Istanbul ranked 47th in the Global Financial Centres Index 2014, and aims to be in the top 10 by 2023. Newly appointed Borsa Istanbul CEO, Tuncay Dinç, explains why his “financial supermarket” is on course to become one of the most important exchanges in the world.
You are the newly appointed CEO of Borsa Istanbul. What are your main priorities for the year ahead?
I started here at the beginning of April and now I’m working on the IPO process. I’m working for the project, for the technological transfer of the companies, because Borsa exchanges with many companies in this sector.
They produce technology and everything is done on a technological platform. Borsa Istanbul has decided to modernize and update its techno profile with NASDAQ OMX, using Genium INET technology. The first part will be implemented by September 21st, 2015. The second phase will come in August or September 2016. I’m fully concentrated on this project and I don’t want to see any failure. It’s the heart of my work.
And this NASDAQ technology is something that you are able to export to other exchanges…
We currently export to 24 countries. We have plans to sell it to other countries because when we compare these 24 countries with Turkey, the operations in Turkey are more complicated. So, we are talking about maybe simplifying the product to sell it to other countries. We should establish a strategy and a team to do that in the coming years.
Istanbul aims to be a world financial capital. How do your partnerships with NASDAQ and other exchanges, such as LSE, help serve this goal?
We seek to establish a strong network with exchanges in neighboring countries, as well as our links to the most prominent exchanges in the world. Borsa Istanbul has shares in the Kyrgyzstan Exchange, as well as Bosnia & Herzegovina and Montenegro. In Europe, we are also strengthening our presence through our partnership with the EDC in London and the London Metal Exchange. Also, as a strategic partner, NASDAQ owns 5% of Borsa Istanbul. In Europe, the Middle East, Central Asia, and finally to the major exchanges worldwide, Borsa Istanbul’s links to other exchanges will globalize the brand and streamline our network.
One of your strategic goals is to attract more foreign companies to list on Borsa Istanbul. How do you assess the progress of the Listing Istanbul project so far?
My former company is the only foreign company listed on Borsa İstanbul (DO&CO Restaurants & Catering AG, the mother company of Turkish DO & CO, is an Austria-based food service company).
Further listings have not gotten off the ground due to regulatory difficulties, which are prompting us to change things. Firstly, we need to change the language that can be used in the communications with Borsa Istanbul. By regulation, all communications and all of the exchange’s financial news must be in Turkish.
You cannot ask for a foreign company in Greece, for example, to use Turkish for all its correspondence with BIST. We are in contact with the Capital Markets Board and we are attempting to establish English as an additional working language in the operational logistics of foreign companies.
What makes Borsa Istanbul an attractive place to list for non-Turkish companies?
When comparing access to capital, Borsa Istanbul has a strong relative advantage compared to its counterparts elsewhere in the region.
While many companies today go for more recognized exchanges such as London, after our regulatory reform has been enacted, we hope that companies will reap the benefits of a strong market in Istanbul and will continue to establish themselves here, diminishing their need to establish themselves in other countries.
Why is corporate ‘sustainability’ so important to Borsa Istanbul, and what are the advantages for companies listed on the BIST Sustainability Index?
Exchanges traditionally act as a centre of liquidity to enable companies to access sources of much needed capital and offer investors opportunities to diversify their portfolios.
Due to their involvement with an extensive variety of market participants, they increasingly play the role of protagonists in defining the rules and best practices that reflect the aspirations of these participants and of society as a whole. In this respect, Borsa Istanbul, through diversified means, including specially designed focused products and services, aims to enhance the awareness and knowledge.
BIST Sustainability Index aims to provide a benchmark for Borsa İstanbul companies with high performance on corporate sustainability and to increase the awareness, knowledge and practice of sustainability in Turkey.
Moreover, the Index facilitates access to global clients, capital, and lower-cost finance. It aims to create an instrument which allows investors to select and invest in companies that adopt principles of sustainability and corporate governance.
Today, responsible investment is preferred mainly by institutional investors. BIST Sustainability Index encourages the foundation of such funds, while helping Index-constituent companies to get a larger share from such funds. At the same time, the Index offers a new financial asset category for all investors.
Borsa Istanbul recently launched an initiative to facilitate better access to finance for SMEs. How will this agreement help Turkish SMEs to access global value chains, and what further support does Borsa Istanbul offer to small businesses and start-ups?
SMEs account for 60% of all enterprises in emerging markets and employ 95% of the workforce in these countries. It is also a very well-known fact that companies in this category have limited access to funds in organized markets.
In this respect, Borsa İstanbul stepped up its efforts to facilitate the access of SMEs to much needed funds. In a recent effort, a protocol was signed for the collective bond issue by SMEs for the first time in Turkey and Europe in cooperation with Turkish Capital Markets Association (TSPB), different portfolio management companies and banks under the leadership of Borsa İstanbul.
In the first offering planned for 2015, approximately 100 SMEs are expected to raise funds of TL 300 to 500 million with a maturity of longer than one year, in addition to bank credit lines and without showing any guarantee.
Moreover, the Emerging Companies Market of Borsa Istanbul gives companies which have growth potential but cannot meet the strict requirements of the National Market, a chance to access capital.
Borsa İstanbul has also established a venture-capital platform where early-stage companies meet potential institutional investors such as venture capitals, angel investors and private equity funds.
Such a move will not just make it easier for start-up firms to have access to funds, but will also boost the number of IPOs as investment firms in those start-ups might prefer to turn their investments into cash by offering these companies to the public.
How will your IPO planned for 2016 serve the vision of turning Istanbul into a global financial centre?
