By Julien Toyer and Ebru Tuncay
Spanish bank BBVA is raising its stake in Garanti, one of Turkey's biggest lenders, in a deal worth $2.5 billion that will give it control of the board as it pursues its strategy of overseas expansion.
Turkish conglomerate Dogus Holding has agreed to sell a 14.89 percent stake to BBVA, which already owns 25 percent of Garanti, for 5.5 billion lira, Garanti said in a stock-exchange filing on Wednesday. The deal cuts Dogus' stake to 10 percent.
BBVA, Spain's second-biggest lender, said it would raise around 2 billion euros ($2.5 billion) through a share sale to fund the deal and boost its solvency ratios.
The purchase will further bolster the Spanish bank's global footprint, which has helped it weather the worst economic crisis in decades in its home country over the past five years.
Spanish banks are seeing the first signs of a recovery, but tepid lending levels and ongoing efforts to clean up their balance sheets after a real estate crash left them crippled with bad debt is leading them to seek new pockets of growth abroad.
In Turkey, though government measures to cut the current account deficit and cool the economy have hit banks' margins, most have continued to post profits. And there is room for growth as there are millions of people without bank accounts.
BBVA, which makes most of its profit outside its home market, said in March it would continue to bet strongly on Turkey even amid political uncertainty in the country at the time.
Garanti has been a bright spot for the Spanish bank this year. BBVA's net profit for the first nine months fell 37 percent to 1.93 billion euros, but Garanti's contribution of 235 million euros represented a rise of 20 percent.
The deal should add about 250 million euros to annual net profit by 2016, BBVA said in a presentation filed with Spain's exchange regulator.
Capital
On the downside, the acquisition will trigger a one-off 1.5 billion-euro hit to 2015 profits as the Spanish bank will have to change its accounting method as a result of the higher stake.
It will also reduce its core capital ratio by 48 basis points, although the bank will more than compensate for this with its capital increase.
BBVA said it maintained its commitment to have a core capital ratio of around 10 percent under the so-called Basel III fully-loaded criteria.
Dogus, whose interests range from media and restaurants to ports, has committed not to sell its remaining 10 percent stake in Garanti for at least three years under a new shareholder pact with BBVA.
The new accord also sees the Spanish bank appointing seven members of the 10-strong Garanti board. Under Turkish law, BBVA will not have to make a full takeover offer for Garanti, which has a market value of around $16.6 billion.
In a conference call with analysts, BBVA's Head of Strategy and Finance Jaime Saenz de Tejada said Garanti's management would stay on for now. The bank is currently run by Chairman Ferit Sahenk, who is also Dogus chairman, and Chief Executive Ergun Ozen.
A source close to the capital increase said an informal price range of between 8.20 euros and 8.45 euros per share had been set, implying a discount to BBVA's closing share price of between 2.2 and 5 percent.
Shares in BBVA closed down 1.37 percent on Wednesday, while Garanti rose 0.45 percent.
