Ataturk Centennial Work Chases $100 Billion in Financing

Turkey is planning $100 billion of infrastructure projects over the next five years, with 70 percent of the spending dependent on financing by domestic banks, according to the nation’s largest lender.

About $60 billion of projects will be in energy, including at least two nuclear-power plants, according to Levent Kirazoglu, manager of project and acquisition finance at Turkiye Garanti Bankasi AS, the biggest bank by market value. The balance involves hospitals, airports and roads funded through public-private partnerships, he said.

Turkey, with a gross domestic product of $800 billion, is seeking to become one of the largest 10 economies globally by 2023, the 100-year anniversary of the founding of the Turkish Republic by its first President Mustafa Kemal Ataturk. The investment plans come amid a seven-fold jump in syndicated lending by domestic banks this year, compared with a 12 percent increase for the whole of the Middle East and North Africa, according to data compiled by Bloomberg.

“Turkish banks will finance a significant part of those finance needs,” Kirazoglu said at an Istanbul presentation on Oct. 21. Local lenders offering more funding than foreign peers “are favored by project sponsors,” he said.

Turkey has begun public-private programs including a $13 billion airport for Istanbul, two highway projects with suspension bridges costing $10 billion and 16 hospital compounds requiring total investment of $7.8 billion.

Airport Contract

The airport concession was awarded to a group led by Ankara-based builder Limak Holding AS. Russia’s Rosatom Corp. and ZAO Atomstroyexport are building the first nuclear power plant on Mediterranean coast near Mersin, while Mitsubishi Heavy Industries Ltd. and Areva SA will construct a second plant at the Black Sea town of Sinop, each costing $22 billion.

“The major source of funding for the banks will be repayments from the existing portfolio of project and acquisition loans that are about $60 to $65 billion,” Kirazoglu said. “We also expect some international banks to provide finance for hospital and airport public-private partnership projects.”

Builders of Istanbul’s third suspension bridge and connecting roads under the $3 billion project may sell bonds or shares once they generate revenue to refinance a $2.3 billion loan, the biggest for an infrastructure project in Turkey, Ibrahim Cecen, chairman of IC Holding, said Sept. 4.

Istanbul Bridge

Obtaining funding after the construction phase through initial public offerings or bond sales could be a “viable option” for the projects, Kirazoglu said. “This is especially so for hospitals and other infrastructure projects as their secure income model is known in advance.”

Garanti Bankasi and its Dutch unit were among seven banks that signed a nine-year facility with Ankara-based IC Ictas Insaat Sanayi & Ticaret AS, a unit of IC Holding, and Astaldi SpA for the bridge project on Aug. 29.

Many European lenders reduced their participation in the Turkish project finance market since the global financial crisis in 2008 led to their risk limits being cut amid a lack of available capital, Kirazoglu said.

Garanti took part in funding a $900 million loan toward the acquisition of Baskent Gaz Dagitim AS, the capital’s gas grid, by Istanbul-based Torunlar Enerji from the government in June. It also participated in a $1.4 billion loan from eight Turkish lenders for the first phase of a $7 billion highway between Istanbul and Izmir.

Airport Finance

Lira-based project financing may increase to replace dollars or euros as main currencies, Kirazoglu said. “The spread between the costs of lira and foreign-currency loans getting narrower gives the banks room to provide longer-term loans.” The Turkish currency has strengthened 1.3 percent this month to 1.9926 per dollar as of 5:19 p.m. in Istanbul.

Loans on Turkish projects, excluding hospitals, have an average maturity of 12 or 13 years, compared with an average of 22 years in the U.K., Andy Carty, head of senior management at U.K. Infrastructure, said in a presentation in Istanbul last month.

Limak Holding AS, joined by Turkish builders Cengiz Insaat, Mapa Insaat, Kalyon Insaat and Kolin Insaat, won the contract to build Istanbul’s third airport, which will start operating in 2019. It has the concession for 25 years, Limak Chairman Nihat Ozdemir said Sept. 20.

Export Credit

By May, the group will “hopefully” complete the financing, which may comprise commercial loans, export credit agency-backed financing and loans from international infrastructure lenders such as the World Bank’s International Finance Corp., Ozdemir said.

“Financing the airport will need serious effort as we are talking about 7 billion euros needed for the first two phases,” Kirazoglu said. The airport’s first phase will serve 60 million passengers, with capacity rising to as many as 150 million later.

Sumitomo Mitsui Banking Corp may take part in an export credit agency portion of the airport-finance package should the sponsors decide on ECA financing, Laughlan Waterston, deputy head of Infrastructure, Transport and Islamic Finance at SMBC in London, said in e-mailed comments Oct. 22.

Sumitomo Mitsui was a lead arranger in a $1.2 billion facility for a road tunnel to be built by a Turkish-South Korean group of companies under the Bosporus in Istanbul, he said.

“The project and acquisition finance market in Turkey will have a record this year,” Kirazoglu said, predicting a jump to as much as $21 billion from an average of $15 billion to $16 billion in recent years. “We expect it to rise to a band between $20 billion and $25 billion in the next five years.”