bonds & loans annual review turkey

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Ashmore’s Jan Dehn on the Future of TurkeyDeal Case Studies with Awards WinnersTurkish Airlines CFO talks 2016 DCM strategyTurkey’s top dealmakers cast predictions for 2016

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© 2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional serviceorganizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

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Baker & McKenzie has more than 670 Banking & Finance lawyers and 360 Capital Markets lawyers globally, giving us the ability to advise on cross-border deals and listings in all the world’s major financial centers. According to Chambers, our Capital Markets practice is “quintessentially international, with particular strength in emerging markets;” in fact, 25 of our Capital Markets practitioners are ranked by the publication. The Banking & Finance practice has “a lot of resources to provide a big team. They are always well organised, highlight the right topics and are always up to speed,” according to Chambers.

Our Capital Markets practice provides a full service offering:• Equity and debt offerings• Structured finance• Dual track (M&A and IPO) transactions• Private equity/ venture capital investment trusts• Reverse listings• Sukuk and other Islamic finance instruments• Derivatives• Licensing of capital markets institutions• Foreign and local investment funds• Capital markets regulatory advice• Real estate and regular investment trusts

The Banking & Finance practice covers: • Acquisition finance• Project finance• Asset finance• Derivatives and financial products• Financial services and regulatory advice• Funds and asset management• Financial restructuring and creditor’s rights• Global custody• Islamic finance• Loans and credit facilities• Real estate finance• Securitization and structured finance

www.bakermckenzie.comwww.esin.av.tr

Cross-border Banking & Finance and Capital Markets practice

Our South Africa Capital Markets team “advises clients on a range of structured debt capital markets (DCM) products [and is] highly regarded for the team’s depth of experience and its ability to attract top clients in the financial sector” - Chambers Global Capital Markets, 2015

In Turkey, clients state that the team is “a very responsive team with in-depth knowledge of the issues relevant to our case” - Chambers Europe Capital Markets, 2015

Edward BibkoEMEA Head of Capital MarketsT +44 (0)20 7919 1343edward.bibko @bakermckenzie.com

Michael Foundethakis EMEA Head of Banking & Finance T +33 1 44 17 5340michael.foundethakis @bakermckenzie.com

Jen Stolp Partner, Banking & FinanceT + 27 11 911 4349jen.stolp @bakermckenzie.com

Muhsin KeskinPartner, Banking & Finance and Capital MarketsT +90 212 376 [email protected]

Key contacts

Our publications

© 2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional serviceorganizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.

CONTENTS

Top Challenges for Turkey’s Economy in 2016..... ...5

Case Study: Bilkent Integrated Health Campus..... 7

The Long Game On Investment in Turkey: Jan Dehn, Head of Research, Ashmore IM..... .........8

Case Study: Yildiz Holding A.S...... ..........................9

Renovating Turkey’s Housing Sector: Kemal Say, Forestry Group CFO, Kastamonu Entegre Ağac San. ve Tic. A.Ş..... ..........................11

Case Study: Yeniköy Kemerköy Enerji..... ..............13

Capital Availability and Currency Headaches: Baris Oran, Head of Finance, Sabanci Holding..... .15

Case Study: YDA Insaat Sanayi ve Ticarets..... .....17

Above The Clouds: Coskun Kilic, CFO, Turkish Airlines..... ..................................................19

Case Study: Turkish Airlines..... .............................21

Exit Through Duty Free: Burcu Geris, Vice President and CFO, TAV Airports Holding..... 22

Case Study: YDA Dalaman Airport..... ...................24

How FX is Impacting Turkey’s Capital Markets: Marco Iannaccone, CFO, Yapikredi..... ....................26

Case Study: Türkiye Vakıflar Bankası T.A.O.... ......28

Case Study: Gebze-Izmir Motorway.... ..................29

Case Study: Ankara Etlik Integrated Health Campus.... ...............................................................30

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Dear Reader,

Turkey’s economy has benefitted immensely from its position as a key hub between the Middle East, Asia and Europe with GDP more than trebling over the past decade. And although over the past year the country’s markets have been fraught with instability, brought about by rising inflation, increased short-term debt, and political instability, it is equally clear – as the contents of this magazine contend – that landmark bonds and loans are still getting to market and practitioners with their clients are pushing the boundaries deal size, pri-cing, tenor and innovative structures.

This magazine is both a testament to and celebration of those deals, providing with it an insight into the market conditions that will likely form their backdrop to much of next year’s activity.

In it, we examine the case studies of this year’s Bonds & Loans Turkey Awards winners to illustrate how capital mar-kets and structured finance professionals are successfully advancing market development. And through a range of fea-tures and interviews with some of the world’s most famous investors, and CFOs of Turkey’s leading corporations, we paint a picture of the market, and get a sense of how they are adapting their funding strategies in anticipation of upcoming challenges in 2016.

We hope you enjoy this year’s Bonds & Loans Turkey Annual Review.

Best regards,

Jonathan Brandon Managing Editor GFC – Global Financial Conferences

Editor’s letter

5Annual Review: Turkey

Top Challenges for Turkey’s Economy in 2016

There’s no question Turkey’s economy has evolved dramatically in the past 15 years. GDP per capita is nearly three times what it was in 2001; the Borsa Istanbul – a combination of the Istanbul Stock Exchange (ISE), the Istanbul Gold Exchange, and the Derivatives Exchange of Turkey founded in 2013 –

now lists over US$220bn worth of shares with average annual trade volumes in excess of US$394bn and the country’s capital markets have benefited significantly from deepening ties to Europe.

But Turkey’s economy is currently challenged by low consumption, political instability and political insecurity, and has struggled to put forward more than 3% GDP growth this year. Some are concerned that the economy has lost the momentum that once characterised Turkey as one of the fastest growing emerging markets in the world, with big question marks surrounding the future of the country’s financial markets over the next year; others remain convinced that the country’s economic fundamentals remain sound, enabling it to weather the storm. To get to the heart of where concerns really lie, we asked a range of CFOs, emerging market banking specialists and investors about what they perceive to be the biggest challenge facing Turkey’s economy in 2016.

Dr. Michael Ganske, Senior Partner, Head of Emerging Markets Rogge Global Partners

Before AKP came into power in the last decade, Turkey was in a very challenging position – it had very high inflation, debt sustainability was a big issue, it was over indebted and the banking sector was over-

leveraged. Erdogan turned around the country, moving it from a weak country to an improving story, which was very much reflected in credit risk pricing compression, spreads and yields, as well as currency debt. But the biggest challenges today include sluggish growth, political instability, and the fact that Turkey has a lot of short term debt that it needs to roll. But something that could help in our view, something that often gets overlooked, is the ongoing discussions with the EU on further European integration. It can help lead to structural reforms and increased eªciency, and it’s realistic to assume politically that Turkey can become part of the EU in the long term. Geopolitics is also very important – in the frontier to the Middle East there are obviously issues with Syria that need to be resolved, or companies that depend on exports to those regions will continue to struggle.

Burcu Geris, CFO, TAV Airports Holding

The global economic risk for all EMs including Turkey is when and how fast the Fed starts increasing interest rates, and all of the chain reactions that result. How Turkey will manage to di«erentiate itself

from other emerging markets will be key. There’s a whole club of EMs but there are some better than others in terms of structural reforms and market access. The result of the elections and how quickly the new government can react and proactively address these risks will be important.

Murat Doğan Erden, CFO, Turkcell

In 2015 – a year of elections and global emerging market turmoil – it would be fair to say that the EM macro-economic climate and the political scene have acted as headwinds for the Turkish economy. This

has caused primarily delays in private sector investments and erosion in consumer sentiments. Overcoming these challenges and avoiding further deterioration of consumer sentiment should be among our national priorities in 2016.

6 Annual Review: Turkey

Kemal Say, Forestry Group CFO, Kastamonu Entegre Ağac San. ve Tic. A.Ş.

EM deleveraging, which will be essential over the next year, has already started with higher debt servicing costs. In Turkey, average GDP recorded 7% in 5 years before 2008, and in the same period, average loan growth

increased as 34%. Average household debt increased 12% and corporate debt increased 29%. During the 6-year period through which global liquidity eased after the 2008 crisis, aggregate balance sheet volume of Fed, ECB, BoE, BoJ and PBoC went from US$6tn to US$16tn. During this period, the Turkish economy’s average growth rate was 3% and average loan growth increased as 21%; average household debt increased 25% and corporate debt increased 60%.

