Turkey’s Industrial Giants Are Being Squeezed by Financing Costs
(Bloomberg) — Turkey’s industrial giants are struggling to keep a lid on soaring finance expenses that are threatening to engulf operating income as the lira’s depreciation pushes up foreign-borrowing costs.
Istanbul’s top 500 industrial firms, which together account for almost half of the nation’s exports, reported finance expenses of 95.8 billion lira ($16 billion) last year, compared with 35.2 billion liras in 2017, according to Istanbul Chamber of Industry Chairman Erdal Bahcivan. The ratio of financial costs to operating profits almost doubled to 88.9%, he said.
“Unfortunately, the erosion that financial costs are creating on balance sheets isn’t sustainable, no matter how successful operating profits are,” Bahcivan told reporters at the release of the organization’s annual report on Tuesday. “Turkey should stick to financial stability and starting from inflation, all macro indicators should go back to normal as soon as possible.”
The lira fell to a record low against the dollar in August amid rising political tensions with the U.S. and as President Recep Tayyip Erdogan’s administration fueled a lending spree in a failed bid to avoid the economy tipping into a recession. As a result, the corporate sector is scurrying to restructure debt as their foreign-exchange liabilities exceed those of assets denominated in other currencies.
Other highlights from the briefing:
While operating income of the 500 companies increased 53% in 2018, the improvement in net profit was limited to 20%, mostly because of higher financing expensesThe average debt-to-equity ratio of the firms soared to a record high of 67%The share of short-term financial debt to total debt rose to 45.3% last year from 41.9% in 2017
To contact the reporter on this story: Asli Kandemir in Istanbul at [email protected]