The Institutional Investor survey is important to us. We would appreciate your vote.

Charles Robertson +44 (207) 005-7824 [email protected]

Daniel Salter +44 (207) 005-7835 [email protected]

Metin Esendal +44 (207) 005-7925 [email protected]

Vikram Lopez +44 (207) 005-7824 [email protected] Coronavirus update Spotlight on

We are inclined to agree with the IMF’s forecasts of -5% GDP in 2020, but hope for a better upturn to c. 6% (IMF forecasts 5%) in Report date: 17 April 2020

2021. We differ more on the current account (C/A) as we are concerned that exports of services will plunge from $65bn in 2019 to $40bn in 2020, as tourism is wiped out for at least two Figure 1: MSCI EM country performance since 17 Jan quarters. We would turn a little more optimistic if Turkey can Performance, $ Turkey 0% slash active coronavirus cases from 71 per 100,000 (the second -5% highest in emerging markets – EM) to 5-10 like Korea. -10% -15% Currency cheap, but downside risks -20% -25% -30% The lira is the second-cheapest currency in EM. We believe it is about 25% -35% undervalued and forecast 10% rebound potential in a positive scenario to TRY6.3/$. -40% We think there is also a pessimistic scenario where it breaches its record low of -45%

TRY7.5/$, in today’s money, which was seen in 2018. Turkey, unlike South Africa -50%

EM

UAE

Peru

India

Chile

Qatar Brazil

Egypt

China

Korea

Czech

Turkey Russia Poland

(SA), is not engaging with the IMF. Default fears are in the air yet again. Turkey Mexico

Taiwan

Greece

SAfrica

Hungary

Pakistan

Thailand

Malaysia

Colombia

Argentina Indonesia might be the only EM in 2020 to have to hike rates to defend its currency. Our base Philippines SaudiArabia case is the lira returns to TRY6.5/$ by December. Source: Bloomberg

Underweight equities, stay defensive Figure 2: EM 10yr $ bonds, yields and change Turkish equities are undoubtedly cheap. But in our view Turkey needs more than Current valuation to make the equity market re-rate. And with foreign reserves continuing to 1w decline, we believe a policy response will be required for Turkish equities to rebound 31-Dec-19 YtD change in yields, bpts (RHS) convincingly. That response might need to come sooner rather than later. Over the 12 400 longer term, to become more than a trading market, we reiterate our long-held stance 10 that we need to see fundamental changes to the Turkish economic model that can 300 8 allow for sustainable long-term growth of dollar GDP per capita, something that has 200 6 been lacking over the last decade, in our view. For now, we believe that an 100 4 underweight stance and defensive portfolio are best for Turkey. 2 0

Base case picks – SOKM, MPARK, PETKM, TCELL / TTKOM 0 -100

Peru

Chile

Brazil

Egypt

Korea

Russia

Turkey Mexico

V-shaped recovery picks – SAHOL, PGSUS, TAVHL Colombia

Indonesia

Philippines South Africa South Saudi Arabia Saudi Prolonged downturn picks – , ULKER, TCELL / TTKOM Source: Bloomberg

Important disclosures are found at the Disclosures Appendix. Communicated by Renaissance Securities (Cyprus) Limited, regulated by the Cyprus Securities & Exchange Commission, which together with non-US affiliates operates outside of the USA under the brand name of Renaissance Capital.

Renaissance Capital Macro 17 April 2020

Coronavirus update – Turkey

We do not take great issue with the IMF’s GDP forecasts for Turkey of -5% in 2020. Assuming 7-9% YoY falls in household consumption in 2Q-3Q20 and fixed capital formation dropping 20% YoY produces a figure of -4.8% in our model. We do pencil in a rebound to 6.2% in 2021, against the IMF’s 5.0%.

The economy was in need of a 2020 rebound. The workforce apparently shrank from 31.8mn to 31.6mn in the year to January 2020, even though 1mn join the workforce each year. The labour force participation ratio fell from 52.5% to 51.0% over the previous year (EU norms are over 70%) and the employment rate had fallen from 44.5% to 44% (27.2mn). Most of the fall in unemployment from 14.7% to 13.8% was due to a shrinking workforce.

Little wonder that President Recep Tayyip Erdoğan wants to see growth in bank lending, and a cheap currency, in the hope of creating jobs. It is unfortunate that the tourism industry has evaporated in the past two months. Accommodation and food service employment rose from 1.48mn in January 2019 to 1.833mn in July 2019, which we assume is tourism related. About 350,000 seasonal tourist jobs will probably not happen in 2020. The January 2020 employment in this sector was up to 1.57mn and some of those jobs are likely to have gone as well. We assume at least a temporary hit to some of the 5mn manufacturing jobs.

We have already seen car sales collapse in Western . In 2019, 15% ($26bn) of Turkey’s exports were vehicles, 5% machinery and 4% refined oil – all of which will be negatively affected in 2Q20. About 20% of imports ($41bn) was mineral fuels (oil and gas) and we can discount perhaps a quarter of that (the gas price agreed with Russia is not transparent and might be fixed).

Travel receipts were $30bn in 2019 (the net surplus was $26bn) including $7bn in 2Q19 and $12bn in 3Q19. Transport passenger receipts were another $13bn, including $3bn in 2Q19 and $4bn in 3Q19. Therefore, on our calculations, $10bn is already gone for 2Q20 and another $16bn for 3Q20 is in jeopardy and we think very likely to go as well.

So, we are inclined to a little more pessimism on the C/A than the IMF. It projects a surplus of 1.1% of GDP shrinking gradually to 0.4% in 2020, while we see a swing to a 1% of GDP deficit, thanks to services revenues shrinking from $65bn in 2019 to $40bn in 2020 (then rebounding to $64bn in 2021).

Figure 3: Turkey – IMF forecasts 2018 2019 2020 2021 2022 Real GDP (% YoY) – Apr 2020 2.8 0.9 -5.0 5.0 3.0 Inflation, End of period (% YoY) – Apr 2020 20.3 11.8 12.0 12.0 11.0 Current account balance (% GDP) – Apr 2020 -2.7 1.1 0.4 -0.2 -1.8 Government primary net lending/borrowing, % GDP -1.6 -2.8 -2.5 -2.5 -2.5 Government net lending/borrowing, % GDP – Apr 2020 -3.7 -5.3 -7.5 -6.7 -5.1 Government gross debt, % GDP 30.2 30.1 30.8 31.7 32.9 Source: IMF April 2020 WEO

Virus

Turkey is the second-worst hit EM at present, with 71 active cases (confirmed cases minus deaths and recovered) per 100,000 people. While it closed schools, restaurants and bars on 17 March, it kept mosques open – even though religious gatherings have been responsible for outbreaks in other countries. The elderly were told to stay at home on 21 March, and international flights were banned on 27 March. Then the young were told to stay at home too. A curfew was introduced around 10 April and has since been extended. But Turkey has resisted a full lockdown and as far as we are aware, there is only one country with more cases per capita that has done similar, which is Sweden. The recent peak in new daily cases was 8 April in Sweden and 11 April in Turkey, but we cannot be confident that either peak will last. It is possible, but we just have no proof it will last.

2 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Figure 4: Active coronavirus cases per 100,000 people as of 14 April 2020 (blue emerging markets, orange CIS countries, green African countries)

Ireland 229 Active coronavirus cases per 100k, Johns Hopkins data via Renaissance Capital Iceland 208 07-Apr 14-Apr

Spain 188 175

180 172

This excludes a number of micro or less 162 161 market relevant states. San Marino is top, 160 152

with 806 cases per 100k people Germany's well -resouced health system was not 142

140 overwhelmed at a peak of 88 cases per 100k

128 123 119 Hubei's system was overwhelmed at 86 (excludes

120 108

108 those without symptoms 96 100 94 Korea's health system was not overwhelmed

79 at a peak of 15 cases per 100k

72

71 71

80 69

64

63

58

50 50

60 50

49

48

46

38

37

37

34

33 33

40 31

29

28

28

28

26

26

25

23

22 21 20

0

US

UK

Iran

Italy

UAE

Peru

Chile

Switz

Israel

Qatar

Spain

Latvia

Serbia

Kuwait

Turkey

Ireland

Austria

France

Cyprus

Croatia Iceland

Finland

Estonia Djibouti

Norway Belarus

Bahrain

Canada

Belgium Sweden Czechia

Armenia

Portugal Panama Ecuador

Moldova

Slovenia

N Maced N Romania

Lithuania Denmark H Bosnia Mauritius

Germany

Singapore Netherlands

Dominican Republic Dominican Source: Johns Hopkins, IMF, Renaissance Capital

We think that medium-term suppression of the virus might allow an economy to function relatively normally (e.g. with temperature checks at every supermarket, restaurant and bar) at around 5-10 cases per 100,000 people. This is where Korea has capped cases in the past week or so.

Until Turkey can convince the rest of the world that the virus is suppressed, our concern is that it will be out of bounds to most tourists globally. It will not be a surprise if the EU and other governments insist that visitors to a country where the virus is not obviously suppressed will be told to quarantine for two weeks at home. We suspect tourists will head to Greece (currently 17 cases per 100k) instead. Hence our pessimism about 3Q services revenues and employment, although this can change if Turkey’s president changes his mind about lockdown.

