Once the preserve of a group of highly skilled FI borrowers, the Turkish loan market has now opened up to a wider range of corporate borrowers. Bank rather than fund dominated, the market avoided the excesses of the credit boom and is in good shape to take advantage of a steadily filling infrastructure and privatisation pipeline. David Cox reports.
As the credit crisis stopped activity in the leveraged loan market, Turkey has seen a steady deal flow throughout 2008. That the corporate market has in part driven this flow shows how the Turkish market has changed over the past few years. The syndicated loan product is long established in Turkey but activity was long dominated by financial institutions and trade finance business. However, yields have fallen in the FI sector to the extent that clubs have replaced syndication and as a result several yield based lenders have exited the market.
The stable record of the top tier FI market, which despite Turkey's sometimes difficult economic history have neither defaulted nor succumbed to a failed syndication, means there is a universe of lenders that are comfortable with Turkish risk. As such when the corporate market began to open there was a willing group of banks ready to book assets.
The privatisation of Turk Telecom was the defining point in the evolution of the corporate market. Oger Telekom, the Saudi linked vehicle which controls 55% of Turk Telecom, from 2005 through to last year embarked on a remarkable borrowing programme that showed the depth and sophistication of the corporate market. This culminated in 2007 with a US$3.7bn syndication that was later increased by a further US$1bn coupled with a reverse pricing flex. With around US$7.5bn raised in the initial syndication, at US$4.7bn the deal was equal to the entire Turkish loan market from 1990 to 2003.
The success of Ojer's borrowing programme paved the way for borrowers such as Turkcell, which closed a US$3bn war chest financing, Avea, which signed an innovative US$1.6bn bookbuild facility and Hurriyet, a media group that signed a US$550m loan that funded its takeover of London listed Trader Media East.
Activity through 2008 has not been so strong, though it has remained steady. Despite the high prices on offer the Turkish market is a bank only market and is underpinned by local bid that maintained discipline throughout the worst excesses of the credit boom of the past few years.
“The structures are still pretty solid,” said Hasan Mustafa, head of CEEMA loan syndicate at ABN AMRO. “Turkish liquidity is driven by local bank capacity and while pricing collapsed in Russia and the Middle East, Turkish deals found the required liquidity to get done, and this has provided a pricing floor.”
This pricing discipline means the market is in good shape to take advantage of the liquidity that is still available despite the wider credit crunch. Acquisition finance is expected to provide more supply as local firms look to expand abroad. Ulker's recently closed loan supporting its acquisition of chocolate maker Godiver was typical of this trend. The facility was launched at US$800m with a healthy margin of 275bp and secured a good oversubscription to close at US$950m. Ulker is not a frequent borrower but is considered a strong corporate name and the reception in syndication showed that there is still good demand for the right corporate name. The purchase of Godiva gives it a presence beyond Turkey and Europe as Godiva generates around 60% of its sales in the US.
As well as corporate acquisition the government's on-going privatisation programme promises to be a good source of supply. Despite concern over the health of the wider global economic that bidders are still prepared to pay up was confirmed by British American Tobacco's acquisition of Tekel, the state tobacco group, for US$1.7bn that came in above analyst expectations.
However, while these areas should provide ample opportunities, it is the infrastructure sector that offers the greatest promise. The country is looking at several infrastructure projects including the privatisation of roads and ports. For example a US$600m 13-year project finance loan closed successfully last year for the Mersin Port project. That facility backed PSA International's acquisition of a 36-year operating concession for the port and is likely to be followed by similar deals.
Turkish power is also a major challenge – the country must build significant energy capacity in the coming years. The country does not have its own natural resources, so such energy production is especially expensive when prices are high. “The fact Turkey has achieved the level of growth it has with energy prices where they are is a testament to its strength,” said Richard Dawson, global head of syndicated loans at ABN AMRO. “There will be lots of opportunities this year and in 2009 in energy infrastructure projects, for which sponsors will look towards the international banks for funding.”
The country’s growth is dependent on this infrastructure development – but it requires support from international investors.