Project finance arrested
Slowdown to predicted $11B for 2017 set to regain 2015-levels by
2020, says Garanti’s Edin
In project financing, which has thus far been powered by the energy sector, the motor for growth this year has been infrastructure and motorway projects. Garanti Bank Deputy General Manager Ebru Dildar Edin predicts that the sector will reach a total volume of about $11 billion this year, adding, “70% of the completed projects will come from infrastructure.” In the first half of the year, investments slowed in relative terms due to the effect of the referendum that has been directly been reflected in project finance. Edin says business started accelerating as of June and that “the gap in the first half will be closed in the second half.”
Although the final signatures will be gained in 2018, financing of the Canakkale Bridge and Northern Marmara Motorway will be on the table in the last quarter of the year. Edin predicts that apart from certain large public projects, project financing will grow in the next two years through the inclusion of more medium-scale projects and that refinancing will increase as long as market conditions allow.
According to data from the Banks Association of Turkey, the size of Turkish banks’ project financing portfolio has risen beyond $80 billion, with $4 billion granted in loans during the first six months of the year. Of this figure, $3.2 billion came from new businesses and $800 million from refinancing. “New projects were mainly infrastructure projects, with most of them motorways,” says Edin. “In the first half of this year, a $2 billion highway project was financed and a $700 million bridge loan of the North Marmara Motorway is included in this amount. [A total of ] $1 billion of the $4 billion was spent on purchasing transactions.
“In 2016, $6 billion was financed on energy, while in the first six months of this year, the figure had declined to $800 million. In energy, refinancing returned to the agenda and after the first six months was resuscitated. In the two-month summer period, $2.5 billion of financing was completed, including the refinancing of Antalya Airport and Ikitelli PPP hospital projects.”
The size of the total closed project financing last year was $16 billion. The size of the financing that was closed in the first half of this year is $4 billion, so figures appear to be running at half of last year’s figures. However, Edin explains that through her calculations the end figure is likely to come closer to the 2016 amount. “In the second half, we anticipate further volume of $7 billion, some of which will be refinancing,” she says. “We expect to close the year with a total volume of $11 billion. There are projects whose tenders were done this year and whose financing will be closed in 2018. YEKA’s, the North Marmara Motorway, which might be finished by the end of this year, but is more likely to be carried into the beginning of next, the Canakkale Bridge project and the hospitals projects mean the foreseen volume for 2018 is already about $15 billion.”
‘Best per od of the year w ll be the last quarter’
When comparing annual figures, the projects and structured financing volume in Turkey stood at $34.6 billion for 2015. Except the bridge loans and refinancing, $23.5 billion worth of new finance was provided in that year. However, the total figure reached in 2016 was $16.2 billion. With the $34.6 billion in projects made at that time, Edin describes 2015 as a “wonderful year.”
“The range we expect for the end of this year is $11-13 billion. We have observed the reasons for this regression as being a result of the [difficult] regional situation, the referendum [of April], and the decline in the investment appetite apart from big businesses that had already been set out,” says Edin. “Investors do not want to take action without seeing the future clearly. But we can easily say that the second half of the year will be better than the first half. There was the volume of $4 billion until the end of June, from that day until the end of August we have had significant movement; the financing of $2.5 billion was closed including the refinancing of Antalya Airport and Ikitelli PPP hospital projects. Only $400 million of it was refinancing. The last quarter of this year will be the best quarter and will move faster [in terms of project finance]. The last quarter will save the year.”
2005-l ke f gures poss ble from 2020 onwards
Asked “When will the next great year since the one in 2015 for project financing come?” Edin says: “We have no such expectation for 2018 or the election year of 2019. In election years, there is traditionally a slow down. This [2015 levels] can be discussed for 2020 and beyond. But in order to reach these volumes, private sector as well as big public sector projects must implemented. If the third airport is in effect, and market conditions enable refinancing at that time, then we will talk about different volumes.” Financing of the third airport is running at 4.5 billion euros.
“We have not previously seen many foreign banks in the highway financing,” she adds. “Only Deutsche Bank participated in the financing of the Gebze-Izmir motorway. Now, Korea’s Eximbank has declared its intention to fund up to 50% of the $2.5 billion financing for Canakkale Bridge, while Turkish banks will join forces to fund the other half. We are going to get together in September. In order to gain the final signatures in the first quarter of 2018, there is a need to act in September.”