REPRESENTATIVE OFFICE JULY, 26 2006

Terence Singh + 90 212 293 00 32 e-mail: [email protected] ECONOMY & MARKET MARKETS FX reserves of the Central Bank rose USD At Monday’s close, market situation was: 576mn to USD 57.3bn last week. O/N for ISE Repo market YTL/USD & TLR Interbank market The Treasury’s cash budget posted USD 19.13 1.5459 Most actively traded T-Bills 3.4bn primary surplus in June while the budget Date Maturity C/Rate recorded USD1.5bn surplus. Accordingly, total 24/07/2006 16/07/2008 20.61 primary surplus in the first half of the year ISE-100 index ISE- 100 Ref $ amounted USD 14.6bn while the budget deficit 34,959 2.26 was posted at USD 8.3bn.

Capacity Utilization: According to the figures According to the Central Bank’s revealed by Turkstat, capacity utilization Expectation Survey, 2006 inflation slightly rose to 83.2% in June compared to the expectation hit 10.17 while growth expectation previous month figure of 82.7%. declined to 4.4%. Year-end $/TL rate stands at 1.6028. Year-end current account deficit Unemployment: Average unemployment rate expectations picked up again, surging to USD in March - May period stood at 9.9%, almost 25.5bn. flat compared to the same period last year (10.0%). The unemployment rate was 10.9% in The current account posted USD 4,018mn February - April period. deficit in May. Accordingly, the Jan-May C/A deficit reached USD 16.6bn against the USD REER: YTL weakened 10.2% on CPI basis 11bn of the same period last year. Imports and 7.2% on PPI basis in real terms in June increased 20% in the Jan-May period compared with CPI based real effective exchange rate to the same period of 2005 and reached USD declining to 142.2 level from 158.5 in the 48.8bn while exports rose 8% on YoY basis to previous month and PPI-based REER falling USD 33bn. to 129.9 level from 140.0. Debt Stock: Total debt stock stood at USD The following table depicts the results of auctions 219.6bn as of end-June while it was USD held in the last 2 weeks: 163.2bn in May. Domestic debt stock was Issue Mat.D M Bid Sales Cov Net Ann. ate at. NTL* NTL* % Sales Comp reported as USD 155.4bn down from USD Mo mn mn NTL* Yield 163.2bn. nth mn (%) 4/07/06 4/07/07 12 2,365 940 40 2,529 21.17 4/07/06 2/07/08 24 2,728 2,135 78 4,552 11.79 18/07/06 17/01/07 6 2,765 2,322 84 2,097 22.61 Domestic automotive sales (P. Cars + LCV) 18/07/06 16/07/08 24 2,142 1,463 68 2,308 20.34 contracted by 10.8% to 54K units in June 06 YoY. Domestic automotive sales reached 326K Eurobond emission: The Treasury re-issued units in 1H06, representing 7.7% growth YoY. 14 January 2014 Eurobond (Citigroup and Passenger car sales were affected negatively by HSBC) with a size of USD 500mn, which the recent turbulence in the markets as they are attracted USD 1.3bn of bids. The yield stood at more sensitive to consumer sentiment and 7.95%. higher interest rates.

Hike in interest rates: The Turkish Central Number of tourists fell 1.4% YoY to 2.4mn Bank (CBT) unexpectedly raised the key policy in June. As a result, number of tourists shrank rate by 25 bps, from 17.25% to 17.5%, with the 8% YoY in the first half of 2006. aim of improving expectations and hence the 2007 inflation target.

