How should you respond when shares switch into questionable hands?
In the aftermath of the failed Turkish coup d’état in 2016, a shareholder of one of our clients, allegedly a Gülen supporter, was imprisoned and forced to sell his shares to a businessman supported by the regime. For various reasons, FMO considered the new shareholder unacceptable.
We determine whether we find an individual or organization acceptable, for example in KYC (Know Your Customer) terms, before entering into a financial relationship with them. But in this instance, we were suddenly saddled during a loan’s lifetime with a new shareholder who didn’t meet our standards. Requesting full repayment would have immediately plunged the company into deep financial trouble.
Our solution was to agree a much faster loan repayment schedule with the new shareholder, enabling us to terminate the relationship reasonably quickly. However, Turkey’s rapidly deteriorating economic situation meant the company could not find a replacement bank, forcing us to continue our relationship with this undesirable shareholder.
Expect the unexpected
In a politically volatile country like Turkey, it’s vital to check whether and how a shareholder is politically linked, and the potential consequences of any changes in the political landscape. This is typically part of our due diligence, but on this occasion, we did not foresee the course of events in Turkey in 2016.
In the fragile world in which FMO often operates, it’s important to develop procedures that can accommodate the unexpected.