All of this is to say that Turkey’s growing imbalances may reflect deeper structural shortcomings, which is the main challenge for the country’s economy over the next year. Vulnerability caused by structural problems has mixed with local political uncertainty and geopolitical problems in foreign policy. Even if we suppose that local uncertainty may disappear with the recent election, deprecation of TL against US dollar and Euro may cause an increase in inflation. In addition, Central Bank of Turkey may increase policy interest rate along with Fed’s hike to stabilise the volatility in foreign currency. When this happens, inflation may settle down on a double-digit, and the Turkish economy may grow under its potential.

Coskun Kilic, CFO, Turkish Airlines

I believe the biggest obstacle facing growth of the Turkish economy is the political instability in Turkey and its surrounding region. Together with the current global economic outlook and the global investments shifting

towards developed markets away from the emerging markets, political uncertainity became a much more important factor determining the inflow of funds that are critical in financing Turkeys short term economic growth. In this sense, I am hopeful that 2016 will be a better year where we will see more stability within our country which will pave the wave for increased stability in the region.

Marco Iannaccone, CFO, Yapı Kredi Bank

In the short term, the current global and domestic economic situations and political situation has not been particularly supportive in accelerating reforms. So we believe a stabilisation of the

environment will definitely support the growth of the economy in any case. Having a stable environment means fostering more internal development. I believe the fundamentals of the country are strong – this is a country that can easily handle GDP growth between 4-5% on a normalised environment. The Central Bank is also focused not just on inflation but ensuring financial stability, which is a supportive policy for growth moving forward; this needs to continue on the back of continuation of reform processes and will be a key issue over the next year.

Baris Oran, Head of Finance at Sabanci Holding

I consider three key components to growth: consumers; investments; and exports. Consumption is probably where we’re lacking most in Turkey, and there would be a significant impact

if it were to improve. And as the visibility of funding and growth gets better, I would expect the investment to ramp up as well. We see a lot of new investment stalling through that should come back at some point – there have been a lot of deferrals. Exports are a key concern – that’s challenging, and in many ways dependent on macro factors. For a company like ours, which is exporting much more to Europe, it’s not too bad; however, for the ones exporting to the CIS countries, the Middle East or parts of Africa, it is much more challenging, and that’s going to be a really big issue moving forward into next year. When the EU does recover it will have an e«ect on Turkish growth, so our largest customer’s recovery should be better for us. And we’re likely to see corporate issuers and equity investment treated in a much more favourable way when the macro situation settles down.


Case Study: Bilkent Integrated Health Campus Part of the Turkish Healthcare PPP reform initiated by the Ministry of Health (MoH) in 2003, the Bilkent Integrated Health Campus is one of the largest greenfield hospitals ever constructed, with a critical €890mn of the total €1.2bn cost of the project being financed through a landmark project loan facility.

Deal At A Glance

• Award: Infrastructure Finance Deal of the Year

• Deal Type: Project Finance

• Location: Turkey

• Sponsor: Dia Holding FZCO

• Lead Arranger and Financial Agent to Sponsor: Unicredit

• Lead arrangers: Garanti Bank, Finansbank, Denizbank, Isbank, Yapi Kredi, Siemens Bank

• Financial Adviser to Sponsor: Unicredit Bank Austria AG

• Legal Advisers for Borrower: Herguner Birgen Ozeke, Freshfields Bruckhaus Deringer

• Legal Adviser to Arrangers: Cli«ord Chance, Yegin Ciftci

• Size: €890m

• Tenor: 18 years

• Use Of Proceeds: To finance the design, construction, operation and transfer of the Bilkent Integrated Health

Background

The Bilkent Integrated Health Campus is a private public partnership (PPP), one of the first of its kind in Turkey, and will consist of 9 hospitals with the capacity to treat up to 35,000 patients per day.

With a total capacity of 3,804 beds and at 1,204,000 square meters the project is one of the largest in the world.

The total cost of the project is €1.2bn, with €890mn of the total cost being financed through an 18-year project loan facility. It is the largest PPP project in Turkey.

Transaction Breakdown

The €890mn project loan facility was financed through a club of seven Turkish and international lenders including : Garanti Bank, Finansbank, Denizbank, Isbank, Yapi Kredi, Siemens Bank, and UniCredit.

The project set a new benchmark in Turkish financial market. It was the first time in project finance history that Turkish lenders provided 18 year door-to-door maturity.

This new benchmark opens the door not only for healthcare PPP projects, but also for PPP projects in other sectors to lenghten tenors from 15 to 18 years, increasing the overall debt capacity in the market.

“This is the largest greenfield hospital project in the world and the biggest European PPP transaction in the first half of 2015. It sets a new standard for tenors on uncovered facilities in Turkey, in which Yapi Kredi and UniCredit played a substantial role supporting majority shareholder DIA Holding as sole Financial Advisor and MLA. Once built it will help provide access to state of the art healthcare facilities for Ankara and its surrounding region“, said Albert Hulshof and Basak Egemen, Associate Directors at UniCredit and Yapi Kredi respectively.

The Winners’ Selection Committee said: “The scale of the project, size of the lending and the number and variety of lenders involved made this a standout deal. Achieving such long tenors is challenging in the best of circumstances, and the leverage on hospital deals is getting tighter and tighter, which also made this quite impressive.”


The Long Game On Investment in TurkeyJan Dehn, Head of Research, Ashmore IM

The Turkish economy is taking centre stage following the recent elections, with much of the focus being placed on compressing the

country’s growing pile of short-term debt (over half of which is in US dollars). In addition to increasing leverage the fall in oil prices, geopolitical instability and credit-fuelled consumption have taken their toll on the Turkish economy and led to widening sovereign credit spreads in recent months. Yet to some extent the country has been swept up in a broader emerging market panic that has overlooked some of its unique – and in some case beneficial – traits: much of the country’s debt is in Euros and US dollar, both subject to easing measures in recent years; lower commodity prices, which has led to turmoil in many emerging market economies, actually works to the benefit of Turkey – a net commodities importer. The outlook seems mixed to say the least.

We sit down with Jan Dehn, Head of Research, Ashmore Investment Management to discuss his views on the impact of the recent elections on capital markets in the region, and the growth outlook for Turkey’s economy next year.

Q What is the overall growth outlook for Turkey over the coming year? What sectors so you

expect to thrive and which do you think will struggle?Turkey’s immediate growth outlook looks moderate, but there are two immediate challenges. One is political, the other relates to economic policy. The run-up to the election has polarized society and a period of reconciliation will be required afterwards. In turn, this will require considerable flexibility on the part of the involved parties. It remains to be seen if such flexibility is possible. Second, economic policy has been subjugated to the administration’s broader political objectives, both in terms of monetary policy as well as implementation of reforms. Realizing the main upside potential on the growth front hinges on a return to orthodoxy at the central bank and resumption of reforms. Domestic demand has been strong in Turkey, fuelled by cheap credit. This source of growth is now getting exhausted. Reforms need to focus on education, the saving industry, rule of law and returning the policy framework to orthodoxy. This would restore long-term investment appetite and generate the long-term funding required to raise Turkey to a sustainably higher growth rate.

Q What factors do you think will have the deepest influence over Turkey’s economic

outlook in the coming year? Where is the highest exposure?Three factors: Political noise. Regional issues, including Iran, and also spill-over from Syria and Iran. And reforms. The most important from an investment perspective will be the domestic political environment followed by reforms and regional noise, in that order.

Q How do you think the impending election will impact local Turkish markets?

The run-up to the election has already left the country deeply traumatised and divided between Turks and Kurds, nationalists and less nationalist interests. Strong leadership is required to de-escalate these tensions. The risk is that politicians fail to bridge the divisions created this year in the political landscape.

Q How have recent conflicts in and around Turkey impacted access to international

capital markets?Investors understand that Turkey has troubled neighbours to the immediate south, but also opportunities, particularly if Iran joins the international community. The ability and willingness to pay in Turkey is strong and bouts of risk aversion often results in spread compression as investors switch from local bonds to USD-denominated debt. This reveals that investors view the currency as vulnerable, but the sovereign as money good. I would agree with this view.

