Turkey scraps $5.7bn infrastructure privatisation

By bne IntelliNews February 25, 2013

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After managing to push through a deal in December at the fourth attempt, Turkey on February 22 said it had cancelled the $5.7bn privatisation agreement for a package of toll roads and bridges because it did not meet its pricing expectations. The prime minister now suggests Ankara may even try to sell the assets via an IPO.

Finance Minister Mehmet Simsek announced the news that the government had cancelled the country's second largest privatisation deal with local company's Koc Holding and Gozde Girisim, alongside Malaysia's UEM Group Berhad, after the market had closed. The decision followed comments earlier this month from Prime Minister Tayyip Erdogan, who said the price agreed for the assets was far below the government's expectations. Hurriyet Daily News reported officials had told the PM that the tender could be worth $20bn.

On February 23, Hurriyet Daily News quoted Erdogan as saying that: "The number we are expecting is a lot more [than the previous offer]... There is an upper most number, a middle number and a minimum number. However, we might not sell the toll roads as a whole [package]. We might [decide to make] a public offering after we finish the technical works."

The decision is blow to the government's privatisation strategy. The deal agreed two months ago with the Turkish-Malaysian consortium was the state's fourth attempt to sell the infrastructure package, which includes 25-year operating rights for 1,975 kilometres of toll roads, including those on the Bosporus and the Fatih Sultan Mehmet Bridges that both cross the Bosporus Strait in Istanbul. The assets also include the Edirne-Istanbul-Ankara highway and the Ankara ring road.

Turkey has struggled with pushing through privatisations in recent years, mostly due to issues that potential buyers encountered in trying finance their plans. However, the hurdles have lowered since last year as the government managed to engineer a soft landing of the economy from the rapid growth seen in 2011 and financing options became more readily available.

Fitch Ratings upgraded the sovereign to give government debt its first investment grade since 1994 in October, and analysts speak of persistent "euphoria" in the economy since. 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 privatisations start to trickle through in 2012. While, the secondary public offering of a 24% stake in state-controlled Halkbank for $2.5bn late last year would likely have proved popular regardless, the government has struggled to offload infrastructure assets in particular.

After several failed attempts to whip up interest, the North Marmara Highway Project - which includes construction of a third bridge to span the Bosphorus - 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 eight regional distributors on which a sale in 2010 fell through. The sale of another four grids is set to take place soon.

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