FX

Turkey has the second-cheapest currency in EM, 26% cheap to its 1995-2020 average in today’s money of TRY5.1/$. It has traded more than 20% cheap to its fair value in 15% of the months since 1995, similar to Brazil (18% of the time) and exceeded only by Argentina. This compares to SA and Mexico, which have been over 20% undervalued just 6% of the time, and so both the Mexican peso and rand are more likely to rebound quickly than the lira.

It became evident earlier this year that the finance minister is happy to see a cheap currency, therefore we think a rebound from here would be a maximum of 10% to TRY6.3/$, and we assume an end-year rate of TRY6.5/$.

There is unfortunately downside risk to this. In every Turkey crisis we can recall, and we can recall a lot, there is the perennial concern that this crisis will be the one that tips the country into default owing to its high short-term external debt risk.

3 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Our base case is that this will not happen, because it never does. The central bank always acts effectively to defend the currency in the end. European banks always roll over the one- year syndicated loans that are more profitable than much of the lending they do domestically.

But the risk exists because never have we seen Turkey act as late as it did in 2018. That is why Turkey is the only country to have seen its 1995-2020 REER low within the last decade; most saw it in 1995-2003. At a time when the SA finance minister says he is seeking funding from every potential source, Turkey’s president says he will not bow to the IMF. The president appears, to us, increasingly distant from recognising market needs each year that passes.

As a result, Turkey is the only country where we see a risk of it needing to hike rates to defend the currency (Kazakhstan did it to be consistent in its fight with inflation). We cannot rule out a new 1995-2020 low on the currency being seen in coming weeks. We cannot entirely rule out debt default either, nor can the markets, which is why dollar bonds offer high single-digit yields. We prefer Egypt for dollar bonds and Mexico or SA for local debt despite lower yields, because their currencies are cheap and their central banks have more credibility.

Figure 5: EM FX and REER Standard FX rate FX rate if LT average deviations RenCap 1Y local Current FX implied by REER Date of IMF 2019 IMF 2020E divided by away from YE20 currency rate vs $ LT average falls to REER low C/A (%GDP) C/A (%GDP) current rate historical forecast yields REER previous lows average China 7.05 8.56 11.8 Apr-95 1.21 1.0 0.5 1 1.2 Philippines 50.6 61.1 85.8 Feb-04 1.21 -0.1 -2.3 1 3.5 Egypt 15.7 18.5 28.4 Dec-03 1.17 -3.6 -4.3 0 17 12.2 Czech Republic 24.5 28.4 44.0 Jan-95 1.16 0.0 -2.1 0 1.1 India 76.3 88.0 108 Nov-96 1.15 -1.1 -0.6 1 4.5 Thailand 32.6 37.0 54.1 Jan-98 1.13 6.9 5.2 1 0.7 Peru 3.39 3.80 4.32 Jul-07 1.12 -1.4 -0.9 1 0.9 Qatar 3.66 4.03 5.14 Dec-03 1.10 2.4 -1.9 0 3.66 1.4 Saudi Arabia 3.76 4.06 4.94 Mar-08 1.08 6.3 -3.1 0 3.76 1.2 UAE 3.67 3.86 4.43 Nov-07 1.05 7.4 1.5 0 3.67 1.4 Indonesia 15,645 16,174 42,206 Jun-98 1.03 -2.7 -3.2 0 5.9 Korea 1,217 1,211 1,877 Jan-98 0.99 3.7 4.9 0 0.8 Taiwan 30.1 29.7 34.8 Nov-09 0.99 10.5 8.2 0 0.8 Russia 72.8 71.3 140 Jan-99 0.98 3.8 0.7 0 79.2 5.6 Poland 4.14 4.03 4.86 Nov-97 0.97 0.5 0.2 0 0.7 Hungary 320 307 412 Apr-95 0.96 -0.8 -0.1 0 1.3 Greece 1.10 1.18 1.02 Sep-00 0.93 -2.1 -6.5 -1 0.3 Pakistan 167 155 179 Sep-01 0.93 -5.0 -1.7 0 165 9.4 Malaysia 4.33 3.92 5.91 Dec-98 0.90 3.3 -0.1 0 2.5 Chile 849 745 925 Jun-03 0.88 -3.9 -0.9 -1 0.6 Colombia 3,863 3,203 4,418 Mar-03 0.83 -4.3 -4.7 -1 3.8 Argentina* 65.5 51.2 114 Jun-02 0.78 -0.8 na 0 53.5 South Africa 18.3 14.0 20.9 Dec-01 0.76 -3.0 0.2 -1 16.5 5.6 Brazil 5.20 3.96 7.64 Oct-02 0.76 -2.7 -1.8 -1 3.1 Turkey 6.81 5.08 7.54 Sep-18 0.75 1.1 0.4 -1 6.5 11.8 Mexico 23.5 17.4 28.0 Mar-95 0.74 -0.2 -0.3 -1 5.7 Note: Government bonds/bills except: Argentina (implied forward), Qatar, Taiwan, UAE (Interbank rates). *Argentina's inflation data was unreliable for 2007-15 - we have constructed an REER series using 'shadow' inflation data Source: Bruegel, IMF, Renaissance Capital estimates

4 Renaissance Capital Equity views 17 April 2020

Coronavirus update – Turkey

Strategy view

Figure 6: MSCI indices ($), rebased to 100 on 31 December 2019 MSCI EM ex-China MSCI EM MSCI EMEA MSCI Turkey 110

100

90

80

70

60

50 Jan-20 Feb-20 Mar-20 Apr-20

Source: Bloomberg, Renaissance Capital

YtD, MSCI Turkey is down 29% in dollar terms, underperforming MSCI EM (-21%) but outperforming MSCI EMEA (-32%) and pretty much in line with MSCI EM ex-China (-28%), which we show to strip out the strong performance of China (-6%) given its large index weight. Since the MSCI EM low on 23 March, MSCI Turkey has underperformed, up just 6% vs the 17% rebound for MSCI EM (18% for MSCI EM ex-China).

Figure 7: MSCI Turkey and MSCI EM 12M FWD PER (x) and 10yr avg Figure 8: MSCI Turkey and MSCI EM PBV (x) and 10yr avg

Turkey EM Turkey EM 14 2.2 2.0 12 1.8 10 1.6

8 1.4 1.2 6 1.0

4 0.8

2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2018 2019 2020 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Bloomberg, Renaissance Capital Source: Bloomberg, Renaissance Capital

Turkish equities are undoubtedly cheap vs history (you can skip the rest of this paragraph if this is obvious). As in any crisis, forecasts may need to be cut further (12-month forward EPS forecasts have so far been cut by 16% since 20 March). MSCI Turkey is trading on a 12-month forward P/E of 6.1x, a 29% discount to the 10-year average of 8.6x (MSCI EM is trading on 12.1x, an 8% premium to the 10-year average). MSCI Turkey’s 12-month forward P/E valuation fell as low as 4.7x on 23 March, within sight of the 4.2x low reached in November 2008, during the global financial crisis. MSCI Turkey is trading on a 50% 12- month forward P/E discount to MSCI EM, well in excess of the 10-year average discount of 23%. It is a similar story for P/B, with Turkey trading on 0.9x, a 38% discount to the 10- year average of 1.4x. MSCI EM is trading on 1.3x, a 19% discount to the 10-year average of 1.6x. MSCI Turkey’s P/B fell as low as 0.79x on 23 March, just below the 0.81x reached at the global financial crisis low in November 2008. MSCI Turkey is trading on a 32% P/B discount to MSCI EM, well in excess of the 10-year average discount of 10%.

Turkish equities also appear cheap vs five-year bond yields, perhaps indicating that the market is fearing economic distress:

5 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Figure 9: Turkey equity valuation vs bond yields

MSCI Turkey 12M fwd P/E (x) vs TRY 5yr bond yield (%) 13

Pre-taper tantrum 12

Pre-2015 sell-off 11

10 Gezi Park protests

9 Bottom of taper tantrum

8 Post July 2016 attempted coup

7 MSCI Turkey 12M fwd P/E (x) P/E fwd12M Turkey MSCI

6

5 Now 4 5 10 15 20 25 30 TRY 5yr bond yield (%)

Source: Bloomberg

But in our view Turkey needs more than valuation to make the equity market re-rate. And with foreign reserves continuing to decline, we believe a policy response will be required for Turkish equities to rebound convincingly. That response might need to come sooner rather than later.

Figure 10: MSCI Turkey ($) vs net international reserves ($) MSCI Turkey ($) Net International Reserves ($)

900 120 800 100 700 600 80 500 60 400 300 40 200 20 100

0 0

Jan-01 Jan-08 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-00

Source: Bloomberg

Taking the data from the graph above, we found that since 2003, MSCI Turkey in dollars and Turkey’s net international reserves (also in dollars) move in the same direction on a monthly basis two-thirds of the time. While reserves are under pressure as they currently are in Turkey, we expect equities to continue to struggle unless rates are hiked significantly bringing foreign flows (and domestic savings) back into lira and potentially paving the way to the funding from the IMF that President Erdoğan has said Turkey “will not bow down to”.

6 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

We suspect it will take time for tourism to return to Turkey given the absence of full lockdown in the country1 (will tourists from countries which have tackled the virus be willing to travel? And will they be able to return home without being required to self- isolate?) Looking at Turkey’s exports, transportation (cars, trucks, buses) makes up 16% of the total, textiles 16%, machinery 15% and industrial metals 13%. Add them up, and 60% of exports can be thought of as somewhat discretionary in nature or at last linked to the global industrial cycle, where recovery looks likely to be fairly slow.

