Turkey kicks off IPO process on roads package

By bne IntelliNews February 27, 2013

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Just days after canceling a $5.7bn tender award for a package of toll roads and bridges claiming dissatisfaction with the price, Turkey has kicked off an IPO process in an attempt to sell the assets, Finance Minister Mehmet Simsek said February 26. He added that Ankara may look to cancel other recent privatization deals on infrastructure, despite having struggled for some time to find investors.

Turkey's Privatization Administration (OIB) has started work with the transport ministry to form a holding company for the 2,000 kilometres of toll roads and two suspension bridges over Istanbul's Bosporus strait, which were originally to be sold to a consortium of Turkish and Malaysian companies until the deal - struck in December at the fourth time of asking - was scrapped on February 22.

"We are at the start of work on how we can sell the assets... but our priority is to have an IPO," Simsek said, according to Bloomberg.

He explained that a legal entity would be turned into an incorporated company before its owners can apply to the capital markets regulator for IPO permission, according to Turkish law.

Simsek also said the OIB is re-evaluating the bid from Torunlar Gida, a food and construction group, to buy Ankara's gas grid operator, Baskent Gaz Dagitim, for $1.16bn.

The sales of both the roads and the gas grid were welcomed by the market when they went through, given that Turkey has struggled to privatize large infrastructure assets in particular, with investors facing problems in securing financing.

The roads package failed to find a buyer three-times before the 25-year operating deal with Koc Holding, Gozde and Malaysia's UEM Group was agreed on December 17. The assets include the Bosporus and the Fatih Sultan Mehmet Bridges that cross the Bosporus Strait in Istanbul, as well as the Edirne-Istanbul-Ankara highway and the Ankara ring road. The Baskent deal, agreed on January 30 this year, also followed several previous attempts to offload the asset.

However, with Turkey growing in confidence since it achieved its first investment grade rating in close to 20 years from Fitch Ratings in October, Prime Minister Recep Tayyip Erdogan appears to believe both deals are under priced. Reports claim that analysts told him the roads package could be worth as much as $20bn during a meeting of the High Board of Privatization, which then ordered the deal cancelled.

The PM claimed on February 25 that allowing the deal to stand would be "high treason," and insisted that $7bn would be the minimum price the state should accept, although he suggested the price should be closer to $10bn.

The hurdles to finding investors with the necessary funds to buy assets began to fall in 2012 as the government successfully engineered a soft landing for the economy from the rapid growth seen in 2011. The Fitch upgrade saw analysts speak of persistent "euphoria" in the economy, and a wave of corporate issues is anticipated, especially given the current volume of cash hunting for yield in emerging markets. Meanwhile, Ankara has been driving hard to open the way for Islamic finance to offer an alternative to the country's heavy reliance on Europe's creaking banks.

Alongside a little more flexibility from the authorities, those improved conditions saw a series of stalled projects and privatizations start to trickle through last year.

After several failed attempts to whip up interest, the North Marmara Highway Project - which includes construction of a third bridge to span the Bosporus - was finally sold in May after it was reduced in scale and scope. The contractors on the project agreed financing with six Turkish banks in November. Meanwhile, Bogazici EDAS - the largest power distributor in the country, which runs the Istanbul grid - was sold for $1.96bn in December. The asset was one of the eight regional distributors on which a sale in 2010 fell through.

However, it remains to be seen what damage Erdogan's bout of seller's remorse might do to the country's investment image, while recent suggestions from the US Federal Reserve and European Central Bank that they could start winding in their huge liquidity packages that have been driving the emerging markets rally could disrupt the PM's hopes of a bonanza for the state coffers.

However, Simsek told reporters that the scrapped sale of the roads package won't harm the budget this year because the government has already exceeded its target of TRY4bn ($2.2bn) in revenue from asset sales when the OIB injected TRY5.2bn into the treasury at the start of 2013.

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