appreciation of major foreign currencies against the Turkish Lira has created a heavy burden on domestic companies, figures from companies traded on the Istanbul Stock Exchange, or ISE, show.

A total of 123 companies out of the 357 listed on the exchange posted losses for the first half of the year, while 80 companies reported declines in profits. Only 119 companies were able to increase profits in the first six months.

Turkish Airlines, known as THY, was the hardest hit company from the appreciation of major currencies against the Turkish Lira.

The key factor in the losses was the heavy burden put on companies that have short foreign currency positions. A total of 59 companies that posted profits in the first half of 2010 reported losses this year, while 41 reported drops in profit.

Euro, dollar advance

The number of companies that have posted losses in the first half of 2010 but reported profits this year, was only 35.
In the first half of the year, the euro gained 22 percent against the lira. The advance of the U.S. dollar against the Turkish currency has been 5.5 percent.

The short foreign currency position of Turkish companies, which shows their debts in foreign currencies, has increased to $111.8 billion as of the end of March. The cost of this discrepancy on companies between March and the end of June has been 10.2 billion liras.

In the ISE-50 Index, the two companies hit hardest by their short currency positions were retail chain Migros and Turkish Airlines, Turkey’s flagship carrier known as THY. The latter had posted a profit of 231.3 million liras in the first half of 2010, but in the same period this year, it posted a huge loss of 543.6 million liras. The financial costs of THY surged from 77.8 million liras to 590.2 million liras, 500 million of which resulted from the depreciation of the lira. In the same period, Migros moved from a profit of 133 million liras to a loss of 327 million liras. Its financial costs rose from 230 million liras to 478 million liras, 347 million of which resulted from the lira’s decline.

Meanwhile, currency losses at steelmaker Erdemir rose from 24.9 million liras to 211.1 million liras, while the effect of currency volatility on loans resulted in a 337.2 million-lira loss for refiner Tüpraş, which is owned by Koç Holding.

September 2, 2011
SOURCE: HURRIYET DAILY NEWS