Soktas Working Capital

completed

The project is a proposed working capital loan to Skotas, Turkey’s leading producer of fabric for color woven shirting, and one of the leading manufacturers in Europe in this sector. Soktas has three principal products: (i) fine count, yarn-dyed fabric (shirting); (ii) piece-dyed fabric (sportswear); and (iii) grey, unfinished fabrics. The recent crisis in Turkey has severely curtailed domestic market demand in the manufacturing sector, presenting challenges for the corporate sector at large. Soktas is attempting to mitigate the impact of falling domestic sales by increasing its exports. With an existing export base of about US$21 million as of end 2000 (representing 40% of total sales), which is expected to grow to reach about US$34.0 million (70% of sales) as of end 2001, the company is faced with the challenge of finding dependable sources of funding to finance its increasing exports. Exports typically require higher working capital, due to the longer receivables period, and additional inventory carrying costs. The company is funding its existing working capital requirements through short term debt financing, payable in one year, subject to rollover at renewal. In the past, such rollovers were routinely granted but, given the present state of the Turkish economy, Soktas is finding it increasingly difficult to extend its short term debts from local or foreign banks. Local TL loans are harder to obtain, while foreign banks have reached their Turkish exposure limits and are unwilling to extend existing or new loans. As a result, Skotas is looking to IFC to provide a dependable and stable source of future financing for its working capital needs. This loan would mitigate some of Soktas''s liquidity constraints and increase its export marketing capacity. The proposed project gives IFC an opportunity to support an existing client at a critical time, when higher inflation, shrinking domestic demand and price increases have stagnated the economy, and especially the manufacturing sector. By financing Soktas''s working capital needs on a long-term basis, IFC will allow the company to focus on building its export base, while also helping it to weather out the difficulties in the domestic market. Through the proposed investment, IFC will thus support a Turkish company to emerge as a stronger and more competitive company in the global setting. IFC''s participation in the project will also provide comfort to other foreign investors who are wary of Turkey''s perceived macro economic and political risks, and will thus encourage foreign direct financing and investments in Turkey. Furthermore, the devaluation of the currency has made Turkey''s exports more attractive. By providing the timely export financing, IFC will aid the company in seizing the market opportunity, boosting its export sales, and will most importantly equip the company with the financial resources it needs to explore new avenues, thereby increasing the country''s foreign exchange earnings