Over the longer term, to become more than a trading market, we reiterate our long-held stance that we need to see fundamental changes to the Turkish economic model that can allow for sustainable long-term growth of dollar GDP per capita, something that has been lacking over the last decade, in our view.

Figure 11: MSCI Turkey ($) and MSCI EM ($) rebased to 100 Figure 12: MSCI Turkey ($) relative to MSCI EM ($)

MSCI Turkey ($) MSCI EM ($) 140

300 5.0 120 4.5 100 250 4.0 200 3.5 80 3.0 150 2.5 60 2.0 40 100 1.5 50 1.0 20 0.5

0 0.0 0

2003 2001 2010 2016 2000 2001 2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2000 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012 2013 2014 2015 2017 2018 2019 2020

Source: Bloomberg, Renaissance Capital Source: Bloomberg, Renaissance Capital

For Turkish equities, May 2013 marked a turning point for relative performance of Turkish equities vs EM – the turn coincided with the Gezi Park protests, the taper tantrum and the banking system’s loan-to-deposit ratio just exceeding 100%. Since then, Turkey has been a consistent underperformer, with MSCI Turkey down 75% in dollar terms (vs a 15% decline for MSCI EM). MSCI Turkey in dollars is back at 1989 levels (many countries have nothing to be proud of in this respect: the UK’s FTSE 100 in dollars is trading at 1996 levels).

Investors have been unnerved by 1) increased centralisation of power (particularly post the 2016 attempted coup and the 2018 move to a presidential system); 2) political influence eroding the credibility of key institutions, particularly the central bank (since May 2011, Turkey has had negative real interest rates 45% of the time); 3) ongoing credit rating downgrades including the loss of investment grade in 2016; 4) attempts by the authorities to re-ignite bank lending even after the banking system had seen its loan to deposit ratio rise from 70% to 120% in less than a decade; and 5) geopolitical (mis-) adventures, including the dispute with NATO and the US over S-400 missiles, on-off tensions with Russia over Syria and Libya, and the breakdown of EU accession talks which have served to scare off both FDI and portfolio investors.

1 Despite the lack of full lockdown, mobile phone location data points to a significant decline in traffic: Google Mobility suggests that as of 11 April, for Turkey as a whole, retail traffic is down 92%, grocery and pharmacy traffic down 83%, park traffic down 81%, transit station traffic down 90% and workspace traffic down 78% vs the baseline. Apple data suggest that as of 15 April for , driving is down 69%, walking down 78% (for Turkey as a whole, driving is down 59%, walking down 67%)

7 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Figure 13:Turkey GDP per Capita ($) Figure 14: Turkey loan to deposit ratio and currency breakdown 14,000 Overall loan to deposit (LtD) ratio TRY LtD ratio FX LtD ratio 160% 12,000 140% 10,000 120%

8,000 100% 80% 6,000 60% 4,000 40% 2,000 20%

0 0%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Jul-08 Jul-06 Jul-07 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19

Jan-14 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-06 Source: IMF Source: CBRT

Persistent REER weakness has meant that strong real GDP growth (averaging 4.5% over 2008-2019) has been illusory: measured in dollars, the average Turk has actually become poorer, with GDP per capita declining over 2007-2019.

Our view is that for Turkish equities to become more than a trading market, we would need to see four fundamental changes to the Turkish economic model that can allow for long-term growth of dollar GDP per capita, something we think that the current crisis- interrupted model is failing to produce: 1) a competitive (cheap) but stable currency; 2) an attractive FDI backdrop; 3) rebuilt central bank inflation credibility; and 4) a repair of geopolitical relations.

8 Renaissance Capital Coronavirus crisis policy response 17 April 2020 to date Coronavirus update – Turkey

The authorities have announced a TRY100bn package consisting of TRY75bn ($11.6bn or 1.5% of GDP) in fiscal measures, as well as TRY25bn ($3.8 bn or 0.5% of GDP) to double the credit guarantee fund’s limit (while size of the fund increased from TRY250bn to TRY500bn). Support measures include: 1) raising minimum pension and cash assistance for families in need; 2) increasing employment protection by loosening short-term work allowance rules; 3) reducing/postponing taxes for affected industries (particularly tourism); and 4) extending personal and corporate income tax-filing deadlines.

The Central Bank of Turkey (CBT) cut the policy rate by 100 bpts to 9.75% and introduced a package of financial measures including liquidity facilities with longer-term instruments at discounted rates, reducing reserve requirements on FX deposits by 500 bpts for banks that meet lending growth targets and setting up a new lira-lending facility for small and medium-sized enterprises (SMEs) in the export sector. A second package allows for an increase in outright purchases of sovereign bonds and broadens the pool of assets for use as collateral.

The bank regulator has announced forbearance measures to limit the accounting impact of lira depreciation and the fall in prices of securities; loan-to-value (LTV) limits on mortgages were raised from 80-90%, public banks have granted firms affected by the crisis a three-month moratorium on repayment of principal and interest on loans and debt enforcement and bankruptcy proceedings have been suspended.

Figure 15: 2020 real GDP growth, % YoY 2

0

-2

-4

-6

-8

-10

UAE

Peru

India

Chile

Brazil

Qatar

Egypt

China

Korea

Russia

Turkey

Poland

Mexico

Taiwan

Greece

S Africa S

Czechia

Hungary

Pakistan Arabia S Thailand

Malaysia

Colombia

Argentina

Indonesia Philippines

Source: IMF

The IMF’s recent economic forecasts point to a 5% GDP contraction for Turkey in 2020 (followed by a 5% GDP rebound in 2021). This is a significant underperformance for both the downturn and rebound, with the IMF expecting EM GDP to decline by 1.1% in 2020 and rebound by 6.6% in 2021. We suspect the IMF may share some of our concerns that: 1) tourism may take an extended time to recover; 2) the government’s room for fiscal stimulus is limited given the rise in bond yields from sub-10% at end-January to over 14%; and 3) declining FX reserves could force a hike in rates, restrictions on capital outflows, or a request for funding from the IMF to boost reserves. Turkey’s capacity for fiscal stimulus is clearly limited, given the 1.5% of GDP fiscal stimulus (vs 10% of GDP in the US and 20% of GDP in Japan).

9 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Figure 16: Istanbul mobility trends

Driving Walking Baseline 200 180 160 140 120 100 80 60 40 20

0

6-Apr

2-Mar 9-Mar

3-Feb

13-Apr

13-Jan 20-Jan 27-Jan

17-Feb 24-Feb 16-Mar 23-Mar 30-Mar 10-Feb Source: Apple, Renaissance Capital

For now, we believe that an underweight stance and defensive portfolio is best for Turkey.

Base case picks – SOKM, MPARK, PETKM, TCELL / TTKOM

Sok Marketler (Sok): Modern channels keep gaining market share in the Turkish grocery space and discounters including Sok are the clear winners of this trend, in our view, by satisfying consumer preferences of proximity and relatively low price. Post a successful restructuring under its new management, Sok has maintained its rapid store expansion. A broad portfolio of SKUs (covering more customer needs and offering fresh and personal care and tobacco products) has helped the company stand out from the competition. We also welcome Sok’s recent online delivery initiative, which should add to top-line growth.

The average store age is still young, thus as stores mature, traffic, revenue per visit and EBITDA margin should continue to improve. With no debt (excluding IFRS16 impact) and no FX exposure, we believe it is well positioned to play a gradual recovery in the Turkish economy. Moreover, a decline in interest rates should reflect in better profitability as well as bottom-line performance in 2020. As Sok continues to grow faster than BIM and its performance metrics converge with BIM’s, we expect Sok’s trading multiples to move closer, or possibly trade at a premium to BIM’s, owing to its more rapid growth and tax shield (led by accumulated losses and financial expenses). Sok currently trades at a c. 35% discount to BIM, on our 2020E EV/EBITDA numbers.

Medical Park (MPARK): Despite the relatively bleak short-term outlook (2Q20) due to the COVID-19 outbreak, MPARK management reiterated its c. 25% YoY growth expectation for EBITDA generation in 2020 thanks to the government’s recent measures to help the healthcare industry and some pent-up demand that will re-emerge after the outbreak is gone.

MPARK is the Turkey’s largest healthcare provider and one of the cheapest blue-chip healthcare providers in the EMEA universe, on our estimates. We expect MPARK to deliver 21% EBITDA growth pa during 2020-2022 on stronger domestic hospital revenues, an increase in medical tourism income and improving operating leverage in developing hospitals. Additionally, MPARK keeps strengthening its network by acquisitions. Thanks to higher EBITDA generation and no big capex investment via investments, leverage’s downward trend continues toward c. 1.5x in 2021E (vs 2.5x 2019, 2.9x in 2018 and 3.8x in 2017). MPARK is currently trading at 4.0x 2021E EV/EBITDA, implying a significant discount to global peers, on our estimates.

Petkim has been supported by a strong recovery in petrochemical margins and unchanged utilisation rates. The NWE LDPE-Naphtha spread is up 71% YtD (in dollars)

10 Renaissance Capital 17 April 2020

Coronavirus update – Turkey reflecting significantly reduced naphtha prices amid only a 3% weaker LDPE price YtD. MOL Group reported a 1Q20 petrochemical margin of EUR384/t, up 7% QoQ (in dollars), while PKN ORLEN reported a 1Q20 petrochemical margin of EUR845, up 36% QoQ (in dollars). We think a higher petrochemical margin bodes well for , which should further benefit from the recent launch of its STAR refinery and associated synergies.