Q Do you think new policies are needed to stimulate struggling sectors of the economy,

generate more capital mobility and increase liquidity?Yes, reforms are needed to realize Turkey ambitions to continue to grow strongly. I listed the reforms required above. Capital markets in Turkey are shallow and macro policy needs to be improved. This means that long-term savings are not available to finance long term investment. The duration mismatch between funding and intended investment in Turkey is a problem that can only be resolved with orthodox economic policies, reforms of the savings industry, a restoration of the rule of law and education reforms.


Case Study: Yildiz Holding A.S.Yıldız Holding’s US$3.3bn (£2.1bn) acquisition of United Biscuits was a key step in the company’s bid to become a leading global player in the branded biscuits and snack food industry, a move enabled by a well-structured £985m multi-currency syndicated loan.

Deal At A Glance

• Award: M&A / Acquisition Finance Deal of the Year

• Deal Type: Acquisition Finance


• Borrower: Yildiz Holding A.S.

• Sole Financial Adviser to Borrower, Global Coordinator and Sole Bookrunner, and Rating Advisor Agent: HSBC

• Mandated Lead Arrangers: Rabobank, ING, Bank of America Merrill Lynch, J.P. Morgan

• Legal Adviser to Borrower: Linklaters

• Legal Adviser to Arrangers: Latham & Watkins, Yüksel Karkın Küçük Avukatlık

• Size: £985mn

• Tenor: 7 years

• Use Of Proceeds: To finance the acquisition of United Biscuits

Background

In November 2014, Yıldız acquired United Biscuits to create the world’s 3rd largest biscuit maker and a leading global player with a strong portfolio of iconic international brands.

The move helped Yildiz, a well-known snack food brand in the CEEMA region, diversify into markets where the company did not previously have a presence, like the UK.

As part of the transaction and against a backdrop of market volatility Yildiz enlisted HSBC to help secure a multi-currency syndicated loan totalling £985mn.


Syndication of the all-senior £985mn senior secured financing was launched on the 19 November and targeted European banks and funds, including a combination of both new and existing investors.

Despite volatile market condition, the transaction generated a strong orderbook of roughly £1.4bn, allowing the deal to be reverse flexed by a further 25bps – aligned with the tightest levels seen in the European TLB market in 2014 – and the GBP component to be upsized by £75m, with EUR and TLB components correspondingly reduced.

The final structure of the deal included a £75m revolving credit facility and three term loans: £175mn due November 2020; £485mn due November 2021; and €250mn due November 2021.

“The United Biscuits acquisition was the largest outbound acqusition of a Turkish company and an important milestone for Turkish companies to looking to international markets to significantly diversify their geographical presence,” said Nurtaç Ziyal. Chief M&A and Business Developement Oªcer, Yildiz Holding A.S. “The acquisition turned Yıldız Holding into a global player, shifting its ranking in the global biscuits market to the 3rd position.”

The Winners’ Selection Committee said: “This was a landmark cross-border acquisition of a UK—company supported by competitive pricing, was well placed in the market, and met very tight timetables for completion. The deal was significant in size and helped the borrower take its market diversification strategy to the next level.”


Renovating Turkey’s Housing Sector: Kemal Say, Forestry Group CFO, Kastamonu Entegre Ağac San. ve Tic. A.Ş.r

Turkey experienced a signification construction boom in the three years leading up to 2014, propelling the construction market to all-

time highs – the volume of housing loans rose to US$51.4bn in 2015. But will that growth continue? We speak with Kemal Say, Forestry Group CFO, Kastamonu Entegre Ağac San. ve Tic. A.Ş. about the growing youth population in Turkey, the continued rise of per-capita income, and the knock-on e«ect on urbanisation and the country’s market for construction materials.

Q What is your view on the growth outlook for Turkey over the coming year, and for

Kastamonu Entegre Agac San?International institutions forecast Turkey’s growth rate between 3% and 4% in previous reports, however, that forecast has changed, with new estimates released in October 2015 showing 3-3.1% for 2015 and 2.8-2.9% for 2016. The growth rate envisaged for the Medium Term Programme at 3% for 2015 and 4% for 2016. It is likely to complete 2015 and 2016 around 3%.

Average depreciation of TL to USD foreign exchange rate is performing at approximately 22% in 2015 against 2014, and will eventually cause a decrease in USD-based turnover for corporates in any sector. Despite this, and together with recession in Russia and comparably decreasing growth rate in Turkey, Kastamonu Entegre

will see grow of 6% in TL in 2015. Even though budgeted figures for the year 2016 have not been set yet, we forecast to grow 22% in TL-based consolidated turnover. This growth rate will be achieved with the value-added contribution of the 2nd Russian MDF plant which will become operational in 2016.

Q What are the main factors impacting growth in your sector?

The wood based panel industry’s average growth rate between 2009 and 2013 was 3.4% while western and northern European markets have been in recession since


2008. However, when we glance at the market growth in Central European countries, Russian and Turkish markets have grown more than double that of the global market. New buildings and renovations of ageing housing are the main trigger of the growth in this0 sector. The furniture sector has consumed 82% of particleboard products and 51% of MDF products, while floor veneering and laminate flooring segments consume 29% of MDF; the construction sector consumes 11% of MDF and door segment consumes 8% of MDF products.

Turkey’s demographics are heavily skewed towards a young population, the motor of the consumption component of the economic growth, which leads to increased marriages and large families with children who would like to live in large and luxurious apartments, or well-educated young singles who have economic freedom living apart from their families in large cities. A rise in per capita income would lead people to adopt a higher standard of living which includes new homes and urban dwelling upgrades. Urban transformation would be another dynamic leading to the continued growth of the construction sector.

Q What kinds of big strategic initiatives are you planning for this year at Kastamonu Entegre

Agac San and how will that impact the company’s funding strategy?Strategies for funding operations and investments have been crucial. As we work with more than 25 banks and financial institutions, our cooperation with both local and international banks and financial institutions has increased dramatically. In terms of the variety of financial instruments and having access to financial markets, Kastamonu Entegre is one of the pioneering companies in Turkey. Under the international corporate structure, we successfully finance our corporates and aªliates and our e«ectiveness in reaching to financial markets for long term financing and using di«erentiated financial instruments will continue in the future.

Q What are the main factors influencing Kastamonu Entegre Agac San strategy

around using debt instruments to fund strategic initiatives?As a regional and multinational corporate, we have benefited from being in di«erent countries and geographical position to finance operations. This position’s advantage allows us to reach lower costs of financing and in addition, the group structure encourages a fruitful allocation of financing sources.

Our main strategy in using debt instruments has been built upon four pillars: tenor of the debt instrument should be compatible with payback period of the optimum feasibility scenario of the greenfield investment or any acquisition, so focusing on 5-7 or 10 –year loans depends on the initiative; ECA financing such as Euler Hermes, SERV, US Exim, which has been prioritized in financing investments; financing asset side on the balance sheet with bi-lateral medium and long-term loans or big-ticket syndicated loan deals; and, considering possible changes in the future of fixed and floating interest rate options in the money market, taking long position in liquidity by planning cash flow rolling forecast at least for the following 6 months.

Q I understand Kastamonu Entegre Agac recently signed a big shipbuilding contract

with Oshima Shipyard in Japan; what was the funding strategy behind this?We already have a ship to transport imported woodchips. Having a ship has many advantages for operations in logistics and operational costs. The new ship contract which we signed is a new investment that predicts having those advantages. The new ship will be delivered in 2018 and major portion will be paid at the delivery. We are negotiating with the banks for possible options in financing including JBIC.

Q How have falling commodity prices impacted your core business?

Falling commodity prices decreases costs of the goods which we use in production and cost of the transportation as well, so in general falling commodity prices have benefited us.

Q What do you feel is the biggest challenge you and other corporates in your sector are

facing today?

High DSO in the Turkish domestic market of wood based panel sector and a low security interest securing client obligations increase credit risk exposure. Credit risk exposure has been the first order of importance for the corporates most recently. We are working it out by establishing a high-profile distributor chain, having financial capabilities and reducing credit risk exposure but not impacting sales volume in a negative way – so having securities and collaterals, credit risk insurance.

