Ercan Cercioglu is holding off on investing in new technologyfor the Turkish maker of car parts that he runs as the lira's slidemakes it harder for companies to service foreign-currency debt.

The cost of importing raw materials like steel jumped as thelira tumbled 13 percent in the past six months, according toCercioglu, chief executive officer of Aydin, Turkey-based JantsaJant Sanayi ve Ticaret AS. The company, whose third-quarterfinancial debt was 41 million liras ($19 million) and was almostfully denominated in foreign currencies, is hesitating to passadditional costs onto customers, he said.

“Foreign-currency debt used to be less costly for companies, butnow many will post FX losses,” Cercioglu said in a phone interviewon Feb. 5. Jantsa has shelved some investments as it “waits forstability, to see what's ahead,” he said.

Net foreign-currency debt of Turkish companies surged 21 percentto $170 billion last year through November, according to centralbank data. Their Polish counterparts held the equivalent of $23billion of foreign-exchange liabilities that month, up 13 percent,official data show. The debt burden for businesses from Istanbul toAnkara may have worsened in December as a corruption probeentangling the government sent the lira sliding 6 percent thatmonth.

It took a surprise central bank interest-rate increase on Jan. 29 to halt a routthat drove the currency to successive record lows. A more thandoubling of the benchmark rate to 10 percent turned it into theworld's best-performing emerging-market currency from the second worst.

Even after the recovery, the exchange rate's implied volatilityis the fourth-highest among developing countries at 13.7 today,surpassed only by the South African rand, the Argentine peso, and Brazil's real. The lira weakened 0.3percent to 2.2168 per dollar at 9:57 a.m. in Istanbul. It slumpedto a record 2.3900 on Jan. 27.

“I hope the lira settles at around 2.1 per dollar,” ErolBilecik, chairman of Istanbul-based technology company IndeksBilgisayar Sistemleri Muhendislik Sanayi ve Ticaret AS, said byphone on Feb. 5. “There definitely is a lack of motivation andenergy in the market.”

Bank Debt

The foreign-exchange swings are weighing most on small andmedium-sized businesses, which dominate Turkey's corporatelandscape, Suleyman Onatca, chairman of the Turkish Enterprise andBusiness Confederation, said on Jan. 24. Banks are reluctant toallow SMEs to roll over loans, he said.

Out of every 10,000 companies, only two aren't SMEs, aclassification for businesses employing fewer than 250 workersand/or posting annual sales of under 40 million liras, according todata of the state-run Small and Medium Enterprises DevelopmentOrganization.

The lira lost a fifth of its value against the dollar and singleEuropean currency in the past 12 months. That's mirrored drops inSouth Africa's rand and the Indonesian rupiah, also victims ofsouring sentiment in emerging markets amid Federal Reservereductions of monetary stimulus.

“It is tough to digest such an appreciation in the dollar andthe euro,” Onatca said by phone on Feb. 5. “I don't want to talklike a doomsayer, but God help companies with bank debt.”

Turkey's currency has recovered since the rate decision, whileinvestors piling into the nation's stocks lifted the Borsa Istanbul100 Index up 3.4 percent yesterday, the most among 94 globalbenchmarks monitored by Bloomberg. Yields on Turkey's two-yearnotes are down 37 basis points from a two-year high on Jan. 28, to10.69 percent.

The central bank resisted calls to raise rates since August tosupport the economy. Growth in the nation of about 80 millionpeople is set to slow to 3 percent this year from 3.9 percent in2013, according to the median of 31 forecasts compiled byBloomberg.

As companies like Jantsa delay investments, that's a drag on theeconomy, according to Zsolt Papp, who helps oversee $2.6 billion ofemerging-market debt at Union Bancaire Privee in Zurich.

“Some companies with a material currency mismatch in assets andliabilities could be forced to seek restructuring,” Papp said byemail yesterday.

Frozen Investments

As clients pressure Jantsa to hold prices even as costs rise,Cercioglu is delaying plans to spend more on research anddevelopment to enhance productivity. “We want to protect ourselvesagainst a possible crisis,” he said.

Cercioglu isn't alone in reconsidering business plans. SuleymanGerdan, chairman of Germaksan Makina Sanayi ve Ticaret Ltd., amachinery maker, cut production and is working at about 35 percentof capacity at its factory in the southern city of Adana followinga slowdown in orders.

It will struggle to surpass 2013 sales of 45 million liras thisyear as costs for everything from electricity to transportationclimb, according to Gerdan.

“We recently froze an investment of about 7 million euros ($9.5million), thinking it's better to stay liquid,” Gerdan said byphone on Feb. 5. “That investment would have allowed us to expandin Africa. After the surge in the dollar, we can't see what'sahead.”

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