Turkey sells Bosporus bridges as financing woes ease

By bne IntelliNews December 18, 2012

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Turkey sold off a pair of Bosporus bridges and around 2,000 kilometres of motorways at the fourth time of asking on December 17, as a consortium comprising local giants Koc Holding and Yildiz Holding, in partnership with Malaysia's UEM Group, won a tender for the giant infrastructure package for $5.7bn. That the sale finally went through will be a relief for Ankara, which has seen numerous attempts to sell off infrastructure projects scuppered by financing problems.

Turkey sold 25-year operating rights for 1,975 km of toll roads, including those on the Bosporus and the Fatih Sultan Mehmet Bridges, which both cross the Bosporus Strait to connect European and Asian Istanbul. The assets, which were sold in Turkey's second-biggest privatisation and trumped only by the $6.55bn sale of 55% in Turk Telekom in 2005, also include the Edirne-Istanbul-Ankara highway and the Ankara ring road.

Koc, Turkey's biggest conglomerate, and UEM each hold a 40% stake in the winning consortium, while Gozde - the venture capital unit of Yildiz Holding - holds 20%. The transaction may be completed within "five to six months at the latest," Tamer Hasimoglu, Koc Holding's retail, food and tourism group chairman, told reporters, according to Bloomberg. The bid will now be subject to approval by the Privatisation Administration, Competition Board and Council of State.

According to Malaysia's Business Times, Datuk Izzaddin Idris, CEO of UEM said: "This is a significant milestone for UEM Group as we've always aimed to expand our expressway service offering beyond Malaysia, India and Indonesia. Drawing on our best services and expertise in these countries, we are now committed to deliver the same in Turkey." He claimed that UEM Group's deep experience in expressway management was key to winning the tender.

Ankara will be delighted to get the sale away, and it adds to growing success in the country's privatisation drive in recent months after a period in which sales have struggled due to financing issues. The three previous failed attempts to sell off the motorway package are testament to the problems, but the hurdles have been lowered as Turkey shows it can manage the robust forces of growth in the economy and financing options widen.

Fitch upgraded the sovereign to give government debt its first investment grade since 1994 last month, and analysts speak of persistent "euphoria" in the economy following the move. A wave of corporate issues is now 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 have seen a series of stalled projects and privatizations start to trickle through. While, the secondary public offering of a 24% stake in state-controlled Halkbank for $2.5bn would likely have proved popular regardless, infrastructure assets in particular have struggled in Turkey.

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 last week. The asset was one of eight regional distributors on which a sale in 2010 fell through.

Discussing the latest deal, analysts at Erste say they "anticipate a Leverage Buy-Out (LBO) structure to be in place during the project's financing, in which 65%-70% of the project ($3.7- 4bn) can easily be financed via long-term project finance loans."

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