Credit risk exposure has been the first order of importance for the corporates most recently. We are working it out by establishing a high-profile distributor chain,

having financial capabilities and reducing credit risk exposure but

not impacting sales volume in a negative way.


Case Study: Yeniköy Kemerköy EnerjiThe privatisation and transfer of the state-run Yenikoy and Kemerkoy thermal power plants to IC Ictas Enerji’s at the end of 2014 included a US$3bn loan which helped put this deal among the top privatisation tenders of its kind globally.

Deal At A Glance

• Award: Natural Resource Finance Deal of the Year

• Deal Type: Loan


• Borrower: IC Ictas Enerji

• Arrangers: T.Garanti Bankası, İş Bankası, Halk Bankası, Ziraat Bankası, TSKB, Yapı Kredi Bankası

• Legal Adviser to Borrower: Yüksel Karkın Küçük Avukatlık

• Legal Adviser to Arrangers: White & Case, Akol Avukatlık

• Size: US$3bn

• Tenor: 16 years

• Use Of Proceeds: To finance the acquisition of two thermal power generation plants

Background

Yenikoy and Kemerkoy thermal power plants, previously owned by Yenikoy Kemerkoy Electricity Generation and Trade Co., have been operational since 1987 and 1995, respectively, and were brought online to generate electricity using domestic lignite coal in Milas district of Mugla province.

In December 2014 Turkey’s privatisation administration, the OIB, announced that it signed the final agreement with IC Ictas Enerji, completing the privatization process for the Yenikoy and Kemerkoy thermal power plants.

The privatisation was financed with the help of a club loan worth approximately US$3bn, and was the first privatization deal of this size to have a limited recourse structure in Turkey.


The US$3bn club loan was funded by six Turkish banks including T.Garanti Bankası, İş Bankası, Halk Bankası, Ziraat Bankası, TSKB, and Yapı Kredi Bankası, and has a tenor of 16 years door-to-door.

Given the substantial installed capacity, the investment has strategic value for IC Ictas Enerji as it will help create vertical integration opportunities in its wholesale power business. The power plants involved in this transaction have also been underperforming under public management, creating an opportunity for IC Ictas Enerji to get these power plants performing at higher levels with only minor improvements.

“One of the things that makes this deal unique is that it was achieved within remarkably brief period of time,” said Naile Üreten, CFO at Yeniköy Kemerköy Elektrik Üretim Ticaret A.Ş. “This deal was accomplished through very high level of dedication of both shareholders’ finance teams to the project, the financiers’ great understanding and supporting teams .”

The Winners’ Selection Committee said: “This is one of the biggest privatisation deals we’ve seen in Turkey in recent years. The deal was closed in record time and was the first privatization deal of this size to have a limited recourse structure, making this a new benchmark for deals of its kind in Turkey.”

(Istanbul) (Ankara)

15

(Istanbul) (Ankara)

Annual Review: Turkey

With the cost of funding rising it is becoming increasingly clear that in many cases borrowers and issuers are sitting on the

sidelines waiting for markets to stabilise. Balance sheets can be used in the short term to weather the storm, but ultimately borrowers will have to tap the market for large ambitious growth projects. The key question is ‘when?’. We speak with Baris Oran, Head of Finance at Sabanci Holding, Turkey’s largest industrial and financial conglomerate, about what needs to happen to the domestic bond market in order to stimulate more issuance.

Q What do you believe are the most significant factors influencing Sabanci’s economic outlook?

We haves started our budgeting process for 2016 and our base case, we’ll be using 2.5-3% for building these budgets. Of course post-elections, this may change as the visibility in Turkey’s economy is not as good as we would like at this point. But once the elections are over we’re looking forward to achieving better visibility. The main factors influencing us right now, first and foremost, an important factor in all emerging markets, the Federal Reserve’s recent decision to raise rates, which will definitely have an impact on the cost of financing, and availability of financing. The second is how China’s actions will impact the rest of EMs and especially Europe as Turkey has sizeable trade with the EU. Number three would be the extended election period.

Turkey is in a very advantageous position. We have a sizeable trade with Europe, which is doing better than a few years ago. Turkey is an importer of commodities, so we’re quite di«erent from a number of large emerging economies of the world, so I’m hoping for a better growth outlook for next year so that we can continue along our path of improving the economy as soon as we can. I think that our strong links with the EU and the fact that we’re a commodity importer tends to get overlooked by the international investor community, and we tend to get lumped together with the rest of EMs, which tends to create a situation where those distinctions are washed away.

Q How are fluctuations in local and global capital markets influencing Sabanci’s strategy?

In line with our corporate strategy we have equity o«erings from time to time from our subsidiaries to improve their listings. The recent turbulence in EMs has made equity o«erings in Turkey a lot more diªcult, or any EM country much more diªcult – so raising equity through equity capital markets is not as easy for the overall outlook of

Capital Availability and Currency Headaches: Baris Oran, Head of Finance, Sabanci Holding

EMs. On the credit side it’s been swinging back and forth, but the cost of funding in Turkey has risen, especially during the past two years, and recent devaluations in foreign currency have also made FX borrowing quite cumbersome. We have been quite risk-averse for our borrowing, and because of our excellent reputation in the credit markets we still benefit from a more advantageous position of borrowing at lower costs. However, when the cost of borrowing for all EMs goes up, we are also a«ected.

Going forward, the cost of funding has increased and access to capital markets is much more diªcult for Turkey, and this is going to be a concern. So I would expect companies to use more internal funds if they can, instead of reaching out to markets. On the debt side, interest rates have gone up so the real cost of funding has too.

Q To what extent has recent volatility in FX and the Turkish lira impacted Sabanci’s

funding strategy?One of the problems with the Turkish lira is that longer term financing is either quite expensive or unavailable for a number of institutions out there, so companies tend to borrow in FX for the long term. But the short term fluctuations still have an impact on balance sheets. We have been – either synthetically or directly – borrowing in


lira for the most part, and we have a very risk-averse way of managing our balance sheets, so we aren’t as concerned as some. But the cost of lira borrowing has increased and so has FX volatility, so we’re much more cautious and selective in terms of what we put our money in.

Q Your company converted much of its debt into Euros a couple of years ago. How will the ECB’s

continued easing measures impact Sabanci?We have done two things. First, we used Euro financing for longer term financing instead of dollar-based financing. Our thinking was that the dollar would get stronger more quickly as the American economy was likely to improve much faster, and that things in Europe would be a bit slower. There has been a lot of pressure to convert into dollars because a majority of our business is done in energy, but we have resisted that. It has paid o« quite well. We’ve been a net beneficiary of the Euro getting weaker in the past few quarters, and it seems to be the right way of positioning our balance sheets. In the meantime we are converting some of that Euro debt to lira debt, and that has been quite timely. And when the ECB continues easing, the demand for Euros will probably subside even further so I think our strategy will continue to work in this way.

Q Does the current economic environment look appealing for new debt issuances?

When there are a lot of swings, a potential creditor wants to price that in, and borrowers like us don’t want to pay that cushion. There are a lot of swings in the market currently, and people are waiting to see when things will stabilise. I think there will be more issuances once things are more stable, particularly in Turkey. That will be a much better time to take positions on interest rates and debt issuance compared to what we are seeing in global EMs right now. So it’s generally less appealing at this point.

One area we’re looking for improvement is the lira-based market with longer tenors and longer terms. That bond market hasn’t really emerged yet – if that were there we would be looking to borrow more and more in lira through debt capital markets, and we tend to borrow more from the bank markets in part for this reason. People are unwilling to take the currency risk in the longer term for a reasonable price, so the demand and supply for lira-based longer term financing have so far been unable to coincide. There is a shorter term market on the local side, but tenors tend to be shortened to just a couple of years and the sizes don’t tend to go beyond US$200mn equivalent.

Going forward, the cost of funding has increased and access to capital markets is much more di�cult for Turkey, and this is going to be a concern. So I would expect

companies to use more internal funds if they can, instead of reaching out to markets.


Case Study: YDA Insaat Sanayi ve Ticarets YDA Insaat Sanayi ve Ticaret A.S.’s (YDA) TL200mn 3-year bond is significant for having secured the sponsorship of EBRD into a non-financial private sector soft currency bond for the first time, helping to pave the way for greater liquidity in the local TL market.