While margins are strong, we have concerns over the sustainability of demand, given petrochemical production is tightly correlated with GDP growth. Petkim is in a relatively strong position as it is the only petrochemical producer in Turkey, with a market share of just 20% – the rest being supplied by imports. Importers and traders are finding it more difficult to navigate through a volatile pricing and FX environment, and historically, it has been imports that took care of demand volatility with Petkim’s production unaffected. This time could be slightly different due to the fact that this is now a global – not a Turkish – problem, and one-third of its output is exported (this is represented by a part of the product slate that has no domestic consumption in Turkey, such as benzene), so there is a chance of reduced utilisation rates, but we do not expect a significant drop due to Petkim’s advantageous position in the domestic market.

Petkim’s current EV of $1.7bn includes a $480mn prepayment for its stake in the STAR refinery; excluding this prepayment, the underlying EV is just $1.2bn, vs an implied valuation of $4.0bn paid by SOCAR during the company’s privatisation in May 2008. Given current margins, Petkim’s 2020 EBITDA guidance of $175-200mn is beatable, in our opinion, but even then this reflects an EV/EBITDA multiple of just 6.0x, vs an EM trading range of 8-10x. There remains the last $240mn payment for the STAR stake (which we think will be delayed into 2021) and we do not expect a cash dividend until 2022 – but there could be a positive surprise here if margins stay strong for the remainder of the year. Operational integration with STAR should support further EBITDA growth via cost reductions and synergies, in our view.

Turkcell / Turk Telekom: Telecom stocks across the world face growing demand for voice and data services coming from work-from-home and self-isolation trends. Telecom operators across the globe have observed up to a 30% increase in data and voice traffic on fixed line and mobile networks following the introduction of lock-down measures. Therefore, we expect and Turk Telekom to be in line with these trends and also remain resilient to a prolonged downturn; Turkcell has already confirmed a 30% increase in data traffic on its network in mid-March. The competitive situation on the market remains rather benign as both operators are focusing on bundling their existing subscriber base with fixed broadband and mobile services, which is likely to support prices above the CPI trend. Debt levels are also quite comfortable for both operators at around 1.5x of ND/EBITDA. Although we expect some increase in the cost of debt for Turkey in 2020, the impact on P&L should not be significant. FX volatility is not a big risk in 2020 as Turkish operators have learned the lesson and have gradually hedged their FX exposure for 2020. Both operators trade at a defensive low 3.2x EV/EBITDA 2020E multiple, on our estimates, which implies a 20% discount to EM peers.

V-shaped recovery picks – SAHOL, PGSUS, TAVHL

Sabanci Holding (SAHOL): Strong free cash-flow generation in the energy business continues to lower the leverage ratios in SAHOL’s non-banking operations. A better RoE outlook as well as a declining CoE should be followed by a further re-rating on the banking front (which still makes up c. 50% of total NAV), in our view. We believe management’s value-accretive efforts have been overlooked by the market so far. SAHOL currently trades at a c. 50% discount to its current NAV (vs a five-year average of c. 38% discount). We see this level of discount as unwarranted since a large portion of SAHOL’s NAV (c. 90%) is likely to directly benefit from a V-shape recovery in Turkey. Moreover, the

11 Renaissance Capital 17 April 2020

Coronavirus update – Turkey potential IPO of its energy generation unit (if market conditions allows) would be a significant positive catalyst for share price performance, in our view.

Pegasus/TAV:

Turkish airports saw almost a 50% YoY traffic drop in March (international down 49% and domestic down 43%) and in April traffic is likely to reach the bottom of around 90-95% contraction, as we are seeing in Europe, with some technical flights (e.g. repatriation of citizens) and cargo operations taking place. The duration of this trough will depend on the quarantine period in Turkey as well as lockdown timings abroad. Overall, we think that aviation stocks are well positioned to outperform in a V-shaped recovery scenario, with international traffic resumption in major economies in the high summer season. Operators with the healthiest liquidity and leverage profiles could bear only marginal losses in that case.

The Turkish aviation industry weathered the crisis period in 2016 against the backdrop of geopolitical tensions, when charter flights between Turkey and Russia were banned by the latter, and the terror attack at Ataturk airport (June 2016) and coup attempt (July 2016) happening in the high summer season. Total PAX traffic was down by around 15% YoY in Turkish airports in June and July 2016, with international traffic reaching a trough of a c. 30% YoY decline in respective months. Total traffic recovered within four months with total PAX figures up 1% in November 2016 and international PAX only slightly lower.

Aviation stocks – TAV Airports, and – were down around 30% since May 2016 to August 2016, followed by a rebound, with TAV and Pegasus reaching May 2016 levels in a six-month period.

In normal times, having cash equal to three months of average revenues could be considered a reasonable buffer. Among the airlines under over coverage, Pegasus appears healthier on liquidity and leverage ratios – with a YE19 cash balance to cover 4.6 months (cash and equivalents coverage of 2019 revenues at 38%) and adj. ND/EBITDA at 1.7x, compared with 2.3 months (19% of revenues) and 3.5x for Turkish Airlines (THY) and 0.5 month (4%) and 3.2x for Aeroflot (AFLT), on our calculations.

TAV’s airport terminals business model appears more resilient to absorb the effects of air traffic interruptions and we think TAV is well positioned to handle a short-lived crisis. Almost all TAV’s terminals are being closed at the moment and the company’s base case scenario envisages operations suspension for three months (April-June) followed by flights resumptions in July with gradual recovery afterwards. Even in a more protracted lockdown scenario, TAV is well positioned to weather the crisis given its strong balance sheet and liquidity profile. TAV’s cash pile stands at around EUR850mn and the company can cover its opex for over two years, according to the company. The company will continue considering M&A opportunities as current volatile market conditions could provide attractive opportunities of buying assets at low valuations. TAV has a comfortable leverage level with ND/EBITDA at 1.6x, excluding a loan to its main shareholder ADP Group (including ADP loan at 2.5x), at YE19. The company is long the euro on a cash- flow basis and is benefiting from lira depreciation.

12 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Prolonged downturn picks – BIM, ULKER, TCELL / TTKOM

BIM: With a solid business model along with net cash (excluding IFRS16 impact) and no FX exposure, we think BIM is well positioned to weather any kind of prolonged economic slowdown. BIM should continue to enjoy the general consumer perception that it is still the most affordable food retailer; moreover, weaker economy activity is likely to lead consumers toward discounters and BIM has traditionally performed very well in such challenging times. In addition, regardless of economic activity, we expect its store network to grow c. 10% on a yearly basis, which gives us a still decent (+20% pa) in the foreseeable future on top-line / EBITDA / net income growth.

Ulker Biskuvi: We believe Ulker’s sales volume growth will remain in the low-single digit level in the foreseeable future. Ulker has successfully restructured itself on a larger scale post five acquisitions in the Middle East and North Africa (MENA) region, with portfolio optimisation, focusing on high-margin branded products, a simplified sales and distribution channel and disposal of non-core assets since 2010. Ulker protects its dominant position in Turkey with a c. 35% market share while enjoying well-protected margins against the competition and cost pressure (thanks to hedging). On exports, Ulker is increasing its market share in the under-penetrated MENA region via organic and inorganic growth. Currently c. 50% of its total EBITDA is generated abroad. The company has almost no FX vulnerability at the bottom line, an above-peer average RoE profile, and a dollar-denominated available for sale portfolio, factors that are overlooked by the market, in our opinion. Ulker trades at a significant discount to its global peers.

Turkcell / Turk Telekom: (see previous commentary)

For more details, please contact Daniel Salter and Metin Esendal

13 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Figure 17: Base case stocks Ticker Name Sector MktCap ($mn) 3MADTV, $mn CP TP Rating Potential upside TCELL TI Turkcell Communication Services 4,238 26.3 TRY13.00 TRY22.70 BUY 75% TTKOM TI Turk Telekom Communication Services 3,452 20.0 TRY6.78 TRY10.00 BUY 47% PETKM TI Petkim Materials 1,038 71.3 TRY3.38 TRY4.00 BUY 18% SOKM TI Sok Marketler Consumer Staples 857 4.3 TRY9.70 TRY15.10 BUY 56% MPARK TI Medical Park Health Care 389 2.6 TRY13.10 TRY27.10 BUY 107% Priced at close 16 April 2020 Source: Bloomberg, Renaissance Capital estimates

Figure 18: V-shape recovery stocks Ticker Name Sector MktCap ($mn) 3MADTV, $mn CP TP Rating Potential upside SAHOL TI Sabanci Holding Financials 2,297 17.1 TRY7.62 TRY13.40 BUY 76% TAVHL TI TAV Industrials 1,033 11.5 TRY19.09 TRY36.00 BUY 89% PGSUS TI Pegasus Industrials 754 50.5 TRY49.92 TRY97.00 BUY 94% Priced at close 16 April 2020 Source: Bloomberg, Renaissance Capital estimates

Figure 19: Protracted slowdown stocks Ticker Name Sector MktCap ($mn) 3MADTV, $mn CP TP Rating Potential upside BIMAS TI BIM Consumer Staples 4,841 20.1 TRY54.60 TRY62.70 HOLD 15% TCELL TI Turkcell Communication Services 4,238 26.3 TRY13.00 TRY22.70 BUY 75% TTKOM TI Turk Telekom Communication Services 3,452 20.0 TRY6.78 TRY10.00 BUY 47% ULKER TI ULKER Consumer Staples 1,126 4.0 TRY23.66 TRY35.50 BUY 50% Priced at close 16 April 2020 Source: Bloomberg, Renaissance Capital estimates

