Turkey Gas Grid Operator Palmet Hires Advisers for IPO Next Year

Palmet Enerji AS, a Turkish group with interests in power generation and gas trading, hired Garanti Yatirim Menkul Kiymetler AS and BGC Partners, Inc. to sell as much as a 20 stake in an initial public offering.

Istanbul-based Palmet plans to hold the share sale in the first or second quarter of 2014, its chairman and chief executive officer Doganay Samuray said in an interview in his office in Istanbul on Sept. 20. The company is amending its articles of association to comply with the Ankara-based capital markets regulator’s legislation, he said.

Palmet Enerji operates two gas grids, one in eastern Erzurum province and the other in the western industrial town of Gebze, and has a total electricity production capacity of 126 megawatts. The company also has a wholesaler unit, Gazport AS, which buys gas from suppliers including Royal Dutch Shell Plc’s Turkey unit and from a joint venture between Norway’s Tiway Oil AS and Turkey’s state oil and gas company Turkiye Petrolleri AO to sell to industrial clients and retail users.

“We will soon apply to the regulator for listing permission,” said Samuray, the company’s majority owner. “I think interest in our shares will be good as we have seen in a 50 million lira ($25 million) bond sale earlier this month,” he said.

Bond Sales

Palen AS, the gas grid operator in Erzurum, plans to sell 30 million liras of bonds after its sister company Palgaz AS, operating in Gebze, sold two-year bonds on Sept. 5, Samuray said. “Those bonds were snapped up by investors as this was the first bond in Turkey by a gas grid operator and we have a clear picture of future cash flow for investors.”

Palmet plans to grow its consolidated sales about 40 percent this year after it got $300 million in 2012, Samuray said. The company’s earnings before interest, tax, amortization and depreciation, or Ebitda, will probably rise to $40 million this year from $34 million last year, he said.

A group of banks in Turkey will sign a deal to lend Palmet $400 million for the 283-megawatt hydroelectric Eric power plant, to be built as a cascade of four dams on the Karasu river, one of the tributaries of the Euphrates, in eastern Erzincan province, Samuray said. The plant’s cost will be $537 million, he said.

JPMorgan Chase & Co. also lent Palmet $75 million last week for a project to more than triple power capacity at the Delta power plant near Istanbul to 200 megawatts from 62 megawatts, Samuray said. The expansion will cost $130 million, he said.

“After the Delta expansion and Eric power plants are completed in four years, our total power capacity will rise to 547 megawatts,” he said. “This will help triple our EBITDA to as much as $150 million.”

Palmet could be interested in expanding its gas grid operations by acquisitions should there be opportunities, Samuray said. There are more than 60 gas grid operators in Turkey and loss makers in the industry, where retail sale prices are adjusted by the regulator every five years, may need to consolidate after the latest tariff adjustment was imposed at the beginning of this year, he said.

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