Deal At A Glance

• Award: Local Bond Deal of the Year

• Deal Type: TL Bond


• Issuer: YDA Insaat Sanayi ve Ticaret A.S.

• Joint Lead Managers: Yapi Kredi Yatirim Menkul Degerler A.S., Ziraat Yatirim Menkul Degerler A.S.

• Legal Adviser to Issuer: Gündüz Law

• Legal Adviser to Arrangers: Bezen & Partners Law

• Size: TL200m

• Tenor: 3 years

• Use Of Proceeds: Financing CAPEX activities

Background

In late 2014 YDA, with the help of YKY and Ziraat Yatirim, YDA initiated a local roadshow leading up to its impending bond issuance, meeting over 40 institutional investors in Istanbul within two weeks.

In December YDA successfully placed a TL200mn 3-year bond, a one-of-a-kind deal that saw the EBRD’s first investment into a TL-denominated bond issued by a non-financial private sector company.

The paper is now being traded at a premium in the secondary markets and sets a new benchmark for local currency issuances.


YDA placed a TL200mn floating rate bond with a tenor of 3 years with a spread of 390bps. The deal was distributed by two leading brokerage houses, an unorthodox approach for local issuances – which are usually handled by a single manager.

The issuance saw very strong demand from local investors and was oversubscribed over 2X.

The ERBD acted as an anchor investor for the transaction, purchasing 205 of the total issuance, and marked both the EBRD’s first investment into a bond issued by a non-financial company in a soft currency other than USDs or Euros, and the EBRD’s first and only investment in a TL-denominated bond issued by a non-financial company in Turkey.

“Being at the market for the first time in 2014, we doubled the size in this o«ering to TL 200m and extended the tenor to the longest available in the

market with paying only 15 bps new issue premium,” said Huseyin Arslan, Co-Founder and Chairman of YDA Group. “The deal also stands out as the EBRD’s first and only participation to a TL-denominated non-financial corporate bond issue in Turkey.”

The Winners’ Selection Committee said: “YDA’s TRL bond is the first deal to have secured the sponsorship of EBRD into a soft currency bond. Executed at a good level for the issuer while maximizing investor confidence.”


With per-capita income rising dramatically in recent years and Turkey positioning itself as a key hub between Europe, Asia and the

Middle East, Turkish Airlines has quickly risen in the ranks to become one of the region’s premier airlines. We speak with Coskun Kilic, CFO, Turkish Airlines about the company’s expansion plans – and the funding strategy helping to fuel it.

Q What is the growth outlook for Turkish Airlines over the coming year? What are the

main factors influencing the aviation sector?Turkish Airlines has seen double digit growth rates for the last decade and has transformed into a truly global carrier, having the world’s fourth largest network, flying to the most countries in the world with almost 300 aircraft in its fleet. We will have carried over 60 million passengers in 2015, while this figure was only 14 million in 2005. Since then we have purchased 190 aircraft, implying financing over US$12bn. For the coming year, again we have a delivery schedule of 43 new aircraft, eleven of which are double-aisle wide body aircraft. This would mean another year with double digit growth for the company.

On the other hand, the airline industry is highly competitive and its results and operations are highly influenced by all kinds of macroeconomic and socio-political factors. In 2015 we have experienced major developments on both ends: fuel price fluctuations, major currency movements, economic slowdown in emerging markets on one side and political instabilities and security concerns surrounding Turkey and other geographies we operate in on the other. When there are so many moving parts in a very competitive industry, it is very important to have structural competitive advantages that will benefit the company in any scenario. Turkish Airlines has that structural competitiveness mainly driven by Istanbul’s geographic location, which is a natural hub and allows for low operational costs and high utilization levels. Growing population and economic development in Turkey has also been important contributors to our growth.

Q Turkish Airlines announced over US$3bn in new investment to expand the fleet earlier this

year. Can you take us through the funding strategy to support this? We will take delivery of 43 new aircraft in 2016 which is roughly around US$3bn of investment. There are many available financing options in the market for Turkish Airlines including various bank products and capital markets options. Our decision process on comprising the

Above The Clouds: Coskun Kilic, CFO, Turkish Airlines

portfolio for each year’s financing takes into account not only pricing but also the risk management strategies of the company. Therefore we try to find the optimum portfolio that is diverse in source, naturally hedged in currency and has the maximum maturity meeting the cash generation ability of the company. Turkish Airlines has recently done its first capital market deal in US with an EETC issuance, with the aim to achieve this diversification in financing structures. Concurrently, we are pursuing alternative capital markets financing options either asset backed or unsecured bonds.

Q You successfully issued a US$328mn bond earlier this year as part of that investment

plan. Can you talk us through the strategy behind that issuance?In order to support its growth with a healthy financing structure, Turkish Airlines has put in place very innovative structures and is always open to novel financing structures for aircraft acquisitions. Since 2006, we have been using the money markets intensely and we are very active in ECA backed financings and tax leverage products. Tapping into the capital markets and issuing the first EETC in the US capital


market was a cornerstone for Turkish Airlines which paved the way for new capital market products for our future financing.

In this process, we received our first corporate rating from two rating agencies and stood amongst the best rated airlines in the airline industry. In addition to the corporate rating the EETC certificates were rated as A2 and A- by Moody’s and S&P. Being our first capital markets issuance, we put in a lot of e«ort and spent a considerable amount of time in educating the investors about Turkish Airlines credit story and its unique competitive features that are independent of the Turkish economy. Despite the ratings some investors were considering Turkish Airlines as Turkish credit and comparing the certificates within the emerging markets landscape. This was partly good in the sense that it was attracting a wider range of investors but also causing confusion on where the pricing should stand. US capital markets will continue to be an alternative for us in the future and we believe that as Turkish Airlines has more products trading in the market, its unique position will be understood even better.

Another important note is, following the first issuance in the US markets, we successfully closed our second EETC combined with Japanese tax leverage product in Japan. This issuance was the first ever JPY denominated EETC and we benefited greatly from our past experiences in USD EETC.

Q What are the main factors influencing Turkish Airlines’ capitalisation strategy currently?

The first and most important aspect in our capitalisation strategy is making sure that the company is able to finance its own growth through its own operational cash generation. We are seeking the most economic and cost e«ective long term financing structure with an optimum maturity that will best fit the company’s growth strategy and cash generation abilities within the current financial market conditions. While searching for the optimum maturity and lowest cost, we are also looking for ways to naturally hedge our currency exposure, and hence obtain borrowings with alternative currencies where Turkish Airlines has net long position. Turkish Airlines recently started flying to more countries than any other airline in the world and in this respect has a very diverse revenue base both in terms of currency and geography. This business diversification helps us to diversify funding sources as well, not only in currency but also in product and market. We use all types of international aircraft financing products such as asset backed securities, capital market structures, EETCs, incentivized financing products and tax leveraged products from US, European and Japanese markets. It’s important to note that Turkish Airlines does not need to use any commercial loan for its working capital, the aforesaid financing instruments are all used for long term aircraft financing.

Q How has the mix of investors – in terms of geography and institutional type – evolved

over the past few years? We have a very diverse financer base as I mentioned earlier but the US dollar EETC we issued in March was our first capital markets product. Although EETCs generally have their own distinct investor base, mainly in the US, there was demand for Turkish Airlines certificates from a wide array of investors, even some Europeans investing in a EETC for the first time. But still I can say more than 90% was US-based asset managers, insurance companies and pension funds.

On the other hand, Turkish Airlines is one of the oldest, biggest and the most liquid companies listed in the Istanbul stock exchange, Borsa Istanbul. We compromise around 5-7% of its total volume. This enables us to have a reputable and well-known name in financial markets with vast amount of coverage from most of the local and international investment banks. Our equity investor base is also very diverse and mainly consists of long-only institutional investors with growing interest from sovereign wealth funds especially, from Middle East. Many of the large capital markets players are or have been at some point of time our investors. This also helps the debt providers to rely on a standard level of corporate governance, continuous disclosure and easy access to management or strategic information.

Q What do you feel is the biggest challenge you and other corporates are facing today?