14 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Figure 20: EM: Net tourism receipts, % GDP Figure 21: EM: Net remittance receipts, % GDP Net Tourism receipts, % GDP, 2018 Net remittance receipts, % GDP, 2018 12% 14% 12% 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% -2% -4% -2% -6%

-4% -8%

UAE

Peru Peru

India India

Chile Chile

Brazil Qatar Brazil Qatar

Egypt Egypt

China China

Korea Korea

Turkey Russia Turkey Russia

Poland Poland

Mexico Mexico

Taiwan Taiwan

Greece Greece

Hungary Hungary

Thailand Pakistan Pakistan Thailand

Malaysia Malaysia

Colombia Colombia

Argentina Argentina

Indonesia Indonesia

Philippines Philippines

South Africa South Africa South

Saudi Arabia Saudi Arabia Saudi Czech Republic Czech Czech Republic Czech Source: UNCTAD, IMF Source: UNCTAD, IMF

Figure 22: EM: Total trade, % GDP Figure 23: EM: Net commodity exports, % GDP Net commodity exports to GDP, 2018 Total trade to GDP, 2018 40% 180% 35% 160% 30% 140% 25% 120% 20% 100% 15% 80% 10% 60% 5% 40% 0% 20% -5% 0% -10%

-15%

UAE

Peru

India

Chile

Brazil

Qatar

Egypt

China

Korea

UAE

Peru

India

Turkey Russia

Poland

Chile

Mexico

Taiwan

Greece

Brazil

Qatar

Egypt

China

Korea

Hungary

Pakistan

Thailand

Russia Turkey

Malaysia

Poland

Mexico

Taiwan

Greece

Colombia

Argentina

Indonesia

Hungary

Pakistan

Thailand

Malaysia

Philippines

Colombia

Argentina

Indonesia

South Africa South

Philippines

Saudi Arabia Saudi

South Africa South

Saudi Arabia Saudi Czech Republic Czech

Republic Czech Source: UNCTAD, IMF Source: UNCTAD, IMF

Figure 24: Change in local currency bond yields vs level of local currency bond yield 3.5

3.0 Top right - bond yields are high and have risen - fiscal Harder Turkey stimulus is challenging. Bottom left - bond yields are 2.5 Kazakhstan low and in some cases falling, fiscal stimulus easier. 2.0 Russia may be a special case given high Sovereign Wealth Fund savings. 1.5 Colombia South Africa Indonesia 1.0 Brazil Nigeria Egypt 0.5 SloveniaCroatia Greece Hungary Romania Russia Serbia Mexico Thailand VietnamPeru Kenya 0.0 Lithuania Morocco Malaysia Taiwan India Korea Saudi ArabiaChile -0.5 Philippines Czech Republic China Sri Lanka UAE

3M chg in 10 year local yield (ppts) yield local year 10 chgin 3M Bahrain -1.0 PolandQatar Kuwait

-1.5

-2.0 Easier Pakistan -2.5 0 2 4 6 8 10 12 14 16 10 year local yield (%) Source: Bloomberg

15 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Figure 25: Government debt to GDP vs fiscal balance, 2019

EM Frontier

200 High debt, high deficits: risk of distress High debt, high surplus: some room for stimulus, but limited 180 Greece

160 Lebanon 140

120

Bahrain 100 Argentina Brazil Jordan Egypt Sri Lanka 80 Pakistan Tunisia Mauritius Croatia India Morocco Hungary Slovenia 60 Kenya South Africa Senegal China Malaysia Mexico Oman Vietnam Ivory Coast Colombia Serbia Qatar ThailandPoland 40 Philippines Korea Low debt, high deficits: some room BangladeshRomania Low debt, high surpluses: large Nigeria Turkey IndonesiaTaiwan Czech Republic for stimulus, given low debt, but Chile Peru Lithuania capacity for stimulus 20 Saudi Arabia UAE Kazakhstan risks to sustainability Russia Kuwait Estonia 0 -12 -10 -8 -6 -4 -2 0 2 4 6 8

Source: IMF

Figure 26: MSCI Turkey vs MSCI EM, 12M fwd P/E, x Figure 27: BIST 100 vs MSCI EM price to book, x

MSCI Turkey 12M fwd P/E (x) MSCI EM 12M fwd P/E (x) BIST 100 Price to book (x) MSCI EM price to book (x) 16 2.4 14 2.2 12 2.0 1.8 10 1.6 8 1.4 6 1.2 4 1.0 2 0.8

0 0.6

Jul-18 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-19

Jul-10 Jul-19 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18

Jan-12 Jan-10 Jan-11 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-10 Source: Bloomberg Source: Bloomberg

Figure 28: Turkey 5yr vs US 5yr, $ Figure 29: Turkey 10yr vs US 10yr, $ Turkey 5yr CMT $ yld US CMT 5yr yld Turkey 10yr CMT $ yld US CMT 10yr yld Spread, bpts (RHS) Spread, bpts (RHS) 16 1,200 16 1,200 14 14 1,000 1,000 12 12 800 800 10 10 8 600 8 600 6 6 400 400 4 4 200 200 2 2

0 0 0 0

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Jan-07 Jan-06 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-05 Source: Bloomberg Source: Bloomberg

16 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Figure 30: Foreign net purchases of Turkish equities (cumulative), $mn Figure 31: Foreign net purchases of Turkish bonds (cumulative), $mn

2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 4,000 10,000 3,000 5,000 2,000

1,000 0

0 -5,000 -1,000 -10,000 -2,000

-3,000 -15,000

Jul Jul

Apr Oct Apr Oct

Jan Jun Jan Jun

Mar Mar

Feb Feb

Nov Dec Nov Dec

Aug Sep Aug Sep May May Source: Bloomberg Source: Bloomberg

Figure 32: Foreign ownership of Turkish equities, % Figure 33: Foreign ownership of the bond market, %

Turkey foreign ownership in equities, % Gov't bonds Financials bonds (RHS) NFC bonds (RHS) 10-yr average foreign ownership % 75% 40% 90% 85% 70% 35% 80% 75% 65% 30% 70% 60% 65% 25% 60% 55% 55%

50% 20% 50%

Jul-17 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-18 Jul-19

Jul-17 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-18 Jul-19

Jan-08 Jan-13 Jan-09 Jan-10 Jan-11 Jan-12 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-13 Source: MKK Source: CBRT

Figure 34: Turkey equity valuation vs bond yields

MSCI Turkey 12M fwd P/E (x) vs TRY 5yr bond yield (%) 13

Pre-taper tantrum 12

Pre-2015 sell-off 11

10 Gezi Park protests

9 Bottom of taper tantrum

8 Post July 2016 attempted coup

7 MSCI Turkey 12M fwd P/E (x) P/E fwd12M Turkey MSCI

6

5 Now 4 5 10 15 20 25 30 TRY 5yr bond yield (%)

Source: Bloomberg

17 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Figure 35: EM FX and REER Standard FX rate FX rate LT average deviations RenCap 1Y local Current FX implied by if REER Date of IMF 2019E IMF 2020E divided by away from YE20 currency rate vs $ LT average falls to REER low C/A (%GDP) C/A (%GDP) current rate historical forecast yields REER previous lows average China 7.05 8.56 11.8 Apr-95 1.21 1.0 0.5 1 1.2 Philippines 50.6 61.1 85.8 Feb-04 1.21 -0.1 -2.3 1 3.5 Egypt 15.7 18.5 28.4 Dec-03 1.17 -3.6 -4.3 0 17 12.2 Czech Republic 24.5 28.4 44.0 Jan-95 1.16 0.0 -2.1 0 1.1 India 76.3 88.0 108 Nov-96 1.15 -1.1 -0.6 1 4.5 Thailand 32.6 37.0 54.1 Jan-98 1.13 6.9 5.2 1 0.7 Peru 3.39 3.80 4.32 Jul-07 1.12 -1.4 -0.9 1 0.9 Qatar 3.66 4.03 5.14 Dec-03 1.10 2.4 -1.9 0 3.66 1.4 Saudi Arabia 3.76 4.06 4.94 Mar-08 1.08 6.3 -3.1 0 3.76 1.2 UAE 3.67 3.86 4.43 Nov-07 1.05 7.4 1.5 0 3.67 1.4 Indonesia 15,645 16,174 42,206 Jun-98 1.03 -2.7 -3.2 0 5.9 Korea 1,217 1,211 1,877 Jan-98 0.99 3.7 4.9 0 0.8 Taiwan 30.1 29.7 34.8 Nov-09 0.99 10.5 8.2 0 0.8 Russia 72.8 71.3 140 Jan-99 0.98 3.8 0.7 0 79.2 5.6 Poland 4.14 4.03 4.86 Nov-97 0.97 0.5 0.2 0 0.7 Hungary 320 307 412 Apr-95 0.96 -0.8 -0.1 0 1.3 Greece 1.10 1.18 1.02 Sep-00 0.93 -2.1 -6.5 -1 0.3 Pakistan 167 155 179 Sep-01 0.93 -5.0 -1.7 0 165 9.4 Malaysia 4.33 3.92 5.91 Dec-98 0.90 3.3 -0.1 0 2.5 Chile 849 745 925 Jun-03 0.88 -3.9 -0.9 -1 0.6 Colombia 3,863 3,203 4,418 Mar-03 0.83 -4.3 -4.7 -1 3.8 Argentina* 65.5 51.2 114 Jun-02 0.78 -0.8 na 0 53.5 South Africa 18.3 14.0 20.9 Dec-01 0.76 -3.0 0.2 -1 16.5 5.6 Brazil 5.20 3.96 7.64 Oct-02 0.76 -2.7 -1.8 -1 3.1 Turkey 6.81 5.08 7.54 Sep-18 0.75 1.1 0.4 -1 6.5 11.8 Mexico 23.5 17.4 28.0 Mar-95 0.74 -0.2 -0.3 -1 5.7 Note: Government bonds/bills except: Argentina (implied forward), Qatar, Taiwan, UAE (Interbank rates). **Argentina's inflation data was unreliable for 2007-15 - we have constructed an REER series using 'shadow' inflation data Source: Bruegel, IMF, Renaissance Capital estimates

