Turkey’s Hedef Holding (Istanbul/HEDEF) investment firm has defaulted on a short-term money market obligation after its main controlling shareholder was targeted with judicial orders that freeze assets, the company said on September 29.

The development suggests that the financial stress generated by the ongoing ‘Ponzi-style’ stock market funds scandal in Turkey has reached the Borsa Istanbul money market (BPP). However, while newsrooms may be on standby for a frenzy of page clicks from stories of systemic risk and contagion, it can be observed that the approach of any such scenario is not visible as things stand.

Hedef Holding proved unable to redeem a Turkish lira (TRY) 1.08bn ($22mn) repo debt at the BPP that matured on September 28.

Amid ongoing judicial investigations, authorities issued a seizure order directed at shares held in Hedef Holding and its subsidiaries. The company clarified that the court order affects ownership rights over the shares but does not constitute a full transfer of property title.

The legal action, nevertheless, triggered immediate liquidity stress across the group. Tightening financing conditions in Turkish domestic markets combined with difficulties in securing capital contributions from shareholders and the liquidation of underlying investment funds blocked the holding company from accessing necessary cash reserves.

In response to the maturity breach, Hedef Holding stated that it has formally petitioned relevant regulatory authorities and market institutions to extend the maturity terms of the defaulted obligation, offering collateral assets under revised conditions.

Jailed owners

The financial collapse seen in the stock market scandal followed sweeping enforcement actions undertaken by the capital markets board SPK and the Istanbul chief public prosecutor’s office. Investigating allegations of market fraud, price manipulation and money laundering across several prominent domestic fund managers and listed equities, regulators ordered the closure and liquidation of 131 funds on the TEFAS platform, among them 13 funds managed by Hedef Portfoy.

Namik Kemal Gokalp, former chairman of Hedef Holding and brokerage Info Yatirim (Istanbul/INFO), was on September 16 detained and subsequently remanded in custody.

His wife Sibel Gokalp, the controlling shareholder holding a near-78% stake in Hedef Holding, was also arrested on September 25 along with another family member, Mehmet Ziya Gokalp, who had briefly assumed the chairmanship following Namik Kemal's resignation.

All three remain in pre-trial detention. Judicial orders also imposed freeze measures over shares in Hedef Holding and its subsidiaries.   

The group's market valuation has crumbled in the face of the regulatory dragnet. Shares in Hedef Holding, which traded near peak levels of TRY 396 at the beginning of August, plummeted to TRY 8.35 as of September 30.