POLITIC, DOMESTIC & INTERNATIONAL AFFAIR

1 REPRESENTATIVE OFFICE ISTANBUL JULY, 26 2006

Taxation of capital gains of international investors: President Sezer ratified the bill on International investors on ISE: International taxation of capital gains that foresees investors placed buy orders of USD 4.2bn vs exemption of foreign investors and reduces the sell orders of USD 4.35bn on the USE in June rate to 10% from 15% for domestic investors. and hence were net sellers with USD 114.8mn during the turmoil. EU membership: According to Eurobarometer’s survey, those holding positive BRSA: Following its round of one-on-one opinion on the EU declined to 43% from 60% talks with 20 banks, representing 38% of the in in the last 6 months. sector, the BRSA issued the remarks hereunder: Cyprus: Following the summit with TRNC - There doesn’t seem to be any President Talat and Leader of Greek Cypriots transparency problem in the banking Papadopoulos, UN top official Gambari sector as BRSA data and the bankers’ announced that the Cypriots leaders agreed on data are in line with each other. decisions and principles that will govern the - There should be a decline in the in the extensive talks for a solution on the island to profits of the banks in 1H06 be resumed by the UN soon. - Capital increase is being advised to foreign banks that work with low IMF: capital level (as 3-5 ppt decline in State Minister Babacan announced that the capital adequacy ratios seem probable) Letter of Intent following the 3rd & 4th review was finalized and sent to the IMF. BO: President Sezer approved the electricity The IMF Directors Board will convene on July bill which enables BO-type electricity 28 to discuss the 3rd and 4th reviews and generation plants to continue their operations release of ca USD 1.9bn. despite the recent Court rulings against them. The new legislation should be a relief for Enka The Central Bank disclosed the letter sent to which had to deal with the Court rulings the government and the IMF due to diversion stipulating suspension of production in two of from the inflation target. The major points are: its plants. - With a 70% probability, 2006 inflation is to stay within 9.1%-10.5% range. Civil Servant Wages: in the Medium Term - With a 70% probability, 2007 inflation is to Financial Plan the government plans to raise stay within 3.5%-7% range. wages of civil servants by 12.2% in 2007, 6.7% - The inflation target for 2007 and 2008 is 4% in 2008 and 8.2% in 2009 on average. per annum.

SECTOR NEWS & PRIVATISATION

Banking currently negotiated, and finally the issuance by one of Dexia's main units of super privatization: Reportedly , subordinated notes qualifying as Tier 1 Capital Garanti Bank, Isbank, Citibank, Dexia as well for an amount currently estimated at Euro as large banks from US and Far East are 500mn. interested in Halkbank. The privatization strategy for Halkbank will be revealed soon, Sabanci Bank: Akbank announces that it will which is a prerequisite for IMF Board meeting. sell its entire stake of 65.0% in Sabanci Bank plc. to a company called Parsian Investment Denizbank acquisition: Regarding the Company that is based in Iran, and financing of the acquisition of DenizBank, accordingly, signed a Share Purchase Dexia confirms that it intends to proceed with Agreement (SPA). Meanwhile, the other a share capital increase amounting to shareholder Universal Trading (Jersey) Ltd that approximately owns the remaining 35% will also sell its stake Euro 1bn. The other sources of financing will in Sabanci Bank in the framework of the be the excess capital currently available, the aforementioned agreement. sales proceeds of certain participations

2 REPRESENTATIVE OFFICE ISTANBUL JULY, 26 2006

Sabanci Bank's book value as of 2005YE refinery with a yearly capacity of around 8mn- stands at USD 214mn. 10mn. As a reminder, Lukoil has already applied to Oyak Bank reportedly appointed Morgan EMRA previously to get a distributor license. Stanley to look for strategic options for Oyak EMRA approved Lukoil’s application last Bank including partnership, joint venture or month. share transfer opportunities. According to the news, Morgan Stanley has In line with its previously announced intention been appointed for the sale of up to 100% of of a downstream integration, Oyak Bank and the latter ranks 10th in Turkish applied to Energy Market Regulatory Authority banking sector as of 1Q06. (EMRA) to obtain a refinery license. The company also specified the planned location Rothschild is opening a Representative Office and capacity of the refinery as being Ceyhan & in Turkey to provide advisory services to 10mn tons/year, respectively Turkish groups aiming to expand outside Turkey and foreign investors. Other