I would say the biggest challenge corporates are facing today is the speculative volatility in the financial and commodity markets that is mainly driven by political and economic instabilities in the emerging countries and their direct and indirect impacts on the growth prospects of developed countries, which are already being supported by central bank’s monetary policies. To overcome this challenge, Turkish Airlines emphasizes regional diversification of operations which enables a steady income level regardless of any crises. We also took important operational measures to increase our natural hedge position and reduce the currency mismatch between revenue and expenses. In addition, we have a very sophisticated risk management policy that we have been improving with experience since 2008 that includes systematic commodity (fuel) and currency hedging to reduce any type of volatility.

I would say the biggest challenge corporates are facing today is the speculative volatility in the financial and commodity markets that is mainly driven by political

and economic instabilities in the emerging countries.


Case Study: Turkish AirlinesClosed during a period of high market volatility, Turkish Airlines’ US$315m ECA-guaranteed Italian Tax Lease loan is a stand-out example of what can be achieved through strong working cooperation between Turkish companies, their international banks and ECAs.

Deal At A Glance

• Award: Trade & Export Finance Deal of the Year

• Deal Type: ECA-Guaranteed Loan


• Borrower: Turkish Airlines

• Lead arrangers: Societe Generale

• Export Credit Agency: Hermes

• Legal adviser to Borrower: Gide Loyrette Nouel LLP

• Legal Adviser to Arrangers: White & Case, Norton Rose

• Size: US$315mn

• Tenor: 12 years

• Use Of Proceeds: To finance the acquisition of three new Airbus A330-300 aircraft

Background

Following the success of its first ECA-guaranteed Italian Tax Lease deal the previous year, which saw the company borrow $200mn to fund the purchase of new aircraft, Turkish Airlines secured another US$315mn ECA-guaranteed structured deal to finance the acquisition of three new Airbus A330-300 aircraft.

The deal enabled Turkish Airlines to secure a very low cost of borrowing and an advantageous structure that supports the airline’s growth ambitions over the coming year.


The US$315mn ECA-guaranteed Italian Tax Lease loan has a tenor of 12 years and a cash flow structure arranged in Japanese Yen, allowing Turkish Airlines to hedge its currency risk by matching its excess JPY revenues.

The structure of the loan provides Turkish Airlines with 100% LTV through a combination of a JPY-denominated ECA guaranteed loan and a JPY-denominated junior loan.

“When Turkish Airlines’ ECA guaranteed Italian Tax Leveraged product is examined closely, this structure is outstanding as the cash flow structure being arranged in Japanese Yen allows Turkish Airlines to naturally hedge its long position in Japanese Yen eliminating currency risk by matching its excess revenues,” said Enis Feyzioğlu, CFO, Turkish Airlines. “Moreover, this structure leads to an achievement of 100% LTV (85% guaranteed loan with remaining 15% being commercial) financing unlike most of the alternatives in the current aircraft financing market as well as providing flexibility and liquidity management options for THY.”

“The ECA Italian Tax Lease is a unique and special financing structure, since not all the airlines are eligible and a limited number of banks are in a position to structure it. It meets the need of airlines to obtain 100% loan-to-values without having to finance 100% of the aircraft purchase price,” said Barbara Pansadoro, Associate, Gide Loyrette Nouel LLP.

The Winners’ Selection Committee said: “An example of excellent cooperation between Turk Airlines and international banks including ECA during a very volatile period for the Turkish markets. Long tenor, low cost, and a sophisticated structure combining ECA with Italy tax helps make this a standout deal.”


Exit Through Duty Free: Burcu Geris, Vice President and CFO, TAV Airports Holding

With passenger traªc constantly increasing, new airports and extensions to existing facilities are being built at record pace.

But as one might expect, establishing global also operations often goes hand in hand with currency risk exposure. We speak with Burcu Geris, TAV Airports Holding, a major global player in airport operations, about the company’s currency hedging strategy and how it will help fuel expansion plans in the US and Southeast Asia.

Q What is the growth outlook for TAV Airports Holding Group?

For 2015, we had given guidance for passenger growth of 6-8%. By the end of the year, we expect to reach 103 million passengers, meaning 7% growth in line with our guidance. We gave guidance for revenue growth of 10-12% and we expect 11%, so again in line with guidance. It is a bit diªcult to speak concretely about next year. Given that there are no adversely impacting events, we would continue to expect similar rates of growth.

Q What are the main factors impacting growth at TAV Holdings?

The most important factor driving growth is passenger traªc. Therefore anything that would a«ect the passenger flow, including political and economic risk that changes people’s propensity to fly, would have a strong impact in our growth. The other is the retail side, the spend per passenger; people may travel but they also need to buy. Airports are e«ectively half a shopping mall, from which we derive substantial revenues. Capacity issues also influence our growth. We need to deal with bottlenecks in traªc, for instance in Istanbul Ataturk we are currently expanding the terminal to increase the passenger capacity.

Q Where are you seeing new opportunities emerge in aviation and airport development

and operation?In terms of regions, we’re looking at South East Asia, Saudi Arabia and the US. Historically our focus has been on the MENA region, but given the instability– and even before the more recent turmoil – we’ve been looking to expand globally. In 2012, we set about pursuing a strategy to grow beyond out immediate region – for instance we bid for LaGuardia in the US, and won the tender for the Duty Free shops in Houston Airport in Texas, US.

Q How is international expansion impacting your capitalisation strategy?

We already have some fairly mature assets which means we also have very strong cash generation, and as a result we’ve been distributing dividends over the past few years – and will continue to do so. Because we have strong cash generation we can tap into equity financing, but our debt structure is very healthy, very secure. We have 2.3X net debt to EBITA ratio, which is comfortable for an infrastructure company – we are prudent in leverage, have a 9 year average maturity, and most of projects are financed through a ring-fenced project finance structure. We are hedging so that we’re not open to currency risk or interest rate risk, and our cost of debt is around 5%, which is acceptable for EMs and the regions we operate.

We can continue to use this healthy mix of debt and equity to finance our growth and we still have further debt capacity that we can tap into when it is needed. We have comfortable credit lines at the banks and if we have any big projects we can certainly consider new issuances. Right now it’s not on the agenda because we don’t have any concrete tenders won, but as things materialise we’ll look into extending our existing strategy.

Q What do you feel is the biggest challenge you and other corporates in Turkey are facing today?

The biggest challenge for all Turkish corporates is political and economic stability. Another challenge is FX denominated debt. Turkish corporates have around US$200bn FX denominated debt which is a lot of pressure on their balance sheets since most of their earnings are in Turkish lira. When the US dollar appreciates 30% against Turkish lira, this is not sustainable for most local businesses.

The biggest challenge for all Turkish corporates is political and economic stability. Another challenge

is FX denominated debt. Turkish corporates have around US$200bn FX denominated debt which is

a lot of pressure on their balance sheets since most of their earnings are in Turkish lira.

The Middle East’s largest corporate and investment banking event

www.bondsandloans.com

Over 1000 delegatesMore than 130 senior level speakers67% borrowers, issuers and investors


Case Study: YDA Dalaman AirportYDA’s landmark and uniquely structured €175m syndicated project finance loan deal marks the first time the EBRD has invested in a regional airport project financing, and will help fund the construction of a new energy-eªcient domestic terminal at Dalaman Airport.

Deal At A Glance

• Award: Transport Finance Deal of the Year

• Deal Type: Syndicated Project Finance Loan


• Borrower: YDA İnşaat Sanayi ve Ticaret A.Ş.

• Arranger and Lender of Record: EBRD

• Participating Bank and Financial Adviser: UniCredit

• Local Account Bank: Ziraat Bankası

• Model Auditor: Ernst & Young

• Technical Advisor: Mott MacDonald

• Insurers: JLT

• Export Credit Advisor: IBS

• Legal Adviser to Borrower: Erdem&Erdem Law, Gündüz Law

• Legal Adviser to Arrangers: Cli«ord Chance/Fidan&Fidan

• Size: €175mn

• Tenor: 17 years

• Use Of Proceeds: To build a new domestic terminal for Dalaman Airport

Background

Dalaman Airport is a small regional international airport and just one of three serving the south west of Turkey.

In October 2014 YDA secured the rights to construct and operate a new domestic terminal for Dalaman Airport, with the project costing just over €1bn. The new Domestic Terminal expected to be operational by the end of 2017.

The project is being completed with the help of a €175mn structured finance and syndicated loan from the EBRD, with participation from UniCredit and Ziraat Bank.


