Turkish defense firm concerned about Chinese deal

The Turkish defense firm Aselsan is worried that the recent decision to award a long-range missile contract to China could harm its ties with Western states, while it works to find an underwriter for the deal.

al-monitor Turkish military industry giant Aselsan is worried about the rupture of relations with Westerners over a long-range missile contract with China. Photo by www.aselsan.com.

Topics covered

turkey, security, nato, missiles, missile shield, defense system, china

Feb 4, 2014

The burdens of awarding the long-range missile contract to China are growing. Turkish military industry giant Aselsan is worried about the rupture of relations with Westerners. It cannot even find an underwriter to handle its planned second public offering.

The tremors caused by awarding the contract to China are not limited to diplomacy but also seriously affect Aselsan's operations. Reports said Chinese officials last week arrived to work on partnership arrangements while Aselsan was said to be probing renewal of cooperation with the Western companies that came in second and third in the bidding for the missile contract.

The 30 Chinese experts who arrived to Turkey are mainly focusing on partnership issues such as research and development. The Chinese had committed themselves to work jointly with Aselsan in some parts of the project. Curiously, the arrival of the Chinese experts has not pleased Aselsan's management, but to the contrary has added to its concerns. It was known that the reaction of “no integration with the Chinese” emanating from NATO and the West had seriously alarmed Aselsan's management. 

As the project slowly gained momentum, Aselsan’s concerns grew. Now the management is passing around the word that such a major cooperation decision cannot be taken by the executive board of the company, but must be decided by general assembly of its shareholders.

Aselsan's management has been assembling a list of work they have done for so far for Western companies that have implicitly threatened to cut off relations if the Chinese are finally given the contract. Such a decision by the West would mean extreme losses for Aselsan and is bound to disrupt the economic and technological development of Aselsan.

This is why Aselsan's management is uneasy with the arrival of Chinese visitors and has resumed contacts with the French-Italian partnership and the US companies which lost out in the bidding. Officials noted such contacts cannot be made without the permission of the government. “The government must have realized its mistake and is now looking for a way out," they commented.

In a news report last week, CNNTurk said that French President Francois Hollande and the French defense delegation that accompanied him had met with Turkey’s defense minister Ismet Yilmaz and Undersecretary for Defense Industries Murad Bayar for the resubmission of the bid of the French partnership. It was also reported that the US ambassador to Ankara, Francis Ricciardone, had also discussed the status of the US company with Bayar.

In the meantime, problems posed to Aselsan by the selection of the Chinese company are also affecting its plans for second public offering of its shares. First, Merrill Lynch said it didn’t want to get involved in underwriting it because of the position of the US government. In the tender for underwriting, the first choice was Barclays, followed by Merrill Lynch and then Goldman Sachs. When Barclays' offer was found too expensive, Merrill Lynch was approached. When Merrill Lynch did not accept, Aselsan discussed the issue with Barclays and Goldman Sachs. Both companied raised similar concerns with Merrill Lynch and wanted Aselsan to commit itself not to enter into joint production with the Chinese company. Aselsan couldn’t make such a commitment because the government’s approval of the Chinese offer included joint production and operations. Aselsan, unable to reach an agreement with three underwriters, unofficially approached Citibank and Credit Suisse only to receive the same rejection. As such, Aselsan’s second public offering project seems to have been suspended.

According to reports, Aselsan is now looking for a Turkish underwriter, but that seems to be a far-fetched possibility.

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