Local Banks' Strong Position balanced with international players
The local banks are highly active and have high appetite in financing Turkish CP&I investments.
The familiarity of the local banks with the current legislations, sponsors and projects agreements provide them advantage to finance these projects. The international banks and financial institutions also have experience and interest in these projects, especially within healthcare PPP scheme.
The recently financed CP&I projects highlights the significance of the local commercial banks in the financing.
The market conditions and recent deals indicate three main loan structures;
- Commercial banks tranche;
- Multilaterals tranche (A-Loans and international banks under B-Loan);
- ECA tranche (International banks and development banks under ECA cover).
Equity Financing Alternatives
As a market practice, the tendering authorities and lenders require an equity contribution of at least 20% for the financing of the CP&I projects. Considering the market is dominated by the local investors with limited capital, alternative equity financing solutions might be necessary to reach the expected growth in CP&I investments.
As a recent development, a local investor issued a TL denominated floating rate bond for the equity financing of its CP&I investments, where a multilateral financial institution invested in 50% of the issuance. International players are also providing equity financing through direct equity partnership in developer. In addition, the same investor obtained a development finance institution's political risk coverage for its planned bond issuance recently and also bond rating above Turkey's sovereign bond rating.
Newly Founded Turkish Wealth Fund
In August 2016, the Turkish wealth fund management company is founded by the Privatization Administration to establish the Turkish Wealth Fund to support the large-scale strategic infrastructure projects. The company will execute its operations under the Prime Ministry.
Refinancing as an Option
Following the initial senior debt financing, the refinancing of the existing debt is possible with more favorable financing terms including, lower interest margin, increased gearing and lower debt service cover ratios.
Key variants of the lenders' refinancing considerations are; decrease in construction risk, completion of ramp- up period and healthy implementation of initial financing structure.
A recent example of successful refinancing is the refinancing of the Gebze-İzmir Motorway Project (with inclusion of financing of the new phase). Local banks together with the participation of an international bank, improved the financing conditions through the refinancing.
Mersin Port refinancing and additional CAPEX financing in 2013 was the first refinancing with a project bond in Turkish market.
General Financing Conditions
- Bank loans are the main financing tools whereas alternative financing tools remain limited
- Financings mostly in hard currency (USD or EUR) where TL denominated fixed and floating financing is also available
- Longest tenor reached to 18 years
- Debt to Equity ratio is varying between 60-40 to 80-20
- DSCR level is varying between 1,10-1,35x
- Recourse/limited-recourse structures are applied
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