Leading Turkish gas importers in takeover bid by ex Gazprom partner

Author: Aura Sabadus


LONDON (ICIS)--At least two Turkish natural gas importing companies, which were confiscated by the government following a failed coup, might be sold to a businessman formerly associated with Russia’s Gazprom despite multiple legal uncertainties.

The development, which comes exactly two years after ICIS revealed the nationalisation of Akfel Commodities Turkey Holding, the country’s leading independent gas importer, has sparked concerns among market participants who fear the move could be part of a wider drive by Gazprom and the Turkish government to wind down the private sector in 2019.

Multiple sources interviewed over the last two months told ICIS that Adnan Sen, managing director of the rival importer Bosphorus Gaz, has applied to buy out Akfel Gaz and Avrasya Gaz, two of the three importing companies, which belong to the expropriated group.

The revelations coincide with reports that Akfel Gaz and sister company Enerco Enerji lost their arbitration cases against supplier Gazprom, being liable to make retroactive payments in excess of $160m for a 10.25% discount granted on the import price covering the period January 2017-September 2018.

Although the companies have been managed since December 2016 by TMSF, a state entity, and have a complex shareholding structure that could – in theory – obstruct the sale until legal disputes are resolved, the caretaker may still offload them under a law passed within six weeks of their nationalisation.

According to the rules and procedures on the implementation of article 19 of law 6758 of January 2017, TMSF has the authority to sell its shares and assets if it considers that the position of nationalised companies under its management is not “sustainable based on its financial condition, shareholding structure, market conditions and other reasons.”

Sources told ICIS the law could, subject to an independent but rather lengthy assessment, give TMSF free rein to dispose of the nationalised Akfel Holding Turkey importers if their financial situation proves unsustainable.

They admit, however, that any intention by the Turkish government to offload the private importers could be thwarted by the fact that the companies hold back-to-back long-term sale contracts with wholesalers in Turkey.

Contractual prices are denominated in foreign currencies, which means that any exchange rate-related risks are passed through from importers to wholesalers.

Even so, there are growing fears that, if forced into bankruptcy, the assets of independent importers and wholesalers could be transferred under the control of Russia’s Gazprom, as Turkey’s largest suppliers of gas or the state incumbent BOTAS.

This would effectively reduce the sector to a duopoly.

It is unclear whether smaller importers such as Bati Hatti and Kibar Enerji are also being targeted for takeover, but an ICIS investigation reveals that Akfel Gaz and Avrasya Gaz could ultimately be placed under Gazprom’s control.

The move would help the Russian producer to consolidate its position in the Turkish gas market as it completes its 31.5 billion cubic metre (bcm)/year TurkStream pipeline.

Gazprom declined to comment to any of the matters raised by ICIS for this investigation.

Adnan Sen did not comment to any of the questions asked by ICIS by publication time.

Takeover bid

Several sources told ICIS that Adnan Sen launched his bid for the purchase of Akfel Gaz and Avrasya Gaz just weeks after Gazprom Germania, a Gazprom entity, which held a 71% share in Bosphorus Gaz agreed to transfer the stake to the Sen Group.

The transaction between Gazprom and Adnan Sen, the managing director of Bosphorus Gaz took place at the end of September.

Sources said that within days of the transfer, Sen sent letters to the Turkish competition board, the energy regulator EPDK, and TMSF, expressing an interest in the purchase of at least two of the Akfel Holding Turkey companies.

Multiple sources say Sen may have also approached the Akfel Holding Turkey companies directly, expressing an interest in taking them over.

According to a note published by the competition board on 6 November, Sen expressed an intention to take over a 40% stake held by the Tahincioglu family in Avrasya Gaz.

ICIS understands that the Tahincioglu family may have accepted to sell the shares to Adnan Sen.

The Tahincioglu family did not reply by publication time.

Even if the Tahincioglu stake is sold to Sen, sources say the businessman would still face major hurdles linked to the legal uncertainty of Akfel Holding Turkey’s complex shareholding structure.

Most importantly, sources close to Bosphorus Gaz, have raised questions about Sen’s ability to pay for Akfel Gaz and Avrasya Gaz, at a time when the entire Turkish gas sector, including Bosphorus Gaz face severe financial difficulties.

TMSF, EPDK and the competition board did not comment by publication time.

Legal uncertainty

Firstly, the legal status of Akfel Gaz, Avrasya Gaz and Enerco Enerji remains unclear. The companies, which import a total 5.25bcm/year were nationalised at the beginning of December 2016 amid alleged links to a religious group accused of masterminding a failed coup in July 2016. The group has always denied the allegations.

The companies are part of Akfel Holding Turkey, which is in turn owned by Akfel Commodities Pte Ltd, a Singaporean company.

Prior to the nationalisation, the Singaporean company was owned by two Turkish individuals who were ousted immediately afterwards as well as other foreign investors. It is unclear what the current shareholding structure is.

Akfel Singapore appealed the confiscation of Akfel Holding Turkey shortly after the nationalisation, although it is not clear at what stage legal proceedings are currently at.

On the other hand, Akfel Holding Turkey had included as minority shareholders Austria’s OMV and Gazprombank, a company founded by Gazprom to provide assistance to companies in the gas industry.

Gazprombank held half of shares in Promak, a joint venture (JV) with the Akfel group. The JV owned 60% of Enerco Enerji and 60% of Avrasya Gaz.

