EU’s top bank puts big squeeze on lending to Turkey

The office of the European Investment Bank in Luxembourg. (Reuters)
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Updated 31 January 2020

EU’s top bank puts big squeeze on lending to Turkey

  • European Investment Bank — the lending arm of the EU — has announced it will restrict loans to Turkey

ANKARA: One of the world’s biggest financial institutions is to squeeze its lending to Turkey this year following tensions between the EU and Ankara over its controversial oil and gas drilling operations in waters off Cyprus.

The European Investment Bank (EIB), the lending arm of the EU, has announced it will restrict loans to Turkey which over the last decade have amounted to around €19 billion ($20.94 billion).

Brussels is against any exploration for oil and gas in territory that falls under EU member state Cyprus’ exclusive economic zone. However, Ankara claims Turkish drilling ships are operating within Turkey’s continental shelf.

The EIB is one of the biggest sources of finance for Turkish infrastructure projects, but it has now said it will stop lending to public agencies in the country, while adopting a selective approach to the private sector in Turkey. However, the bank added that funding taps would remain closed to companies with links to the Turkish government.

The EU has felt obliged to take countermeasures against Turkey after it ignored demands not to send a new drilling ship to the Eastern Mediterranean, and its foreign affairs commissioner, Josep Borrell, recently said Brussels was preparing to impose sanctions.

Since last year, the EIB has only made one loan to a private company in Turkey, and that was after two years of negotiation for the construction of a greenfield glass-fiber manufacturing plant.

Kader Sevinc, a Brussels-based senior EU expert, said that although EU sanctions may have little impact on Turkey’s economic relations with the bloc and its members, they still sent a strong political message.

“Turkey’s growing financial and energy dependence on certain non-Western actors is worrisome and may lead to grave dangers in the years to come,” she told Arab News.

“Progressive local authorities, the winners of 2019 local elections in all major cities, have been subjected to a strong political and administrative pressure from the government, suffering from unfair treatment in terms of allocation of resources,” added Sevinc.

In that regard, the EIB’s lending restrictions are likely to affect important infrastructure projects planned in Turkish cities such as Istanbul, Ankara, Izmir and Antalya, which are now governed by opposition mayors. Work in the popular tourist destinations cannot be carried out using municipal resources alone.

According to Sevinc, the EU and the West should develop a constructive agenda and create new mechanisms focused on the promotion of democracy and infrastructure development in support of local authorities.

“Despite the current government’s policies, Turkey still has a pluralistic society and the EU has a role to play. Let’s not forget, only a constructive Europe can play this historical role,” she said.

Turkey has been holding discussions with Brussels about joining the EU since 2005, but prospects faded after talks were de facto suspended following the failed coup attempt in Turkey in 2016.

Amanda Paul, senior policy analyst at the European Policy Centre (EPC), said: “Unless there is a change of policy from the EU, the EIB seems set to maintain this approach. A change in stance from the EU would require a change of approach from Turkey vis-a-vis its drilling activities in the Eastern Mediterranean. There is no sign of that happening for the time being.”

Paul told Arab News that Turkey might be able to seek alternative finance, but it would be difficult to fill the funding gap left by the EIB’s lending restrictions.

STC postpones its acquisition of Vodafone Egypt for second time

Updated 8 min 3 sec ago

STC postpones its acquisition of Vodafone Egypt for second time

  • Kingdom’s largest telecom company says it will need an additional two months to complete the deal

CAIRO: The Saudi Telecom Company (STC), the Kingdom’s largest telecom company, said that it will need an additional two months to complete a deal to purchase a 55 percent stake in Vodafone Egypt.

In January, STC was in agreement to buy the stake for $2.4 billion. In April, it extended the process for 90 days due to logistical challenges stemming from the spread of COVD-19. The company said in a statement that it would extend the period again to September for the same reason.

The Public Investment Fund, the Saudi sovereign wealth fund, owns a majority stake in STC. The ownership of Vodafone Egypt is divided between 55 percent for Vodafone International, which is the target percentage of the Saudi purchase offer, 44.8 percent for Telecom Egypt, and the remaining 0.2 percent for small shareholders.

Telecom Egypt is awaiting the results of Vodafone’s evaluation of the final share price to announce its position on the deal. A Telecom Egypt official stated that the company is still awaiting STC’s position regarding the purchase of the share. If the deal is not completed, it may be presented with its rights to acquire Vodafone’s share, which would allow it to take over 99.8 percent of the company’s shares, leaving 0.2 percent for small investors.

Ashraf El-Wardany, an Egyptian communications expert, pointed out the importance of waiting until the procedures between STC and the Vodafone Group are complete. The results will determine the next steps by Telecom Egypt.

El-Wardany said that the Saudi operator must, after completing the relevant studies, submit a final binding offer at the share price and any conditions for purchase. If approved by Vodafone, it must submit the offer with the same conditions and price to Telecom Egypt, provided that the latter responds within a maximum period of 45 days to determine its position regarding the use of the right of pre-emption and the purchase, or lack thereof, of Vodafone’s share.

According to El-Wardany, there are other possible scenarios. Vodafone International may not be convinced of the offer or the conditions presented by the Saudi side and the sale may be withdrawn, or the Vodafone group may be ready to sell and has prepared another buyer for its stake in Egypt in the event of rejecting the Saudi offer. It may also it back away from the deal and continue to operate in Egypt for a few more years.

El-Wardany said that if Telecom Egypt decides not to use the right of pre-emption to acquire the remaining Vodafone shares for any reason, it will continue with its 44.8 percent stake.
It may also resort to selling all of its shares or part of it to the Saudi side or to any company that wants to acquire its stake.

“This raises the question of whether STC can acquire all of Vodafone’s shares,” El-Wardany said, adding that the coming months “will make the answer clear.”