18 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Figure 36: Turkey selected stock performance, $ MktCap Free float 3MADTV Performance 12M fwd vs 5yr 12M fwd vs 5yr Trailing vs 5yr Name Sector $mn MktCap, $mn $mn 1m 3m 6m YtD P/E (x) avg. EV/EBITDA (x) avg. P/B avg. BIST 100 Index 73,627 29,591 1,889 -4.1 -29.8 -8.7 -24.7 5.4 -29% 4.6 -28% 0.9 -27% Pegasus Hava Tasimaciligi As Industrials 927 295 43 46.9 -35.9 -4.9 52.2 4.0 -71% 3.2 -49% 1.2 -2% Tav Havalimanlari Holding As Industrials 1,150 523 11 16.8 -36.5 -22.6 26.0 11.0 25% 4.7 -10% 0.9 -56% Koza Anadolu Metal Madencili Materials 666 316 30 17.7 -4.7 15.3 16.4 na na 1.8 53% 1.6 64% Koza Altin Isletmeleri As Materials 1,644 452 24 11.9 -17.4 -2.3 14.4 5.3 -12% 3.6 2% 1.9 15% Turk Hava Yollari Ao Industrials 2,207 828 255 10.7 -36.4 -12.8 12.9 5.0 -28% 5.0 -17% 0.4 -49% Ticaret A.S Cons. Stapls 705 275 13 21.9 -13.8 25.0 12.2 na na 3.9 -42% 14.8 112% Aselsan Elektronik Sanayi Industrials 4,562 1,255 154 -0.5 1.1 39.2 10.7 7.6 -49% 7.3 -46% 2.3 -38% Turkiye Garanti Bankasi Financials 5,286 2,876 106 -11.6 -39.2 -10.7 10.2 3.8 -35% na na 0.7 -30% Turk Sise Ve Cam Fabrikalari Industrials 1,555 383 45 8.5 -24.9 2.1 10.0 5.4 -37% 4.3 -22% 0.7 -24% Kordsa Teknik Tekstil As Cons. Disc. 302 88 5 -7.6 -35.6 -17.1 8.6 na na 6.1 1% 0.9 -19% Mavi Giyim Sanayi Ve Tica-B Cons. Disc. 294 217 2 -10.9 -41.2 -13.5 8.5 9.6 -29% 3.1 -46% 4.3 -41% T.A.S. Financials 4,592 2,529 46 -13.3 -41.4 -20.7 8.3 3.7 -40% na na 0.6 -37% Turkiye Sinai Kalkinma Bank Financials 419 180 15 -0.3 -29.6 5.5 8.1 3.2 -40% na na 0.6 -35% Koc Holding As Industrials 6,004 1,693 14 -5.0 -33.5 -20.3 8.0 5.3 -37% 4.8 -38% 1.1 -19% Arcelik As Cons. Disc. 1,586 450 12 -2.6 -37.2 -20.6 8.0 8.0 -30% 4.6 -36% 1.1 -45% Ag Anadolu Grubu Holding As Industrials 538 147 3 6.3 -30.0 3.2 7.2 na na na na 0.6 -14% Turkiye Is Bankasi-C Financials 3,549 1,159 28 -14.6 -36.7 -21.6 7.1 2.8 -45% na na 0.4 -39% Trakya Cam Sanayii As Industrials 603 207 16 9.1 -20.0 1.0 7.0 4.0 -48% 3.9 -30% 0.6 -26% Lokman Hekim Engurusag Sagli Healthcare 20 20 2 -16.3 -13.6 44.5 5.7 6.8 -34% 5.7 11% na na Turkiye Halk Bankasi Financials 972 485 52 -7.3 -32.1 -12.9 5.5 1.8 -52% na na 0.2 -59% Dogan Sirketler Grubu Hldgs Industrials 622 246 8 4.5 -30.8 -10.3 5.3 na na na na 0.6 -8% Elektronik Sanayi Cons. Disc. 554 107 14 5.5 -34.7 4.1 5.3 6.0 -69% 3.9 -23% 1.0 -17% Otomotiv Ve Savunma Industrials 425 146 2 -10.8 -38.9 -16.5 5.2 6.2 -61% 6.4 -53% 4.5 -58% Ulker Biskuvi Sanayi Cons. Stapls 1,094 481 4 1.8 -23.9 9.2 4.7 8.2 -48% 5.8 -47% 1.7 -51% Tekfen Holding As Industrials 772 420 21 2.4 -40.1 -27.7 4.2 4.7 -34% 1.3 -64% 1.0 -33% Turkcell Iletisim Hizmet As Communications 4,269 2,119 27 -3.4 -22.2 -5.7 3.9 7.1 -28% 3.2 -35% 1.6 -8% Gayrimenkul Yati Real Estate 686 310 35 -4.8 -32.4 -10.9 3.7 na na na na 0.3 -58% Bim Birlesik Magazalar As Cons. Stapls 4,630 3,224 19 -4.6 -8.5 -5.9 3.0 20.1 -5% 8.8 -34% 7.4 -17% Karabuk Demir-Cl D Materials 351 226 63 -5.3 -41.7 -10.1 2.9 6.1 -33% 3.8 -37% 0.6 -36% As Utilities 433 107 1 -7.6 -39.4 -17.4 2.6 4.9 -35% 7.2 -23% 1.2 -16% Enerjisa Enerji As Utilities 1,111 220 5 -16.7 -30.3 -5.9 2.4 5.2 -25% 3.6 -18% 1.1 -5% Coca-Cola Icecek As Cons. Stapls 1,390 409 5 -12.0 -22.6 8.6 2.3 8.6 -51% 5.0 -37% 1.5 -28% Soda Sanayii Materials 798 314 21 1.0 -27.3 -17.6 2.2 na na 4.0 -29% 0.9 -39% Anadolu Cam Sanayii As Materials 362 89 5 9.1 -36.2 -4.0 2.0 4.0 -54% 3.8 -21% 0.9 4% Haci Omer Sabanci Holding Financials 2,313 1,027 18 -17.7 -35.2 -20.1 1.6 3.0 -46% 4.5 -26% 0.5 -38% Sasa Polyester Sanayi Materials 1,081 216 34 27.9 -6.6 34.2 1.3 na na na na 2.9 9% Petkim Petrokimya Holding As Materials 1,073 528 76 1.7 -28.1 -10.7 1.3 7.0 -41% 8.0 -8% 1.5 -34% Sok Marketler Ticaret As Cons. Stapls 845 210 4 12.2 -26.3 -14.0 1.2 48.6 -6% 3.9 -39% na na Anadolu Efes Biracilik Ve Cons. Stapls 1,627 565 3 -8.8 -34.1 -13.6 1.2 8.8 -58% 5.8 -36% 0.9 -34% Eregli Demir Ve Celik Fabrik Materials 4,021 1,562 33 -9.6 -29.4 2.0 1.1 7.9 -15% 4.1 -26% 0.9 -32% Tupras-Turkiye Petrol Rafine Energy 3,351 1,660 51 -0.4 -36.4 -34.9 0.5 8.3 3% 5.7 -11% 1.8 -37% Selcuk Ecza Deposu Ticaret V Healthcare 652 164 6 -9.5 0.6 28.6 0.2 5.5 -14% 4.5 -12% 1.4 41% Akrilik Kimya Sanayii Cons. Disc. 292 130 2 -16.4 -33.3 4.8 -0.6 na na 4.1 -25% 1.3 -15% Mlp Saglik Hizmetleri As Healthcare 400 161 3 -9.2 -28.4 -8.8 -1.7 21.0 -21% 5.0 -28% 11.9 23% Ford Otomotiv Sanayi As Cons. Disc. 2,893 573 6 -16.8 -35.5 -17.8 -5.4 8.3 -27% 6.9 -15% 4.2 -12% Prices as of 16 April Source: Bloomberg

19 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Figure 37: MSCI EM benchmarked active GEM fund allocation to Turkey Figure 38: MSCI EM benchmarked active GEM fund % net over/underweight vs benchmark allocation to Turkey (% of funds OW – % of funds UW over total # of funds) Overweight Underweight Turkey Turkey Index weight Turkey fund weight 9.0% 100% 8.0% 80% 7.0% 60% 6.0% 40% 20% 5.0% 0% 4.0% -20% 3.0% -40% 2.0% -60% 1.0% -80%

0.0% -100%

Jan-20 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

Jan-96 Jan-12 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-97 Source: EPFR Source: EPFR

20 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Figure 39: MSCI benchmarked active GEM funds country overweights/underweights, February 2020