OMV owned the remaining 40% in Enerco Enerji, a partnership that allowed the Austrian company to off-take 1bcm/year for supplies to its 870MW Samsun gas-fired power plant, which it sold earlier in May.

ICIS understands that Gazprombank had sold its shares in Promak at the end of last year.

OMV confirmed to ICIS it holds a 40% stake in Enerco Enerji. The company said the Turkish import contract with Gazprom Export was held by Enerco Enerji and OMV, and off-takes were carried out in line with the importer’s shareholding structure.

Breach of competition?

Sen’s bid to buy out at least two of the Akfel Holding Turkey companies may also face the terms of article 7 of Turkey’s natural gas market law 4646 of 2001 which states that no importer could hold more than 20% market share.

If Sen were to snap up Akfel Gaz, Avrasya Gaz and possibly Enerco Enerji and merge them with Bosphorus Gaz, their combined import volumes would amount to 7.75bcm/year. This would represent 14% of last year’s imported volumes, according to EPDK data.

Although the competition authority and EPDK may warn that a consolidation of importing groups may lead to breach of competition rules, sources argue BOTAS already holds an 80% stake, despite efforts since 2001 to reduce it.


Sources close to Bosphorus Gaz have also raised questions about Adnan Sen’s ability to stump up the cash for the Akfel Holding Turkey importers.

They note that Sen’s takeover bid came within weeks of Gazprom’s share transfer in Bosphorus Gaz to the Sen Group and at a time of severe financial difficulties experienced by the entire Turkish gas sector.

“Where does Adnan Sen have the money to pay for the two companies?” a source asked.

It is not clear what the current market capitalisation of Akfel Gaz and Avrasya Gaz is.

Prior to the takeover, the group was one of the most profitable in the Turkish gas market, with an issued share capital of $231m, according to Singaporean documents.

Despite their profitability, they are now facing two risks:

Firstly, at least two of the Akfel Turkey Holding importers lost their arbitration against Gazprom, which means they are expected to make retroactive payments in excess of $160m for the period January 2017 – September 2018.

Akfel Gaz and Enerco Enerji were two of five independent gas importers involved in arbitration over a 10.25% discount granted by Gazprom between January 2017 – September 2018.

Gazprom had granted the discount as stipulated by contractual addenda, but then sought to remove it, which led to the arbitration proceedings.

Even if Akfel Gaz and Enerco Enerji are now expected to make the payments, they have the right under their long-term supply contracts to transfer that responsibility to their customers based on the back-to-back terms embedded in the agreements.

Secondly, sources claim all importers would be facing take-or-pay penalties on this year’s gas off-takes which could amount to 75% of the 2018 average import price, which stood at $232.00/thousand cubic metres including the 10.25% discount.

This is because they had to reduce their off-takes as demand from end consumers weakened when US-dollar denominated import costs soared above the regulated tariff that the gas could be sold at.

Despite a pressing need to reflect the rising import costs and the depreciation of the Turkish lira in regulated tariffs to end consumers, the government failed to do so as the measure would have been unpopular with voters ahead of a long electoral cycle this year.

As a result in the first nine months of 2018, Akfel Gaz’s Russian off-takes were 12% down year on year, Avrasya Gaz’ were 14% and Enerco Enerji’s 21%, according to monthly reports published by the energy regulator EPDK.

Bosphorus Gaz

The off-takes of Bosphorus Gaz itself fell even more steeply year on year, according to EPDK’s monthly reports.

The company had taken less than 35% year on year between January and September. In two months – April and September – it did not off-take any Russian gas at all.

Given the financial situation of all gas companies, it is not known whether Bosphorus Gaz could provide the means to support Adnan Sen’s takeover bid of Akfel Gaz and Avrasya Gaz.

It is also unclear whether the Sen Group, the current owner of Gazprom’s Bosphorus Gaz shares would underwrite the takeover of Akfel Gaz and Avrasya Gaz.

The activity of the Sen Group is unknown. The group has a website, which simply states its postal address, phone and fax number, e-mail address and working hours.

“Where would the money come from to purchase Akfel Gaz and Avrasya Gaz?” one of the sources interviewed by ICIS asked. “The only [likely] company that could buy them is Gazprom, even if their value is now reduced.”

Sources also point out that if Gazprom was the company that was actually bidding to take over the nationalised companies, it could simply offset the debt owed as part of the arbitration and take-or-pay penalties against their costs.

Companies interviewed by ICIS as far back as December 2016 insisted that Gazprom would seek to buy out the Akfel group even as the it was placed under the management of the Turkish state.

Gazprom’s subsequent actions – the transfer of the Bosphorus Gaz shares to the Sen Group, as well as the sale of its shares in the Promak JV – may contradict that view, raising questions whether it may still be interested in holding a presence in the Turkish downstream sector.

Nevertheless, a source close to Gazprom concluded: “It would be unusual for Gazprom to withdraw from its second largest gas market [after Germany], particularly now they are in a position to complete TurkStream next year, have an opportunity to buy these companies and consolidate their position in the Turkish gas sector.”

On the other hand, if independent importers’ assets were to lose their value because of costs they might not be able to pass through, their takeover by Adnan Sen or any other party would be unlikely to affect the buyer’s financial balance.

Adnan Sen, as managing director of Bosphorus Gaz and representative of the Sen Group did not reply to any of the questions posed by ICIS regarding the ability of Bosphorus Gaz or the Sen Group to finance the takeover of Akfel Gaz and Avrasya Gaz.