The deal saw YDA secure an advance payment of €70.5mn (Bridge Loan), with a Letter of €42.3mn within 10 days after signing the Commercial Agreement and before commencing management of the existing Domestic Terminal.

A 1-year Bridge Loan Facility and the L/G Facility with Ziraat Bank A.Ş was arranged right after winning the tender, with the long-term project finance facility with EBRD being used to repay the Bridge Loan and finance the construction of the new domestic terminal. The €175mn senior debt has been arranged such that EBRD is the Lender of Record for the A-Loan, and UniCredit Bank Austria AG is the B-Loan provider.

“It is be the first regional airport PPP financed by the EBRD in Turkey. The Project is also the first regional airport ran by the private sector participation, having transfer of full traªc risk for both international and domestic operations to the PPP operator. We have introduced new standards for corporate governance and business conduct in the Project as part of the financing as well,” said Sule Kilic. Deputy Country

Director, European Bank for Reconstruction and Development (EBRD)

The Winners’ Selection Committee said: “The unique structure of this structured facility and the fact that this is an environmentally friendly project, which also managed to attract strong interest from international investors and the EBRC, makes this a standout deal.”

APCO congratulates all this evening’s nominees and winners. We are proud to support GFC and join you all to celebrate excellence in Turkey’s structured finance and capital markets.

APCO Worldwide is a global communications, stakeholder engagement and business strategy firm with more than 30 offices across major international financial centres. Our team in Istanbul has a proven track record of successful market entry and expansion support for a range of international companies in Turkey. Our integrated services include political, economic and market risk analysis, government relations, media relations, financial communications and investor relations services.

www.apcoworldwide.com

APCO congratulates all this evening’s nominees and winners. We APCO congratulates all this evening’s nominees and winners. We APCO congratulates all this evening’s nominees and winners. We APCO congratulates all this evening’s nominees and winners. We APCO congratulates all this evening’s nominees and winners. We APCO congratulates all this evening’s nominees and winners. We are proud to support GFC and join you all to celebrate excellence in are proud to support GFC and join you all to celebrate excellence in Turkey’s structured finance and capital markets.Turkey’s structured finance and capital markets.

CONGRATULATIONS!FROM APCO WORLDWIDE


How FX is Impacting Turkey’s Capital Markets: Marco Iannaccone, CFO, Yapikredi

The banking sector in Turkey has transformed dramatically in recent years, but some would argue rapid expansion over the past few years

has started to create a mismatch between the size of the economy and international capital market access. We speak with Marco Iannaccone, CFO, Yapikredi about how the bank is responding to monetary policy messaging from the Fed, and the impact on the dynamics between TL-denominated debt issuance and hard currency issuance.

Q What are the most significant factors influencing Turkey’s growth outlook?

We expect real GDP growth to be around 2.5% for both 2015 and 2016. Within this context, internal demand is expected to stay a bit weaker in the second half of this year, mainly due to uncertainty around the election as well as the weak Turkish Lira, which we expect to recover in the second part of next year. On the Fed rate and the possible extension of the ECB asset purchase programme beyond September 2015, we think these will be key determinants for the overall growth outlook. In a nutshell, what’s most important is that structural reforms might accelerate economic development supporting GDP growth. In any case, we believe the fundamentals of the country are very strong and we believe the economy can sustain growth of 4-5%, which is in line with the government’s medium-term plan.

Q How are fluctuations in local and global capital markets influencing Yapikredi’s capitalisation

strategy?The last few months have brought a high level of volatility in all emerging markets and the Turkish Lira has been hit quite severely. The currency depreciation and interest rates have led to around 100 bps of impact on our capital until June, and that e«ect has been increasing in the subsequent months to now. However, from our standpoint, our capital level is still comfortably above the regulatory requirements and we don’t feel we need to take any immediate actions in this respect.

We are focused on e«ectively managing the balance sheet and implementing optimisation actions to mitigate any negative impact form market volatility. As of June 2015 YKB has been able to substantially o«set the negative market impact as a result of those optimisations. Going forward, we see regulatory changes that we are monitoring very closely because they will have an impact on capital planning and our capital strategy. We’re constantly monitoring investor sentiment and the market condition in general for any potential opportunities on this front as well.

Q How is the bank responding to recent monetary policy messages coming out of the US?

The Fed has decided not to raise rates, obviously due to the global economy’s slowdown, and a hike has been postponed until either December this year or early 2016. The Turkish Central Bank has been keeping interest rates flat in line with that policy, but we believe the markets have already priced in the interest rate hikes, especially if you look at the 2-year and 5-year bond rates, which are standing somewhere between 10.5% and 11%. From the banking sector point of view, it’s important to underline the fact that deposit rates have been increasing by 100 bps compared to the end of June. The banks have also started to re-price loans to mitigate any adverse impacts of increased costs of funding. Lending growth has consequently slowed down, declining from 12% in June to 10% in September, so there has been some e«ect of re-pricing in the loan market. The bond market has nearly stopped this year as a reaction to this environment, but the loan market did not. A lot of large projects have been put on hold as a result of uncertainty, which has impacted the loan market, but it’s still growing – just by a smaller margin.

27

The market has been developing quite significantly in the past few years.Turkish Lira-denominated bond issuance has been mainly dominated by banks, but if

you look at the period between mid-2011 and mid-2014.

Annual Review: Turkey

Q As an issuer can you discuss any recent Yapikredi bond or loan activity and the

strategy in this regard moving forward? We’re a frequent issuer in the international debt capital markets and are extremely committed to the diversification of funding resources. On the senior unsecured front, we have not seen any new issues in the banking sector, and just one in the non-financial sector – Turkcell’s 10-year transaction, which was recently concluded, but banks like us have been holding o«. On the securitisation front there is continuous interest from investors, particularly for structured products, where banks like us have been able to reach longer maturities – which is key because one of the issues in the Turkish market is that debt tenors are often quite short. We have had two transactions this year, one in March and the other in June, so we are active. We have been rolling over our syndication facility with lower margin compared to the previous years’ facility, and interbank bilateral loans are still very strong.

We are also currently working on setting up a mortgage-backed covered bond programme, with which we’re aiming to reach a new investor base. Once the market has normalised we’ll look to explore this opportunity further, and we want to be ready when that happens.

Q In your view, is there a mismatch between the size of the Turkish economy and the

development of the local capital market? If so, what do you think needs to happen in order to bring these two elements closer together?The market has been developing quite significantly in the past few years. Turkish Lira-denominated bond issuance has been mainly dominated by banks, but if you look at the period between mid-2011 and mid-2014, the bank bond issuances have increased by approximately TL26bn and have remained at those levels since mid-2014. But a key characteristic of this market is the duration. Most of these bonds have durations of only 6-12 months, which is still too short. We see that there are non-bank financial institutions and non-financial institutions that have issued TL bonds with increasing frequency, now reaching about TL17bn, and the average duration seems to be a bit longer – between 2 and 5 year tenors. Psychologically, people need to get away from the mentality of deposits that was ingrained when inflation was immaterial. The market has to become more mature so that clients and asset managers have more certainty around the environment, so that they can push themselves into longer durations.

We believe that the trend will continue but the pace will remain rather slow; consumers as well as asset managers will need to get used to either longer durations or alternative products to further diversify.


Case Study: Türkiye Vakıflar Bankası T.A.O.The first-ever Basel III-compliant issuance from a Turkish bank, Türkiye Vakıflar Bankası’s (VakifBank) US$500mn Tier 2 transaction set a new benchmark for FI issuance out of Turkey. Impressively structured, the deal was well-timed and solidified Vakifbank’s market position as a leading Turkish issuer in the international debt capital markets.

Deal At A Glance

• Award: International Bond / Sukuk Deal of the Year

• Deal Type: Bond


• Issuer: Türkiye Vakıflar Bankası T.A.O.

• Structuring Banks: Bank of America Merrill Lynch, Standard Chartered Bank

• Joint Lead Managers: Citi, Deutsche Bank, Goldman Sachs, HSBC

• Legal Advisor for Borrower: Mayer Brown, Yazıcı Legal

• Legal Advisors for Arrangers: Allen Overy, Paksoy

• Size: US$500mn

• Tenor: 10 non-call 5 years

• Use Of Proceeds: Diversification and strengthening of its capital base

Background

Through the second half of 2014 and early 2015, VakifBank embarked on an extensive international roadshow, meeting with over 70 top Emerging Market investors across Europe, the US, Asia and the Middle East.

