Business in Emerging Market

DOGUS GROUP : WEIGHING PARTNERS FOR GARANTIS BANK

Presented by Musa Faal Vinay Sawant Manoj Kumar Sodhani

Dogus Group : Weighing Partners for Garanti Bank

Overview of Turkey economy Overview of Turkey Banking Industry Overview of Dogus Group Brief of Garanti Bank Options available with Dogus wrt Garanti Bank Compete Alone Collaborate Decision Taken by Dogus Group for Garanti Bank Dogus Group in Turkey : Responding to Institutional Voids

Geographical importance of Turkey

Demographic condition of Turkey

- Turkey was Founded in 1923. -Population -72 million - Currency - Lira

-80 % Turkish & 20% Kurdish

- 99.8 % Muslims & 0.2% Christian & Jews

Overview of economic condition of Turkey around 1999-2005

In Dec. 1999 Turkey became candidate to join EU In early 2001 Currency lira was depreciated by 40% & went into recession In 2004 economy recovered.

In 2005 government promote privatization and FDI increased by $5 billion (double as compared to 2004)
Turkish lira was changed to Yuni Turk Lira(YTL) by dropping six zeros. IMF approved $10 Billion to support economical & financial stabilization program.

Support of IMF and possibility of accession in EU increased confidence of investors in Turkey

Overview of Turkeys Banking industry

In 1980 banking industry underwent legal, structural & institutional changes. Foreign banks allowed to enter. Additional services started such as trading securities and mutual fund Banking Regulation and Supervision Agency(BRSA) was formed. In 2001 recession led to downfall of many small & medium banks. No. of banks reduced from 81 to 61 nos.. In 2001 support of IMF & closeness with EU changed situation of banking sector Reduction in inflation & interest rates. Foreign banks share expected to increase to 15% in 2005 as compared to 1% in 1999. Many foreign banks entered into Turkey such as BNP paribas(France) , HSBC(London)

Overview of Dogus Group

In 1951 founded by Ayhan Sahenk (Construction)

Diversified group (Tourism, Food processing, Financial services)

Acquired Garanti Bank in 1980s and also entered into Automotive import & distribution In 1990 expanded into insurance, investment banking ,brokerage, television, supermarket In 1999 Ferit become CEO, wanted to focus on core business to become strong regional player

In 2005 company had control in 77 companies , 6 business lines and 18000 employees. Second largest conglomerate in Turkey.

Overview of Garanti Bank Established in 1946 at Ankara as privately owned commercial bank. Acquired by Dogus in 1983 Gone Public in 1990 on Istanbul Stock Exchange. Gone global in 1993 on London Stock Exchange Acquired Osmanli an Korfez in 1994 and merged in Garanti Bank in August 2001. Hallmark of Garanti Bank in Turkey Dynamic human resources capable of making a difference State-of-the-art technology Innovative customer oriented products and services Best customer relationship management solutions Exceptional data warehousing and management reporting Centralized operations Integrated financial services Extensive branch network Use of alternative delivery channels

Go alone or With partner

Garanti Bank- Compete Alone or Collaborate

FACTOR FAVOURING COMPETING ALONE Deep local knowledge Superior IT Infrastructure Widespread distribution network Well known and Reputed Brand Healthy balance sheet with strong capital base Experience gained during high inflationary pressure (2001) Knowledge of emerging market thinking (Customer, Realities and Changes) Achieved higher profitability (ROE 19.5% in 2005) without any partner

Garanti Bank- Compete Alone or Collaborate

FACTORS FAVOURING NEED FOR FOREIGN PARTNER Reduce the debt on Garantis balance sheet Expand its business in the region & Grow business outside the country Institutionalize Corporate Governance Incorporation of best practices (Lean Management, Sig Sigma etc) Potential driver in Turkey
Mortgage lending Inventory financing Home equity line of credit Fleet financing

Strengthening of Corporate banking & Project Financing Restructuring family business by bringing third party / new shareholder Motivation of employees through training and career development opportunity

Garanti Bank- Next Step

Appointed Morgan Stanley for exploring partnerships and share sale for Garanti Guidelines given for Partner Search
Global Brand Strong Financials Worldwide experience Commitment to Garantis regional expansion in terms of strategy and targets Operational capabilities like better operation, cost advantage and know how to advise the relationship Corporate Culture similar to Garanti (Customer focus, efficiency focused, innovation, fast decision making) Dogus group will keep the control on Garantis bank Keep the Garanti brand No reorganization change in top management

Garanti Bank- Next Step

Bidder 1 : European Bank Bidder 2 : European Bank Bidder 3 : European Bank Bidder 4 : Diversified US Institution Bidder 5 : Diversified Asian Institution

Why Diversified US Institution

Assets more than $500 billion Market capitalization more than $100 billion High on corporate governance Global visibility (US based) Industry leading returns Highly profitable credit card business Global consumer finance player

Factor favoured GE
Why Dogus choose GE International banks that bid for stakes wanted to acquire majority holding in Garanti an rebrand the bank As GE was not a bank it would bring a different perspective to board discussion and look at Garanti differently in comparison to multinational bank GE being a diversified multinational offers the possibility of further cooperation in other sectors Dogus has already partnered with GEs CNBC TV network in Turkey (1998) and with GE real state in JV (2006) Partnership with GE provides Dogus the flexibility to partner with different companies in other financial services Regional growth in Romania Culture of innovation, customer focus, efficiency similar to Dogus Group Dogus sold 25.5% stake in Garanti to GE

Dogus Group in Turkey : Responding to Institutional Voids

SPOTTING VOIDS QUESTION

Are consumers willing to try new products and services? Do they trust goods from local companies? How about foreign companies
?

SPECIFIC VOID

Underdeveloped consumer information providers (products market information analyzers and advisers
RESPONSE

Competed alone :kept valuable brand, even within foreign partnership

Dogus Group in Turkey : Responding to Institutional Voids

SPOTTING VOIDS QUESTION

How strong is the countrys education infrastructure, especially for technical and management training?
SPECIFIC VOID

Underdeveloped educational and training intermediaries (labor market aggregators and distributors)
RESPONSE

Collaborated: Exploited opportunities for training exchanges with foreign partner

Dogus Group in Turkey : Responding to Institutional Voids

SPOTTING VOIDS QUESTION

How effective are corporate governance norms and standards in protecting shareholders interests?
SPECIFIC VOID

Underdeveloped corporate governance standards (capital market credibility enhancers)

RESPONSE

Collaborated Used foreign partnership to bring institutional best practices to restructuring family-owned company

Dogus Group in Turkey : Responding to Institutional Voids

SPOTTING VOIDS QUESTION

Are corporate boards independent and empowered, and do they have independent directors?
SPECIFIC VOID

Shallow pool of qualified independent directors (capital market information analyzers and advisers)
RESPONSE

Collaborated: Sought out foreign partner that could provide strategic advice through seats on board

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