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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 IS INVESTMENT Is Investment aims to become the foremost player in the capital markets–not only in Turkey but also in the region. Ilhami Koc General Manager Emerging markets continue to benefit from the search for higher returns in a low-yield environment. With unacceptably low interest rates in G7 countries, a large volume of liquidity has been propelled into emerging market assets through yield hungry hedge funds. The global appetite for carry trade is expected to remain strong in 2006, despite narrowing interest rate differentials vis-à-vis the US and the Euro zone. Improving economic fundamentals underpin the positive bias towards emerging markets. Emerging market economies have made substantial progress in remedying their deep rooted structural imbalances in recent years. In line with the implementation of correct economic policies, the vulnerability of emerging economies has eased considerably in terms of public debt as a proportion of GNP and their current account deficits. The Turkish economy started 2006 basking in the glow of an upbeat conjuncture, with an easing in worries over public debt dynamics, remarkable success in the privatization of bigticket state assets, a taming of the deeprooted inflationary expectations and the establishment of a sustainable and high growth environment. Success in implementing the medium-term IMF-endorsed economic program and the prospect of EU membership has provided a solid story in attracting ample foreign capital. As the foremost player in the Turkish capital market, Is Investment stands out as the best business partner both for portfolio investors and strategic investors. Is Investment was established in 1996 as a subsidiary of Is Bank, its main shareholder with a 92% share, which has always been a pioneer in the capital markets. Is Bank has accomplished many firsts in the establishment and development of the Turkish capital markets; it has the highest number of investors, manages the largest investor portfolios and has handled the majority of public offerings. Besides traditional brokerage activities, Is Investment has diversified into financial services, like corporate finance activities, investment advisory and international capital market activities. Is Investment’s Corporate Finance Department offers a wide range of services including initial and secondary public offerings of public and private companies, public offerings of various debt instruments, consultation services for mergers & acquisitions, private equity, venture capital projects and strategic planning and restructuring. Is Investment has a local investor base and an expanding global investor base, mostly in Europe, the United States, the Middle East and Central Asia, and is eager to broaden its services in line with the increasing global demand and liquidity. Is Investment aims to become the foremost player in the capital markets–not only in Turkey but also in the region–setting a benchmark which will be followed by other investment banks and brokerage houses, specifically in the Middle East and the Commonwealth of Independent States (CIS). We have all the means and tools to achieve our goal. The establishment of a rep-office in Kazakhstan and subsidiary in London are the first steps in our quest to reach this goal. Is Investment, with its experienced staff, is the only brokerage house in Turkey belonging to the International Securities Markets Association. Is Investment is Turkey’s premier investment bank in international capital markets, with the largest transaction volume in the primary and secondary markets. In the last two years (2004-2006), Is Investment has reached a volume of almost US$ 2 billion in the primary markets. Turkish Treasury issues accounted for more than US$ 1 billion of this amount, with other emerging market issues (primarily Russian and Kazakh credits) accounting for the other US$ 1 billion. Is Investment was also mandated as the co-manager in three of the Turkish Treasury’s Eurobond issuances (US$ 1.25 billion of 2014 maturity, 9.5% notes, US$ 2 billion in 2025 maturity 7.375% notes and US$ 1.5 billion in 2036 maturity, 6.875% notes). It was also mandated as a comanager in three corporate Eurobond issues, including Petrol Ofisi in Turkey (US$ 175 million in 2009 maturity, 9.75% notes), Intergas Central Asian in Kazakhstan (US$ 250 million in 2011 maturity, 6.875% notes) and Finansbank Russia (US$ 250 million in 2008 maturity 7.9% notes). In total, Is Investment took part in 27 issues in 2004 and 54 issues in 2005, 14 of which were in Turkish credits and 67 in other Emerging Markets. Examples of these issues include Finansbank Russia, Vneshtorgbank, the Industry and Construction Bank of Russia, Gazprom, Sistema, Megafon, the Russian Standard Bank, Vimplecom and Alrosa in Russia; KKB, Halyk Bank, TengizChevron Oil, ATF Bank, Nur Bank and Center Credit in Kazakhstan; and Cosan, Gerdau, CNO in Brazil. In the secondary markets, Is Investment had a combined transaction volume of more than US$ 4.6 billion in both 2004 and 2005, of which about 90% of the transactions were in fixed income instruments with the rest in global equity markets. However, with greater PAGE 20
SEMI ANNUAL REPORT OCTOBER 2006 appetite for risk and diversification of assets, the share of equity transactions appears to be on the rise, as the investor spectrum widens and the market-awareness of clients improves. Despite the tightening process which started in 2004 in the US, appetite for the high yield emerging market assets has increased, backed by improving fundamentals. As well as benefiting from improved economic policies, the skyrocketing commodity prices in recent years have helped commodity exporters, such as Russia, Brazil and Kazakhstan reduce their sovereign debt. The major trend in emerging debt markets has been a shift from sovereign to corporate debt, combined with a more local currency debt. A recent example of this is Russia, which has paid back all of its IMF debt and most of its external debt. Against such a backdrop, corporate debt issues have posted tremendous growth. In the last three years, Brazilian corporations issued US$ 25 billion of bonds while Russian corporations issued US$ 37 billion of bonds. Is Investment’s participation in corporate Eurobond issues has increased in line with demand from global investors. With the participation of its large domestic and global investor base, Is Investment served as a comanager in corporate Eurobond issues, such as Intergaz in Central Asia and the Alliance Bank in Kazakhstan, Finansbank Russia, and Petrol Ofisi in Turkey. In the coming months, we anticipate that Is Investment will play an active role in the primary issues of Turkish corporate Eurobonds, amid a greater willingness to come to the market with Eurobonds issues due to rising demand. As international equity markets remained one of the higher-yielding asset classes in 2005, risk taking investors further increased their allocations in global equities in spite of the high volatility. A close monitoring of stock markets, timely updates on developments and full coverage from the small hours of the morning until late once again played a part in determining investors’ choices of intermediary. Thanks to its team of seasoned investment professionals, dedication to cutting-edge technology and a wide network of counterparties, Is Investment has been at the forefront among its local peers in equity trading in over 20 major global equity markets, including Russia, the United Arab Emirates and Kuwait. As market updates and investment recommendations published regularly by our team has raised investor appetite for these markets, both the daily trading volumes and the number of client portfolios grew significantly in 2005. Maintaining highly commission rates for international equities when compared to its peers, Is Investment continues to prove itself as the leader in international equity trading in Turkey. CONTACT INFORMATION For International Markets Contact Name Mr. Ilkay Dalkilic E-mail idalkilic@isyatirim.com.tr For Turkish Markets Contact Name Ms. Caglan Yazici E-mail cyazici@isyatirim.com.tr For Almaty/Kazakhstan Rep. Office Contact Name Mr. Cengiz Macun E-mail cmacun@isyatirim.com.tr Website www.isinvestment.com PAGE 21
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