In January 2015, against a backdrop of geopolitical insecurity and despite some market weakness following the Greek elections that saw Syriza win a parliamentary majority, VakifBank successfully priced a US$500mn Tier 2 Eurobond with a 10 non-call 5 year tenor.

The transaction helped VakifBank strengthen its capital base and further diversify and enhance the quality of its investor base, which included first time buyers of Turkish credit.


The US$500mn 10NC5 Tier 2 Eurobond was priced at a yield of 6.950% with a coupon of 6.875%. The final orderbook reached in excess of US$1bn from over 120 accounts, and saw participation from a wide range of local, regional and international investors. 78% of the deal was bought by asset managers and 22% by banks and private banks.

The 10 non-call 5 year tenor is the most capital eªcient format as it provides the option for Vakifbank to redeem the instrument before the regulatory capital amortisation kick in the last five years (i.e. the instrument loses 20% per annum of its Tier 2 capital recognition).

As the first Basel III compliant T2 issuance from a Turkish bank after the long awaited legislation on Basel III bank capital, the transaction helped to reinforce the Turkish banking sector’s outstanding reputation in the international debt capital markets.

“This was the first Basel III compliant Tier 2 capital issuance from a Turkish bank, paving the way for other Turkish banks to raise Basel III compliant capital from the international debt capital markets. This is an increasingly important consideration for Turkish banks as they seek to ensure that their capital levels remain among the highest of any Emerging Market jurisdiction following robust balance sheet growth over recent years,” said Rajan Bagri, Executive Director, FIG Debt Capital Markets, Standard Chartered

Bank. “By pioneering this product Vakifbank has provided potential issuers and investors with an important pricing data point to better understand the potential spread premium for a Basel III instrument.”

The Winners’ Selection Committee said: “This was a ground-breaking deal that set a new benchmark for Turkish bank bond deals. Impressive structuring and good timing ensuring a strong order book, Vakifbank’s


Case Study: Gebze-Izmir MotorwayThe Gebze-Izmir Motorway $4,956m PPP Project Finance Loan breaks all the records for Turkish Project financings and syndicated lending, and sets a new benchmark for Project Financings in Emerging Markets. The largest project constructed through BOT model financing, this landmark project will connect two of Turkey’s key economic hubs with the help of the largest syndicated loan ever provided in the Turkish project finance market to date.

Deal At A Glance

• Awards: Syndicated Loan Deal of the Year, Project Finance Deal of the Year

• Deal Type: Syndicated Loan

• Location: Gebze/izmir, Turkey

• Sponsors: Otoyol, Nomayg JV

• Lead Arrangers: Garanti Bank, Akbank, Finansbank, Deutsche Bank, Türkiye İş Bankası A.Ş,Yapi Kredi, Ziraat Bank, Halk Bank, Vakıfbank

• Facility Agent: Garanti Bank

• Security Agent: Türkiye İş Bankası A.Ş

• Insurance Adviser To Arrangers: Marsh

• Tax and Financial Model Adviser To Arrangers: PwC

• Technical Adviser to Arrangers: Dolsar Engineering

• Legal Adviser for Borrower: Hergüner Birgen Özeke

• Legal Adviser for Arrangers: Cli«ord Chance, Verdi Law Firm

• Size: US$4.956bn

• Tenor: 15 years

• Use Of Proceeds: To finance the construction of a motorway and one of the world’s largest suspension bridges

Background

The first tender for the Gebze-Izmir Motorway project, which also includes the construction of one of the largest suspension bridges in the world over the Izmit Bay, was awarded in 2009 and broke ground in 2010.

This is the first road project in Turkey to be procured under the BOT model.

In a bid to spread the risk it is being financed and constructed in multiple phases. The total cost of the project sits at just over US$7.3bn, with US$4.956bn being funded through a club loan.


The US$4.956bn loan has a 15-year maturity and was financed by eight Turkish banks and one international bank: Garanti Bank, Akbank, Finansbank, Türkiye İş Bankası A.Ş,Yapi Kredi, Ziraat Bank, Halk Bank, Vakıfbank, and Deutsche Bank.

This deal was one of the first transactions in Turkey to enjoy the Treasury’s debt assumption, and the annual repayment plan implemented reduces the requirement of the working capital loan so lenders can secure the loan repayment regardless of the performance of traªc.

“Our deal, which is the largest project finance to date in Turkey, is a successful implementation of a unique strategy to finance large-scale investment projects. Due to the large Capex (US$7.3 billion) and long construction period (7 years), the project was structured to be financed in phases,” said Mehmet Coşan, CFO, Otoyol, Nomayg JV. “Taking advantage of partial completion in phases and earning guaranteed revenues for CAPEX during the construction period for phases becoming operational during this period, a financing structure of US$4.96 billion debt with a maturity to 2030 and US$1.4 billion equity was secured for the entire project.”

The Winners’ Selection Committee said: “Impressive deal led by local banks and successfully syndicated amongst a large number of local banks. A deal that makes a major contribution to the development of the “truly syndicated” loan market in Turkey.”

Case Study: Ankara Etlik Integrated Health Campus The Ankara Etlik Integrated Health Campus is Turkey’s largest PPP project and one of the largest greenfield hospital projects ever constructed. The ambitious €1.1 billion initiative led by Astaldi and Turkerler will boost healthcare standards in the region and, and the €882 million syndicated loan facility increases the overall debt capacity of the market.

Deal At A Glance

• Award: Structured Finance Deal of Year

• Deal Type: Structured Project Finance

• Location: Ankara, Turkey

• Constructor and Operator: Astaldi, Turkerler

• Financial Advisors to Borrower: Citi, UniCredit

• Lender: EBRD, IFC, Black Sea Trade and Development Bank, SACE, DEG, Akbank, Banca IMI S.P.A., Credit Agricole, Deutsche Bank A.G, Intesa Sanpaolo S.P.A., Turkiye Is Bankasi A.S., Turkiye Sinai Kalkinma Bankasi A.S., Unicredit Bank Austria AG, Unicredit S.P.A.

• Legal Advisor to Borrower: Cli«ord Chance LLP, Fidan & Fidan

• Legal Advisor to Arrangers: Herguner Bilgen Ozeke, Freshfields, Bruckhaus Deringer LLP

• Size: €882m

• Tenor: 18 years

• Use Of Proceeds: To finance construction of one of the Ankara Etlik Integrated Health Campus

Background

The Ankara Etlik Integrated Health Campus is part of the Turkish Ministry of Health’s Health Transformation Programme, which is seeing the government invest €12bn into the country’s healthcare system in a bid to create 26,000 new bed capacity and address critical challenges faced by the sector.

Leading Italian infrastructure developer Astaldi and Turkish asset developer Türkerler were awarded the concession on 18 October, 2011 while a special purpose vehicle was established on 6 January, 2012.

The hospital, which is currently being built and is expected to be completed in 2018, is expected to cost €1.1bn, with €882mn being financed by a wide variety of lenders.


The €882mn loan was financed by 11 local and international lenders including EBRD, IFC, Black Sea Trade and Development Bank, SACE, DEG, Akbank, Banca IMI S.P.A., Credit Agricole/Deutsche Bank A.G, Intesa Sanpaolo S.P.A., Turkiye Is Bankasi A.S., Turkiye Sinai Kalkinma Bankasi A.S., and Unicredit Bank Austria AG, Unicredit S.P.A.

The deal is notable for successfully attracting a number of high quality local and international lenders including leading banks in Europe, as well as setting a new bar for tenors in Turkey. This benchmark opens the door, not only for healthcare PPP projects, but also for PPP projects in other sectors to draw-out tenors from 15 to 18 years.

“As the largest public-private project and with roughly €876 million to be financed in the international debt capital markets, this deal included a complex financing structure which brought together international and local commercial banks as well as international financial

institutions, making it a landmark deal in Turkey and internationally,” said Aslı Erden Öztürk, Principle Banker, EBRD

The Winners’ Selection Committee said: “An excellent example of a PPP deal in the Health sector that requires huge investment in the coming years. Cooperation between Turkish and European banks is of fundamental importance to ensure the success of the ambitious PPP program in the Health sector.


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