Underweights (Feb-20) Overweights (Feb-20) Index weights (Feb-20) 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2

0

UK

UAE USA

Peru

India

RoW

Chile

Cash

Brazil

Qatar Qatar

Egypt Spain

China

Japan

Kenya Czech

Kuwait

Russia Turkey

Poland

Mexico Nigeria

Taiwan

Greece

Norway

Belarus

Canada

Vietnam

Portugal Panama

Hungary

Pakistan

Thailand

Malaysia

Germany

Colombia

Argentina

Indonesia

Singapore

Other Asia Other

Philippines

Netherlands

South Africa South

South Korea South Equity Other Saudi Arabia Saudi Other Europe Other Source: EPFR, Renaissance Capital

Figure 40: MSCI Frontier-benchmarked active funds country overweights/underweights, February 2020 Underweights (Feb-20) Overweights (Feb-20) Index weights (Feb-20) 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2

0

UAE

Chile

Cash

Qatar

Egypt

China

Oman

Kenya

Serbia

Kuwait

Turkey

Jordan

Poland

Nigeria

Greece

Estonia

Ukraine

Bahrain

Georgia

Vietnam Rwanda Senegal

Pakistan Thailand Morocco Slovenia

Lebanon

Malaysia

Romania

Mauritius

Colombia

Sri Lanka Sri

Argentina

Indonesia

Singapore

Philippines

Ivory Coast Ivory

Kazakhstan

Bangladesh

South Africa South

Other Equity Other

Saudi Arabia Saudi

Other Europe Other

Czech Republic Czech

United Kingdom United Other ME & Africa & ME Other

Source: EPFR, Renaissance Capital

21 Renaissance Capital Disclosures appendix 17 April 2020

Coronavirus update – Turkey

Analysts certification

This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the front page of this document, to provide background information about the issuer or issuers (collectively, the “Issuer”) and the securities and markets that are the subject matter of this report. Each research analyst hereby certifies that with respect to the Issuer and such securities and markets, this document has been produced independently of the Issuer and all the views expressed in this document accurately reflect his or her personal views about the Issuer and any and all of such securities and markets. Each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel, or similar, for the purpose of gathering, synthesizing and interpreting market information. If the date of this report is not current, the views and contents may not reflect the research analysts’ current thinking. Each research analyst also certifies that no part of his or her compensation was, or will be, directly or indirectly related to the specific ratings, forecasts, estimates, opinions or views in this research report. Research analysts’ compensation is determined based upon activities and services intended to benefit the investor clients of Renaissance Securities (Cyprus) Limited and any of its affiliates (“Renaissance Capital”). Like all of Renaissance Capital’s employees, research analysts receive compensation that is impacted by overall Renaissance Capital profitability, which includes revenues from other business units within Renaissance Capital.

Important issuer disclosures

Important issuer disclosures outline currently known conflicts of interest that may unknowingly bias or affect the objectivity of the analyst(s) with respect to an issuer that is the subject matter of this report. Disclosure(s) apply to Renaissance Securities (Cyprus) Limited or any of its direct or indirect subsidiaries or affiliates (which are individually or collectively referred to as “Renaissance Capital”) with respect to any issuer or the issuer’s securities.

A complete set of disclosure statements associated with the issuers discussed in this Report is available using the ‘Stock Finder’ or ‘Bond Finder’ for individual issuers on the Renaissance Capital Research Portal at: http://research.rencap.com

Investment ratings

Investment ratings may be determined by the following standard ranges: Buy (expected total return of 15% or more); Hold (expected total return of 0-15%); and Sell (expected negative total return). Standard ranges do not always apply to emerging markets securities and ratings may be assigned on the basis of the research analyst’s knowledge of the securities. Investment ratings are a function of the research analyst’s expectation of total return on equity (forecast price appreciation and dividend yield within the next 12 months, unless stated otherwise in the report). Investment ratings are determined at the time of initiation of coverage of an issuer of equity securities or a change in target price of any of the issuer’s equity securities. At other times, the expected total returns may fall outside of the range used at the time of setting a rating because of price movement and/or volatility. Such interim deviations will be permitted but will be subject to review by Renaissance Capital’s Research Management. Where the relevant issuer has a significant material event with further information pending or to be announced, it may be necessary to temporarily place the investment rating Under Review. This does not revise the previously published rating, but indicates that the analyst is actively reviewing the investment rating or waiting for sufficient information to re-evaluate the analyst’s expectation of total return on equity. Where coverage of the relevant issuer is due to be maintained by a new analyst, on a temporary basis the relevant issuer will be rated as Coverage in Transition. Previously published investment ratings should not be relied upon as they may not reflect the new analysts’ current expectations of total return. While rated as Coverage in Transition, Renaissance Capital may not always be able to keep you informed of events or provide background information relating to the issuer. If issuing of research is restricted due to legal, regulatory or contractual obligations publishing investment ratings will be Restricted. Previously published investment ratings should not be relied upon as they may no longer reflect the analysts’ current expectations of total return. While restricted, the analyst may not always be able to keep you informed of events or provide background information relating to the issuer. Where Renaissance Capital has neither reviewed nor revised its investment ratings on the relevant issuer for a period of 180 calendar days, coverage shall be discontinued. Where Renaissance Capital has not provided coverage of an issuer for a period of 365 calendar days, coverage shall be discontinued. Where Renaissance Capital has not expressed a commitment to provide continuous coverage and/or an expectation of total return, to keep you informed, analysts may prepare reports covering significant events or background information without an investment rating (Not Covered). Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the security’s expected performance and risk. Renaissance Capital reserves the right to update or amend its investment ratings in any way and at any time it determines.

22 Renaissance Capital 17 April 2020

Coronavirus update – Turkey

Renaissance Capital equity research distribution of ratings

Investment Rating Distribution Investment Banking Relationships* Renaissance Capital Research Renaissance Capital Research Buy 152 54% Buy 7 70% Hold 106 38% Hold 3 30% Sell 19 7% Sell 0 0% Under Review 2 1% Under Review 0 0% Restricted 0 0% Restricted 0 0% Cov. in Trans. 2 1% Cov. in Trans. 0 0% 281 10 *Companies from which RenCap has received compensation within the past 12 months. NR – Not Rated UR – Under Review

23

Renaissance Capital research team

Head of Research – Eurasia Daniel Salter +44 (207) 005-7824 [email protected] Head of Research – Africa Johann Pretorius +27 (11) 750-1450 [email protected]

Head of Research – Sub-Saharan Africa Yvonne Mhango +27 (11) 750-1488 [email protected] Head of Research – MENA Ahmed Hafez +20 (122) 774-4911 [email protected]

Name Telephone number Email Name Telephone number Email Macro Oil & Gas Charles Robertson +44 (207) 005-7835 [email protected] Alexander Burgansky +44 (207) 005-7982 [email protected] Yvonne Mhango +27 (11) 750-1488 [email protected] Ahmed Hafez +20 (122) 774-4911 [email protected] Sofya Donets +7 (499) 956-4502 [email protected] Nikolas Stefanou +44 (207) 005-7931 [email protected] Andrei Melaschenko +7 (499) 956-4508 [email protected] Metals & Mining Equity Strategy Johann Pretorius +27 (11) 750-1450 [email protected] Daniel Salter +44 (207) 005-7824 [email protected] Steven Friedman +27 (11) 750-1481 [email protected] Charles Robertson +44 (207) 005-7835 [email protected] Kabelo Moshesha +27 (11) 750-1472 [email protected] Vikram Lopez +44 (207) 005-7974 [email protected] Siphelele Mhlongo +27 (11) 750-1420 [email protected] Derick Deale +27 (11) 750-1458 [email protected] Financials Ilan Stermer +44 (207) 005-7860 [email protected] Utilities Phago Rakale +27 (11) 750-1498 [email protected] Ahmed Hafez +20 (122) 774-4911 [email protected] Metin Esendal +44 (207) 005-7925 [email protected] Sergey Beiden +7 (499) 956-4205 [email protected] Adesoji Solanke +44 (207) 005-7926 [email protected] Mikhail Arbuzov +7 (499) 956-4594 [email protected] Oluwatoyosi Oni +234 (1) 448-5300 x5356 [email protected] Nikolai Teplov +7 (499) 956-4236 [email protected] Media/Technology Nancy Fahmy +20 (122) 255-7445 [email protected] Kirill Panarin +7 (499) 956-4216 [email protected] Maryana Lazaricheva +7 (499) 956-4217 [email protected] Real Estate Kirill Panarin +7 (499) 956-4216 [email protected] Consumer/Retail/Agriculture Maryana Lazaricheva +7 (499) 956-4217 [email protected] Kirill Panarin +7 (499) 956-4216 [email protected] Phago Rakale +27 (11) 750-1498 [email protected] Maryana Lazaricheva +7 (499) 956-4217 [email protected] Francois Du Toit +27 (82) 452-3110 [email protected] Adedayo Ayeni +234 (1) 448-5390 [email protected] Robyn Collins +27 (11) 750-1480 [email protected] Diversified/Industrials Metin Esendal +44 (207) 005-7925 [email protected] Brent Madel +27 (11) 750-1160 [email protected] Ahmed Hafez +20 (122) 774-4911 [email protected] Metin Esendal +44 (207) 005-7925 [email protected] Funeka Maseko +27 (11) 750-1470 [email protected] Omar Aboulmagd +20 (122) 100-0879 [email protected] Healthcare Telecoms/Transportation Robyn Collins +27 (11) 750-1480 [email protected] Metin Esendal +44 (207) 005-7925 [email protected] Metin Esendal +44 (207) 005-7925 [email protected] Artem Yamschikov +7 (499) 956-4218 [email protected] Ahmed Hafez +20 (122) 774-4911 [email protected] Alexander Vengranovich +7 (499) 956-4506 [email protected] Renaissance Capital research is available via the following platforms: Renaissance research portal: research.rencap.com Thomson Reuters: thomsonreuters.com/financial Bloomberg: RESP RENC Factset: www.factset.com Capital IQ: www.capitaliq.com

