Unfazed by Turkey’s economic woes, security threats and botched coup, the Dubai private equity firm Abraaj Group has launched a US$526 million fund to tap the country’s long-term growth prospects.
Abraaj’s first fund with a focus on Turkey, which included $40m in co-investments, attracted a slew of investors, with the majority coming from Europe and North America, the firm said yesterday. Institutional investors and sovereign wealth funds represented 78 per cent of committed capital.
“The successful closing [of fundraising] of our first dedicated Turkey fund reflects our strong conviction on the Turkish economy, and the attractive investment opportunities available,” said Arif Naqvi, the founder and group chief executive at Abraaj. “Turkey is on track to become one of the 15 largest economies in the world by 2030, driven by a young population, a growing and aspirational middle class and a vibrant entrepreneurial culture.”
Turkey, which has attracted big private equity players such as US funds Caryle Group and KKR, is reeling from a failed coup this month.
The Turkish authorities have rounded up thousands of suspected coup supporters and organisers, sending a ripple through the country’s economy, which was already buckling under the weight of terrorist attacks and an influx of refugees from Syria.
As of yesterday afternoon, the Turkish lira had fallen 5 per cent against the US dollar since the coup attempt on July 15, while the country’s main stock index was down by 10.7 per cent. Standard & Poor’s has lowered its rating of Turkey’s sovereign debt by one level to BB, two notches below investment grade, and gave it a negative outlook citing political uncertainty.
Moody’s has put Turkey’s Baa3 credit rating, the lowest level of investment grade, under review for a possible downgrade. Any debt downgrade will make it more expensive for Turkey to borrow from international markets.
“Investor confidence, which remains very low, will likely fall further, depriving the economy of a key source of investment,” said Nafez Zouk, an economist at Oxford Economics.
“Investors are likely to remain on the sidelines as they wait to see how the government will respond.”
However, Selcuk Yorgancioglu, a partner and regional head for Turkey and Central Asia at Abraaj, brushed aside the economic and security concerns. He said the firm was a long-term investor in the country and expected growth given that, among other factors, Turkey is a market of 80 million people and a G20 member.
“Private equity is a long-term investment and it is not like public markets, where you can open up a position and close it tomorrow,” Mr Yorgancioglu said. “Recent volatility does not impact our appetite.”
Abraaj, which has about $9.5 billion in assets under management, has invested in 11 companies in Turkey, deploying about $900m for about a decade, he said, and it has reaped more than $800m from exits in Turkey.
The fund will target midsized businesses, with a focus on consumer goods and services, health care, financial services, retail and logistics. Abraaj expects to make four to five deals and deploy the fund over a period of two years, Mr Yorgancioglu said. The ticket size will range between $35m and $75m, but could go higher with co-investments.
The fund has already invested in two businesses, e-commerce company Hepsiburada and the lender Fibabanka.
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