Turkey’s liquidity crunch has as predicted spread into fast-growing peers of Pusula Holding, just days after the Istanbul-based financial conglomerate defaulted on fund redemptions.
Investors who failed to access their money fuelled stress across Borsa Istanbul and local bond markets, pushing the government to step in.
The drama was triggered via an August 28 regulatory tightening conducted by the country’s capital markets board, SPK. After the stress snowballed with Pusula defaults on September 15, finance minister Mehmet Simsek on September 17 had to call an extraordinary meeting of the financial stability committee to address mounting panic across local capital markets.
In an official press release, the committee downplayed structural insolvency risks, characterising the market turmoil as a "temporary and manageable credit and liquidity issue concentrated in a limited number of portfolio management companies".
Sovereign wealth fund takes to stage
Amid a wide-scope combination of official interventions, Turkey’s sovereign wealth fund (TVF/TWF), acting primarily through government-run portfolio management company Ziraat Portfoy, also stepped into the Borsa Istanbul market, local news portal Halk TV reported on September 17.
The fund has actively worked on absorbing selling pressure in blue-chip BIST-30 equities following the severe market sell-off seen a day ago on September 16.
State's Emlak Katilim Bank to acquire impacted companies
As Pusula's core savings finance (tasarruf finansmani) subsidiaries collapsed under the liquidity squeeze, state-owned Islamic bank Emlak Katilim announced official negotiations to acquire both Katilimevim (Istanbul/KTLEV) and Birevim.
Central bank pumps lira liquidity
The central bank, meanwhile, has flooded the interbank market with a massive Turkish lira (TRY) 300bn ($6.2bn) weekly repo auction to ease liquidity constraints across the local financial system. A day ago, the authority opened a billion-lira auction.
SPK to liquidate 130 funds worth 830bn lira
In another drastic move, the SPK issued a formal bulletin to order the liquidation of 130 investment funds under seven portfolio management firms, namely Pusula Portfoy, Tera Portfoy, Hedef Portfoy, Atlas Portfoy, A1 Portfoy, Pardus Portfoy and Bulls Portfoy.
The authority also halted all transactions related to all funds managed by the seven firms in question on the country’s electronic fund trading platform (TEFAS).
Atlas disclosed that it was defaulting on redemption payments on its money market free fund (PSE) while Tera halted all redemption requests by stretching redemptions to monthly intervals. Hedef and Bulls said that they had no liquidity problem.
Eyes have turned to the SPK's liquidation process to see how much value can ultimately be recovered for the half a million investors locked inside the frozen funds.
Illiquid stocks
According to TEFAS platform data, the impacted funds hold roughly TRY 830bn ($17bn) in assets for more than half a million retail and institutional investors.
Around 60%, o
r a half a billion lira, of the liquidating assets are tied up in equities. Many of the holdings consist of illiquid, heavily inflated small-cap stocks, pumped via internal cross-fund structures.
Tera alone accounts for more than half a billion lira, or more than 64%, of the frozen assets, including more than TRY 200bn in equity positions. By midday on September 17, almost all of Tera's liquidatable stock holdings were locked in the lower bottom of the daily price movement limits, rendering them virtually illiquid.
Stock tickers locked at the bottom range that can be associated with the affected groups can be listed as Tera Group’s TRHOL, TEHOL, PRZMA, MANAS, PEKGY and GIPTA along with Hedef Group’s HDFGS, SKYLP, INFO, PSDTC, SEYKM and HUBVC.
The contagion has also hit Istanbul football club Besiktas (Istanbul/BJKAS) since just weeks ago it signed a multi-faceted sponsorship, SuperApp banking and block share deal with Tera Yatirim (Istanbul/TERA).
Liquid cash and government securities account for barely 6%, or TRY 48bn, of the frozen funds' net assets, set against roughly TRY 35bn in outstanding repo obligations.
In a bid to stop forced liquidations and margin calls from triggering a broader market crash across the local portfolio management industry, the SPK also temporarily reduced the mandatory equity maintenance ratio for margin trading from 35% to 20% through October 2.
Police raids, detentions and travel bans
The crisis quickly spilled from trading floors into law enforcement actions. Istanbul police raided the headquarters of Info Yatirim Menkul Degerler (Istanbul/INFO) on the order of the city’s chief public prosecutor's office. They detained the chairman of Hedef Holding (Istanbul/HEDEF), which owns INFO.
Following the Pusula executive flight allegations, the authorities placed a formal travel ban on Tera Holding chairman Emre Tezmen. The move came just days after he stepped in to orchestrate the acquisition of Pusula’s holding assets.
Separately, the SPK filed criminal complaints and placed trading bans that target dozens of fund managers.
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