Bridge Assured 135,000 Cars Leads to Bonds or IPO: Turkey Credit

Builders of Istanbul’s third suspension bridge may sell bonds or shares once the span starts generating revenue to refinance a $2.3 billion loan, the biggest for a new infrastructure project in Turkey.

The venture by Ankara-based IC Ictas Insaat Sanayi & Ticaret AS and Astaldi SpA may be able sell bonds at a slight yield premium to the government, according to Murat Gulkan, head of Istanbul-based investor Unlu Portfolio Management. The yield on Turkey’s dollar-denominated bonds due March 2023 jumped to a record 5.88 percent yesterday, more than the 5.51 percent average for emerging markets, according to the Bloomberg USD Emerging Market Sovereign Bond Index.

The group, 67 percent owned by IC Ictas, won the $3 billion government contract last year to build a 1.3-kilometer (0.8 mile) bridge across the Bosporus dividing Istanbul and 110 kilometers of connecting toll roads to help ease traffic. The venture has more than 10 years to build and operate the bridge. The government will compensate them should traffic be less than 135,000 vehicles a day, according to the terms of the deal.

“We may consider a bond sale or an initial public offering once the project becomes operational,” Ibrahim Cecen, chairman of IC Holding, the parent of IC Ictas, said by phone yesterday. “The bond sale could be done to refinance the project.”

Syndicated Loan

The joint venture signed a nine-year loan with a group of seven banks on Aug. 29, IC Ictas said in an e-mailed statement two days ago. The banks include Turkiye Garanti Bankasi AS and its Dutch unit, Turkiye Is Bankasi AS, Turkiye Vakiflar Bankasi TAO, TC Ziraat Bankasi AS, Turkiye Halk Bankasi AS and Yapi & Kredi Bankasi AS, co-owned by Unicredit SpA and Koc Holding AS of Turkey, according to the note. Financial details weren’t disclosed.

“We preferred to borrow from Turkish banks because they offered better terms and acted much quicker in decision making than foreign banks,” Cecen said. He declined to comment on the cost of the loan.

The project will probably generate $600 million in annual revenue, based on a $3 bridge toll and charges for distance traveled and at least 135,000 vehicles a day, according to a person with direct knowledge of the agreement who asked not to be identified because he wasn’t authorized to speak about borrowing terms. Revenue and shares of the consortium are used as collateral for the loan, the person said.

The bonds may be rated as investment grade as the project is guaranteed by Turkey’s Treasury, the person said. Turkey is rated BBB-, the lowest investment grade, by Fitch Ratings.

Fed Tapering

The lira was little changed at 2.0571 per dollar as of 6:18 p.m. in Istanbul yesterday. The currency has depreciated 8.8 percent in the past three months amid concern that the conflict in neighboring Syria will escalate and the U.S. will taper monetary stimulus that boosted demand for emerging-market assets.

It’s impossible to predict the group’s cost of borrowing through bonds because of the volatility related to Federal Reserve tapering and higher U.S. yields, Unlu’s Gulkan said by e-mail from Istanbul yesterday.

“A rising tide lifts all boats, and rising U.S. Treasury yields will lift funding costs for everyone,” Gulkan said. “Bonds to refinance the bridge project would probably be sellable” at Turkish government rates “plus something,” he said.

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