Integral to our goal of becoming a global financial centre is promoting our capital markets, with Borsa Istanbul at the heart of this promotion.
Turkish participation in capital markets is still relatively low, so as we ask other companies to come to Istanbul and be publicly traded. More domestic involvement will electrify the economic environment.
A great catalyst to this phenomenon is the IPO, something that doesn’t happen every year, and which will entice foreign investors to Borsa Istanbul. This will likely happen in the first or second quarter of 2016.
Turkey and the world have been waking up to the potential of Islamic finance in recent years. How is this being reflected in Borsa Istanbul’s activities and product range?
The awareness about Islamic finance gained worldwide momentum after the recent global financial turbulence. The crisis experience has revealed that there are some structural defects in the financial markets.
High leverage, mispriced risks and insufficient regulations and supervision were the main reasons why the financial system was brought to the edge of the destruction. At this point, the financial markets rediscovered the asset-based nature of Islamic finance and its potential to renovate the increasingly fading link between capital markets and reel markets.
Accordingly, the total size of Islamic finance assets has reached more than 1.5 trillion dollars today, whereas it was 150 billion dollars in 1990.
Aware of the recent interest in Islamic finance and our close ties with the MENA region, Borsa İstanbul also stepped up its efforts in this segment as well. Today, sukuks are traded on the Borsa İstanbul platform, starting with the issuance of first sovereign sukuk.
Moreover, with the boost in corporate issuances, we witness that more and more companies now issue sukuk certificates. Last year, 25 of total corporate debt issuances were sukuk certificates and companies raised almost USD 0,5 billion. Considering the fact that the total amount of corporate issuances keeps rising, it is obvious that we will see continuous increase in corporate sukuk issuances as well.
Investors also have the chance to trade in Sharia’h compliant ETFs including the ones based on gold, silver, Participation Index and Dow Jones Islamic Market Index. Transaction simplicity, risk diversification and low cost advantages of these ETFs will have important role to play in attracting international capital into İstanbul.
Furthermore, the opening of World Bank Global Islamic Finance Development Centre at Borsa İstanbul campus is another remarkable step towards positioning Turkey as a favourite destination in the region.
The centre is expected to lead developments in the area of Islamic finance. Alongside the exchange of know-how, the centre is also aimed at contributing to the strengthening of the institutional framework, creating awareness and standardization of business practices in the industry.
Last but not least, Borsa İstanbul organizes or supports events including conferences, seminars and workshops in cooperation with participation banks, universities and other stakeholders in Islamic finance.
We believe such events will be a stepping stone for the development of Islamic finance by enabling the discussion of ways to make Islamic financial markets more effective and efficient. Islamic finance has a lot to offer to global markets and Istanbul will have a strategic role in this process.
What role do you foresee for capital markets in general, and Borsa Istanbul in particular, in financing the major energy and infrastructure projects of the future?
Major energy and infrastructure projects require significant amounts of funding and in Turkey, we have seen the banking sector provide most of this funding so far. Today, the total banking assets to GDP ratio reached over 110% in Turkey from only 61% in 2002.
The Turkish economy has grown 5% on average in the last decade and new energy and infrastructure projects will be at the top of the agenda. As a result, in addition to the banking sector, capital markets and Borsa İstanbul will play a more significant role in the future.
We believe that fixed income business offers vast opportunities in this respect. In the past five years, new corporate debt issues jumped to USD 30.3 billion in 2014 from almost nothing in 2010.
As Turkey gets used to a low interest environment and the private sector looks for alternative financing sources, the corporate debt securities segment will flourish.
Moreover, sukuk issuances may be one of the alternatives to provide necessary funding for big projects. Although it is not a mature business yet, funding needs and large infrastructure investments in Turkey will support the momentum in the Turkish sukuk market in the near future.
Larger and frequent issuances will also support the liquidity of such instruments at Borsa Istanbul.
What would you say that other stock exchanges in emerging economies can learn from Borsa Istanbul?
Throughout history, Turkey has been at the crossroads of commerce and it maintains strong relations with neighboring countries and regions, which have historical ties.
With the advent of our modern partnerships with these countries’ exchanges, we seek to move forward with our goal of becoming a global finance centre.
At Borsa Istanbul, our most precious asset is our human capital, with our well-educated, experienced, and English-speaking team.
What is your underlying vision and philosophy that will guide your leadership of Borsa Istanbul going forward?
My vision for Borsa İstanbul is shaped by solid numbers and facts. Let me give you some statistics in this context. Today, a structural change is taking place in the world economy.
Advanced economies continue to slow down and emerging economies increase their share in world GDP year by year.
The IMF foresees that the share of emerging markets in global output will increase to 60% by 2019 from only 40% in 1990. Accordingly, this results in a significant evolution in the geography of corporates and financial flows as well. In 2010, 73% of 8,000 global companies with annual revenues over $1 billion were based in developed regions.
In 2025, headquarters of almost half of 15,000 global companies with annual turnover over $1 billion will be in emerging regions.
We believe that Turkey should and will be among those leading emerging markets. Turkey, in the context of Vision 2023, also aims to be among the 10 biggest economies in the world, with an export volume of USD 500 billion and Istanbul positioned as an important financial centre.
Such goals require the presence of a strong capital market and efficient exchange. Borsa Istanbul is fully aware of its responsibilities in reaching these targets and has redesigned its legal, organizational and technological infrastructures accordingly.
We believe that in order to compete in this new era, we need to have the most advanced technology, the widest range of products, human capital of the highest quality and the strongest links possible with global players. That is what I would like to achieve while I lead the stock exchange of Turkey.