Energy Eczacibasi Ilac mandated Merrill Lynch International to look for partnership Power plant privatization: Three power opportunities in its subsidiaries, targeting to plants have been excluded from the improve growth and competitiveness. These privatization scope due to failure to finalize the subsidiaries are Eczacibasi Saglik Urunleri San. required investments and inefficient ve Tic. A.S, EIP Eczacibasi Ilac Pazarlama A.S operations. Energy Minister stated that rise in and EOS Eczacibasi Ozgun Kimyasal Urunler electricity prices due to power cuts was not on San. ve Tic. A.S. the agenda. Sabiha Gokcen Airport’s privatization Electricity distribution tender: PPC, one of process should start in September or October the largest energy companies of Greece, according to Defense Minister Vecdi Gonul. announced that it was in talks with Iberdrola and Edison to enter the electricity distribution Tekel: The tender for the privatization of tenders in Turkey, which are programmed to Tekel Tobacco is likely to take place in start by the end of August. October, the earliest. British American Tobacco, Imperial Tobacco and Altria are Reportedly Lukoil has applied to Energy reportedly interested in the tender. Market Regulatory Authority (EMRA) to build a refinery in the Zonguldak (a western Black Sea district). The Russian oil major intends to spend around USD 2bn-USD 2.5bn to build a COMPANY NEWS Unicredit-Koc Financials: Reportedly - free float will be 20%, while 80% will Unicredit, partner of Koc Financial Services, is be owned by Koc-Unicredit JV planning to transfer its shares in Turkey to - the merger is planned to be finalized in Bank Austria Creditanstalt (BA-CA) which is October. owned by UniCredit Group. This should not have a major impact on the Yapi Kredi Bank Finansbank opened 54 new branches in the shares as BA-CA’s 95% of shares are owned by first half of 2006, increasing total number of UniCredit Group. branches up to 262. Note that the Bank plans to continue branch network expansion through Yapi Kredi Bank’s CEO, Kemal Kaya stated a further 38 new branch openings until the end the following at a press conference: of the year, reaching 300 branches in total. - they are planning to open 30 new branches this year and 100 in the Garanti Bank is rated as “Aaa.tr” for long- following 3 year period term, "TR-1" for short-term, according to

3 REPRESENTATIVE OFFICE ISTANBUL JULY, 26 2006

Moodys’ Turkish National Credit System 5mn tons, plate production unit with 0.5mn which has been put in place recently. tons will be tested and be operational by According to the new system, the rating is August 06. being assigned regardless of the country rating. Tupras refining margin data in June came at : USD 8.31/bbl (vs. USD 6.4/bbl in June 2005), - The Consortium led by Etisalat won the along with small upward revisions in April-May third GSM tender in Egypt for USD data. The drivers of the strong June refining 2.89bn. As readers will remember, margin were positive inventory effect & Turkcell had also participated in the seasonally high volume performance. tender together with Banque Misr of Accordingly the 2Q average refining margin Egypt and Gulf Finance Company. settled at USD 6.68/bbl vs. USD 6.65/bbl in - announced that its total number of 2Q2005. subscribers have reached 29.83mn as of June 30, up by 3.8% and 1.1mn QoQ. Turkish Crude Steel Production was up 11% The total number of postpaid and prepaid in 1H06 YoY vs 8.1% increase in global subscribers was 5.57mn and 24.26mn. production. Other noticeable increases were recorded by India (+16.7%), USA (+7%) and : in a statement issued by the Russia (+7%). company, the net income is expected to be around USD 200mn in 2006, representing a EBI, the subsidiary of AEFES which conducts 26% earnings growth. Isdemir plant’s crude international beer operations, had previously steel and hot rolled flat steel capacities will gave a mandate to issue corporate bond. It was reach 6mn tons and 3.5mn tons respectively, announced that the planned bond issue has by 2009. As an initial step in transformation been called off and that mandate was given to from long steel to flat steel production process, Citibank and HSBC for an USD 500mn 1st slab production unit with 2.5 tons capacity syndicated loan with a 3 year maturity part will be tested in Aug 06 and will be fully bullet repayment part in instalments with a 1 operational in 2007. Within the investment year grace. program in Erdemir plant that will increase current production capacity of 3.5mn tons to

Sources: Anadolu Agency, Turkish Daily News, Merrill Lynch, Dışbank, Bender, Garanti Bank, Detay, MEED, DİE, Undersecretary of Treasury, CBRT, Yapı Kredi Yatırım, FinansIn vest, Hurriyet, Sabah, Radikal, Akşam, Financial Times, Ege Yatırım, TEB Yatırım, EBA newsletter, Cumhuriyet. 1

1 This report has been prepared by the Representative Office of BNP Paribas in Istanbul. The information and data contained in this report has been acquired from sources believed to be reliable, however its accuracy and completeness can not be guaranteed. This report is published solely for information purposes, neither the information nor the opinions expressed herein is to be interpreted as an offer to sell or a solicitation of any offer to buy securities. BNP Paribas accepts no liabilities for any direct loss arising from the use of this report. This report may not be reproduced, distributed or published completely or partly by any other party without the prior written consent of BNP Paribas.

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