Giorgos Iliopoulos: Turkey in search of a rescuer – Qatar is not enough

Although the possibility of Turkey being rescued by Qatar, one of the richest countries in the world, this is a matter of much controversy. The magnitude of the problems of the Turkish economy suggests that a rescuer with an infinitely larger economic strength is needed.

Immediate refinancing of Turkish banks requires more than $ 50 billion and at least an additional $ 40 billion may be necessary. The 6 systemic banks have long since exceeded the security threshold against the US dollar with a minimum level of 1: 6.3 and a maximum of 1: 7.7, as a result of which their recapitalization is urgently required.

In addition, the urgent need to restore the central bank’s foreign exchange reserves is highlighted so that from the negative size of -46.5 billion dollars it may reach levels higher than 50 billion dollars, a move that will require around 100 billion dollars.

In 2019, private debt repayments in foreign currency were at the level of 66 billion dollars and the corresponding public debt repayments were at 17 billion dollars, while in 2020 the corresponding repayments are at the levels of 87 and 27 billion dollars together with the state banks (excluding $ 44.5 billion from foreign exchange swaps – FX Swaps – as of September 30, based on available data). The big problem is expected to appear in 2021, when according to the country’s central bank a further increase of 10% or even 15% is expected mainly due to exchange rates.

The country’s dire economic situation forces the Erdogan regime to sell assets, with Qatar as the number one buyer, which is already negotiating the sale of 10% of the Istanbul Stock Exchange, the commercial port of Antalya and the state-owned airline, as well as Turkish real estate and land. Qatar’s total investment in Turkey amounts to $ 22 billion.

The power of Qatar

Qatar’s GDP is expected to reach $ 172 billion, representing about 25% of that of Turkey. From 2018 it is constantly decreasing, showing losses of 10% mainly due to the decline in the prices of natural gas (the main export product) and crude oil. The country is also facing the financial crisis that is hitting the globe, but with additional blows due to the terrible crisis in the energy market in April 2020, which led crude oil prices to negative levels.

Qatar’s most important asset and in a sense its only shield in the most difficult global period focuses on the Qatari Public Investment Authority (QIA) which manages the country’s investments abroad. It was founded in 2005 by then-leader Emir Hamad bin Khalifa al-Thani to manage surplus sales of publicly owned natural gas and crude oil. The main goal is to minimize the risks due to the almost absolute dependence of the economy on price fluctuations in the energy market, through investments in large international markets (EU, USA, and Asia-Pacific).

By 2020, the net worth of its investments reached $ 170 billion, although some estimate that including surplus value could reach $ 300 billion, yielding annual revenues of 0.8-1.0 billion dollars for public funds. Among other things, it owns 20% of Heathrow Airport in London (since 2017) and significant shares in the Volkswagen Group where it holds 17% of the common shares and 13% of the preferred shares, as well as the mining giant GLENCORE.

 

The last two investments, however, recorded losses of $ 5.9 billion due to the decline in the prices of their shares on the stock exchanges. Also from 2015 it is gradually investing in the USA, and has invested by 2020, 35 billion dollars mainly in the real estate market, owning, among others, 44% of the large real estate development company Brookfield Property Partners and from 2017 an additional 10 billion dollars in infrastructure projects.

In the third quarter of 2020, Qatar’s export revenues decreased by 35.5% compared to the corresponding quarter of 2019, affected by the sharp decline of 38.5% of energy sector revenues. Total revenue fell to $ 11.3 billion, with energy revenues losing $ 5.8 billion.

Not a wise move

The blow is more widespread and affects all producers in the Middle East, where for example the largest exporter, Saudi Arabia, is losing $ 27.5 billion and according to Prince Mohammed bin Salman, the sharp decline in revenue is negatively affecting public payroll budgets.

In addition, the Saudi flagship, Aramco, is required to pay a guaranteed dividend of $ 18.75 billion per quarter, or $ 75 billion annually. In order to meet this and avoid legal complications, it is making bold cuts in its budget, but even so, the situation is not salvageable. First-half profits appear to have fallen from $ 40 billion in the same period in 2019 to $ 25 billion, which is set to fall further to $ 20 billion after deducting capital costs.

Any cuts to be finally decided, the dividends due for the first two quarters amount to 37.5 billion dollars, a huge amount if compared to the free cash flow of the group that reaches 21.1 billion dollars. Based on this, even in the third quarter, the profits cover just 62.8% of the dividends to be paid, which implies the extraordinary support of the group from the public treasury.

Fitch confirms its estimates for Qatar and Saudi Arabia, noting that the bulk of gas sales are based on long-term contracts, estimating that in 2020 Qatar’s hydrocarbon sales revenue will fall by 27%, and by 9% in 2021 based on an average price of $ 48 per barrel for the period 2019-2021.

In order to effectively support Turkey, Qatar has to liquidate a large part of its investments abroad in order to make large investments in the Turkish economy, a prospect that is not favored by any prudent investor, especially at this time.