Privates on parade

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Emerging Markets

Turkey’s phase of mass privatisations has been driving the loans market and drawing foreign investors into the country, as FDI declines.

Turkish privatisations are relatively small scale compared to deals elsewhere in Europe. But the deal flow is showing impressive resilience in the face of drying up credit lines. “The stock market has taken a knock recently and the lira is currently cheap, but many would regard this as a buying opportunity for the mid or long-term investor,” said Carline von Nathusius, associate at Linklaters.

Global credit problems have already had some impact. “ambitious programme given the number and size of the projects which have been announced and particularly given the current global liquidity problems which may possibly affect the timetable,” said Brett Hailey, partner at Denton Wilde Sapte. “"It may be very difficult in the current market conditions for all these projects to be financed in the traditional debt markets and the Turkish government and investors in some of these projects may have to look seriously at raising equity and debt from other sources such as in the Gulf region or possibly from sovereign wealth funds."

Yet some are calling for the government to show more ambition in its privatisation plans. The government should ramp up its efforts to sell off controlling stakes to bring private sector control to a greater share of the economy, said Tolga Ediz, emerging market strategist at Lehman Brothers in London. The proceeds are needed for reinvestment into infrastructure, as well as in reforms of areas of the economy such as social security.

Istanbul’s Bosphorous Bridge and six highways are prize assets soon to be available; though there has been debate regarding whether to sell them individually or as a package. The latter solution was finally selected in a deal expected to fetch US$5bn–$6bn. Macquarie Bank is one of the institutions believed to be interested.

Energy and infrastructure constitute the majority of the projects and traditionally came with a sovereign guarantee. This is now harder to provide as it contravenes IMF rules, as the fund insists such a structure only be offered in the most extreme circumstances. The government therefore needs a more sophisticated way of structuring such deals.

In fact, a range of problems await the government in its planned privatisation agenda, said Mina Toksoz, head of country risk at Standard Bank. The government seems to underestimate the challenges associated with its large-scale privatisation agenda, she said. Already the government has displayed an inclination to swap state monopolies for corporate ones – presumably, she said, to maximise the price. The government seems to be ignoring the real benefit of privatisation – the introduction of greater competition, she said, indicating perhaps the government does not have a full grasp of the economic rationale underpinning its actions.

Istanbul’s natural gas distribution infrastructure, along with that of Iznit, is likely to cause significant excitement among investors when the anticipated deals come to market. Expectations have been raised by the performance of the tender for the much smaller Ankara, which sold for US$1.6bn. Bids for Istanbul are expected to come in Q3 this year.

The Istanbul subway project has been launched with no government guarantee. Worth US$7bn–$10bn, investors are picking up the tab themselves, with financing provided by the banks. “Istanbul is attractive to foreign banks,” said Andreas Schroeter, head of operations in Turkey for WestLB, “because it has low debt levels, compared to other cities.”

The national lottery, Milli Piyanfo, is another asset coming up for sale, with the UK’s Camelot among the anticipated bidders. It is not yet known what form the sale will take: it is possible the entire operating rights could be transferred to a new owner for a period of seven-to-ten years, although it is also possible the government will retain an interest via a profit sharing agreement.

State-owned bank Halbank is also up for privatisation. It is believed around 75% will be sold off, although it is not known whether this will be to a single entity or a consortium.

While also outside infrastructure, petrochemicals outfit Petkim has confirmed its own privatisation that will bring in around US$2bn, though this may come in instalments.