Renaissance Capital Renaissance Capital Ltd. Renaissance Capital Moscow London Johannesburg T + 7 (495) 258-7777 T + 44 (203) 379-7777 T +27 (11) 750-1400 Renaissance Securities (Nigeria) Ltd. Renaissance Capital Renaissance Capital Lagos Nairobi Cape Town T +234 (1) 448-5300 T +254 (20) 368-2000 T +27 (11) 750-1164 Renaissance Securities (Cyprus) Ltd. Renaissance Capital Egypt for Promoting Nicosia and Underwriting of Securities S.A.E. T + 357 (22) 505-800 Cairo

© 2020 Renaissance Securities (Cyprus) Limited, a subsidiary of Renaissance Financial Holdings Limited affiliates may serve or have served as officers or directors of the relevant companies. Renaissance Capital ("Renaissance Capital"), which together with other subsidiaries operates outside of the USA under the brand and its affiliates may have or have had a relationship with or provide or have provided investment banking, name of Renaissance Capital, for contact details see Bloomberg page RENA, or contact the relevant office. capital markets, advisory, investment management, and/or other financial services to the relevant All rights reserved. This document and/or information has been prepared by and, except as otherwise companies, and have established and maintain information barriers, such as ‘Chinese Walls’, to control the specified herein, is communicated by Renaissance Securities (Cyprus) Limited, regulated by the Cyprus flow of information contained in one or more areas of Renaissance Capital, into other areas, units, groups Securities and Exchange Commission (License No: KEPEY 053/04). or affiliates of the Firm. This document is for information purposes only. The information presented herein does not comprise a The information herein is not intended for distribution to the public and may not be reproduced, redistributed prospectus of securities for the purposes of EU Directive 2003/71/EC or Federal Law No. 39-FZ of 22 April or published, in whole or in part, for any purpose without the written permission of Renaissance Capital, and 1994 (as amended) of the Russian Federation "On the Securities Market". Any decision to purchase neither Renaissance Capital nor any of its affiliates accepts any liability whatsoever for the actions of third securities in any proposed offering should be made solely on the basis of the information to be contained in parties in this respect. This information may not be used to create any financial instruments or products or the final prospectus published in relation to such offering. This document does not form a fiduciary any indices. Neither Renaissance Capital and its affiliates, nor their directors, representatives, or employees relationship or constitute advice and is not and should not be construed as an offer, or a solicitation of an accept any liability for any direct or consequential loss or damage arising out of the use of all or any part of offer, or an invitation or inducement to engage in investment activity, and cannot be relied upon as a the information herein representation that any particular transaction necessarily could have been or can be effected at the stated Bermuda: Neither the Bermuda Monetary Authority nor the Registrar of Companies of Bermuda has price. This document is not an advertisement of securities. Opinions expressed herein may differ or be approved the contents of this document and any statement to the contrary, express or otherwise, would contrary to opinions expressed by other business areas or groups of Renaissance Capital as a result of constitute a material misstatement and an offence. using different assumptions and criteria. All such information and opinions are subject to change without notice, and neither Renaissance Capital nor any of its subsidiaries or affiliates is under any obligation to EEA States: Distributed by Renaissance Securities (Cyprus) Limited, regulated by Cyprus Securities and update or keep current the information contained herein or in any other medium. Exchange Commission, or Renaissance Capital Limited, member of the London Stock Exchange, and authorised and regulated in the UK by the Financial Conduct Authority (“FCA”) in relation to designated Descriptions of any company or companies or their securities or the markets or developments mentioned investment business (as detailed in the FCA rules). herein are not intended to be complete. This document and/or information should not be regarded by recipients as a substitute for the exercise of their own judgment as the information has no regard to the Cyprus: Except as otherwise specified herein the information herein is not intended for, and should not be specific investment objectives, financial situation or particular needs of any specific recipient. The application relied upon by, retail clients of Renaissance Securities (Cyprus) Limited. The Cyprus Securities and of taxation laws depends on an investor’s individual circumstances and, accordingly, each investor should Exchange Commission Investor Compensation Fund is available where Renaissance Securities (Cyprus) seek independent professional advice on taxation implications before making any investment decision. The Limited is unable to meet its liabilities to its retail clients, as specified in the Customer Documents Pack. information and opinions herein have been compiled or arrived at based on information obtained from United Kingdom: Approved and distributed by Renaissance Capital Limited only to persons who are eligible sources believed to be reliable and in good faith. Such information has not been independently verified, is counterparties or professional clients (as detailed in the FCA Rules). The information herein does not apply provided on an ‘as is’ basis and no representation or warranty, either expressed or implied, is provided in to, and should not be relied upon by, retail clients; neither the FCA’s protection rules nor compensation relation to the accuracy, completeness, reliability, merchantability or fitness for a particular purpose of such scheme may be applied. information and opinions, except with respect to information concerning Renaissance Capital, its subsidiaries and affiliates. All statements of opinion and all projections, forecasts, or statements relating to Kenya: Distributed by Renaissance Capital (Kenya) Limited, regulated by the Capital Markets Authority. expectations regarding future events or the possible future performance of investments represent Nigeria: Distributed by RenCap Securities (Nigeria) Limited, authorised dealing member of The Nigerian Renaissance Capital’s own assessment and interpretation of information available to them currently. Stock Exchange, or Renaissance Securities (Nigeria) Limited, entities regulated by the Securities and The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of Exchange Commission. investors. Options, derivative products and futures are not suitable for all investors and trading in these Russia: Distributed by Renaissance Broker Limited regulated by the Central Bank of Russia. instruments is considered risky. Past performance is not necessarily indicative of future results. The value of investments may fall as well as rise and the investor may not get back the amount initially invested. Some South Africa: Distributed by Rencap Securities (Proprietary) Limited, a member of the JSE Limited. The investments may not be readily realisable since the market in the securities is illiquid or there is no secondary information contained herein is intended for Institutional investors only. market for the investor’s interest and therefore valuing the investment and identifying the risk to which the United States: Distributed in the United States by RenCap Securities, Inc., member of FINRA and SIPC, or investor is exposed may be difficult to quantify. Investments in illiquid securities involve a high degree of risk by a non-US subsidiary or affiliate of Renaissance Financial Holdings Limited that is not registered as a US and are suitable only for sophisticated investors who can tolerate such risk and do not require an investment broker-dealer (a "non-US affiliate"), to major US institutional investors only. RenCap Securities, Inc. accepts easily and quickly converted into cash. Foreign-currency-denominated securities are subject to fluctuations responsibility for the content of a research report prepared by another non-US affiliate when distributed to in exchange rates that could have an adverse effect on the value or the price of, or income derived from, US persons by RenCap Securities, Inc. Although it has accepted responsibility for the content of this the investment. Other risk factors affecting the price, value or income of an investment include but are not research report when distributed to US investors, RenCap Securities, Inc. did not contribute to the necessarily limited to political risks, economic risks, credit risks, and market risks. Investing in emerging preparation of this report and the analysts authoring this are not employed by, and are not associated markets such as Russia, other CIS, African or Asian countries and emerging markets securities involves a persons of, RenCap Securities, Inc. Among other things, this means that the entity issuing this report and high degree of risk and investors should perform their own due diligence before investing. the analysts authoring this report are not subject to all the disclosures and other US regulatory requirements Excluding significant beneficial ownership of securities where Renaissance Capital has expressed a to which RenCap Securities, Inc. and its employees and associated persons are subject. Any US person commitment to provide continuous coverage in relation to an issuer or an issuer’s securities, Renaissance receiving this report who wishes to effect transactions in any securities referred to herein should contact Capital and its affiliates, their directors, representatives, employees (excluding the US broker-dealer unless RenCap Securities, Inc., not its non-US affiliate. RenCap Securities, Inc. is a subsidiary of Renaissance specifically disclosed), or clients may have or have had interests in the securities of issuers described in the Financial Holdings Limited and forms a part of a group of companies operating outside of the United States Investment Research or long or short positions in any of the securities mentioned in the Investment as "Renaissance Capital.". Contact: RenCap Securities, Inc., 780 Third Avenue, 20th Floor, New York, New Research or other related financial instruments at any time and may make a purchase and/or sale, or offer York 10017, Telephone: +1 (212) 824-1099. to make a purchase and/or sale, of any such securities or other financial instruments from time to time in Other distribution: The distribution of this document in other jurisdictions may be restricted by law and the open market or otherwise, in each case as principals or as agents. Where Renaissance Capital has not persons into whose possession this document comes should inform themselves about, and observe, any expressed a commitment to provide continuous coverage in relation to an issuer or an issuer’s securities, such restriction. Renaissance Capital and its affiliates (excluding the US broker-dealer unless specifically disclosed) may act or have acted as market maker in the securities or other financial instruments described in the Investment Renaissance Capital equity research disclosures (Stocks) Research, or in securities underlying or related to such securities. Employees of Renaissance Capital or its