Turkey’s US$51b in energy loans a ticking time bomb
Bloomberg | July 11, 2018
Turkish power producers biggest risks to banks
plowed billions into new power generation over past 15 years
Lira's depreciation forces power producers to refinance borrowings
lira’s 68% slump against USD since 2010
Rising borrowing costs due to depreciating lira
plunging lira, too late for energy companies
lira depreciating faster than electricity prices
utilities earn less than what they have to repay in foreign-currency loans
Erdogan moves toward authoritarianism
appointment of son-in-law to oversee economic policy
lira’s depreciation not only factor
companies can’t adjust prices due to price ceilings
US$95b invested in power since 2003, US$51b needs to be paid
15% of US$340b non-financial companies owe in foreign liabilities
currency’s decline caused mismatch between income and borrowing costs
electricity prices fell to US$45 per megawatt-hour 2018 from US$81 in 2010
power producers to renegotiate their borrowings with lenders
(annually) paying back US$3b for loans (only US500m cash generated!!)
US$4.3b principal + US$2.6b in interest (per annum) = US$6.9b
energy industry 4th-most concentrated sector in bank loans
after manufacturing, wholesale and construction
Domestic banks most exposed to loans in foreign currencies
Companies across various industries to reorganize US$24b of loans
My comments : We had this problem in the 1998 - 2000 Financial Crisis. At that time I was the director of an IPP. We had just drawndown almost a billion Ringgit in loans to build our power plant. The Ringgit had crashed. Fortunately we had borrowed in Ringgit. I recall a few years before that TNB had borrowed in US currency. They suffered massive losses on "adverse" forex movements.
This is called currency mismatch. Your earnings are in the local currency. But your borrowings are in a foreign currency. So if at all your local currency depreciates (like the Ringgit in 1998-2000 or the Turkish lira crashing 68% over the past eight years) then all those people who borrowed in foreign currency need to make 68% more profit to keep up with the depreciating lira. Its as simple as that.
You can see now why Erdogan called for the elections so early (he still had about two years left to go). Turkey is facing some serious economic problems already.
However Turkey's problems are quite different - of their own making. I read somewhere that since historical times, whenever there was organised government, the government's policies could bring prosperity or disaster. Good government is critical.
You may have a wonderful time using your credit card, but a time will come when you must settle the bills. Worse if you swiped your credit card in US Dollars !!
Back to Turkey, there will be more wag the dog. The Kurds are going to get massacred. Just mark my words. There will be more sabre rattling by Erdogan. There will be more 'Islamic outreach".
Whenever things are going bad, learn to use religion. It is a tried and tested opium.
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