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Turkish companies seek bankruptcy protection as slowdown bites

Turkish companies seek bankruptcy protection as slowdown bites

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Turkey is facing a mounting number of applications for bankruptcy protection as a slump in economic growth takes its toll on business.

Requests for konkordato, a court-sanctioned agreement that allows struggling companies to try and avoid full bankruptcy by restructuring their debt payments, have soared in recent months. 

The surge follows a currency crisis over the summer that has triggered a sharp slowdown in the economy and piled pressure on Turkey’s indebted corporate sector. 

Turkey’s trade minster, Ruhsar Pekcan, said this month that the number of companies that had sought bankruptcy protection had reached 846, although many analysts believe that the true figure may be several times higher. 

Companies that have applied for the measure include well-known names from the retail, construction, manufacturing and energy sectors.

The rising number of distressed companies prompted a warning from Tusiad, one of Turkey’s biggest business associations. “Every day, there is a new addition to the list of firms applying for bankruptcy protection,” Tuncay Ozilhan, president of the group’s high advisory council, told a recent Tusiad meeting. 

“If companies begin to go bankrupt, the situation will get worse. Small businesses, traders and the public will all be affected. Unemployment will rise . . . Lower demand will make life harder for companies. Banks will face greater balance sheet problems and their ability to extend credit will narrow further.”

The government introduced konkordato (a term borrowed from the Italian concordato) in February to replace a previous form of bankruptcy protection. 

The process allows companies that have assets but are suffering from cash flow problems to draw up a schedule for paying their debts, often at reduced amounts and over a longer time span than originally agreed. It is overseen by trustees appointed by a commercial court.

If the court approves the proposal, companies are granted an initial three-month period of protection, extendable for up to 24 months, that allows them to avoid declaring bankruptcy.

The owner of one Istanbul-based company that supplies building materials to the construction sector told the Financial Times that the sharp fall in the lira, which has lost close to 30 per cent of its value against the dollar this year, had combined with a slump in construction to push his company to the brink of collapse. “We used up all our capital and we still couldn’t solve our problems,” said the businessman. “They were getting deeper and deeper.”

Unable to pay his creditors or service the interest on bank loans worth millions of lira, he went to the courts last month to apply for konkordato. He has been forced to lay off close to 150 staff. 

The businessman, who asked not to be named for fear of harming his application, is confident that he can get his business back on track by selling off assets to pay the company’s debts. “If I didn’t believe we could do it, I wouldn’t have applied for konkordato,” he said. “I would have just declared bankruptcy.”

Some companies and legal experts have voiced concern at the impact of protecting one troubled company has on the wider business ecosystem.

“When a protection under konkordato is granted to a debtor, the insolvency that it experiences is amplified to its surroundings, as relatively smaller suppliers start suffering,” said Mehmet Gun, founder of Gun+ Partners, a law firm. 

Turkey’s banking system, though generally seen as robust, is also grappling with growing levels of non-performing or at-risk loans. 

An Istanbul-based producer of industrial air-conditioning units said that rising konkordato applications and bankruptcies had put suppliers like him on edge. 

“I’m afraid of doing business,” he said, citing the fear that customers would take delivery of products and then fail to make their payments. “No one is giving anyone else long-term payment options.”