Photo of Salih Fatih Güneş, Türk Telekom and Sander van Tol, Zanders.
This is an impressive joint initiative involving the treasury and enterprise risk management departments which addresses the company’s material FX exposures within a broader financial risk management (FRM) Transformation Project.
Salih Fatih Güneş
Director of Treasury
Türk Telekom, with 175 years of history, is the first integrated telco company in Turkey. As the country’s ‘Quadruple Player’, it offers a complete range of mobile, fixed voice and broadband and TV services. Under consumer and corporate business units, it offers a service network and product range across the country. With the vision of introducing new technologies and accelerating Turkey’s transformation into a true ‘knowledge society’, it offers services in all 81 cities of Turkey.
Having a key role in access to knowledge, Türk Telekom places the information technologies that are the basic driving force for sustainable economic growth and community development into use across Turkey. Developing products and services, it contributes to people’s access to knowledge that, due to economic, social or physical reasons, may otherwise not be a part of this community.
Türk Telekom shares are 55% owned by Oger Telekomünikasyon and 30% owned by the Turkish Treasury. The remaining 15% are offered as free-float shares. The company also owns the 100% of ‘convergence technologies’ company, Argela, BT solution provider, Innova, online training software company, Sebit, call center company, AssisTT, and the wholesale data and capacity service provider, Türk Telekom International and its subsidiaries.
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The challenge
Türk Telekom is exposed to material foreign exchange exposures due to its long-term foreign currency funding structure, denominated primarily in EUR and USD. Due to insufficient long-term Turkish lira liquidity in the domestic Turkish debt market and its high cost, foreign denominated funding is essential. However, this exposes the company to material transaction and translation exposures, which are only offset on a limited basis by its business profile.
The initial situation and subsequent drivers of the Financial Risk Management (FRM) Transformation Project that was established are summarised in Figure 1.
The solution
Salih Fatih Güneş, Director of Treasury, Türk Telekom, explains that a state-of-the-art risk quantification tool has been developed to meet the company’s needs. This incorporates the definition of strategic financial objectives (such as FX key risk indicators based on rating drivers) with sophisticated risk quantification (including calculating weighted five-year at risk figures using Monte Carlo simulation at predefined confidence levels).
The use of the risk model has ensured a holistic approach towards risk management, combining liquidity risk, interest rate risk and foreign exchange risk into one model. Furthermore, the new holistic risk management approach has also driven changes in treasury governance and risk mandates.
Best practice and innovation
Best practices and innovation are fostered via:
- A holistic approach towards risk management incorporating different risk categories.
- Use of a state-of-the-art risk quantification tool.
- The incorporation of a risk decision-support tool in which long-term funding/rating criteria are the main drivers.
- Joint treasury and enterprise risk management.
- Adoption of a Monte Carlo simulation model.
Not only did Türk Telekom treasury implement a new risk management tool, but it also defined a complete new risk management framework based on a very strong and transparent governance model. As Salih Fatih Güneş says, “leveraging an externally driven risk project into a state-of-the-art holistic risk quantification model with new treasury policies, procedures, strategy and governance is quite unique”. He concludes: “We have achieved this project in close cooperation with our consulting partner Zanders. It added value with its outside-in views, knowledge of best practice and especially with its pragmatic approach to delivering a concept into a practical solution.”
Figure 1: Initial situation
Source: Türk Telekom
Key benefits
- Significant contribution to shareholder value management.
- Enables forward looking ‘scenario’ thinking of financial risks.
- Created constant awareness of financial risk management topics at the top table.
- Treasury mandate and hedging strategy based on leverage ratios as proxy for liquidity risk.
- Structured and holistic development of risk capacity.
- Customised data ‘plug & play’ tool with user-friendly interface.
