MARKET BRIEF. How far has the energy and infrastructure finance market come in 10 years?

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1 TURKEY MARKET BRIEF How far has the energy and infrastructure finance market come in 1 years? Learn about past developments and current trends in deal structures, sponsor ranking and deal volumes. Brought to you by 7th Annual Turkey Energy and Infrastructure Finance Conference for event updates using #TEIF14

2 /2 Turkey has a history of stable economic growth and political stability and is an active infrastructure finance market. Against the background of low global interest rates, reduced public spending, and volatile stock markets, Turkey pushed forward with infrastructure programmes in energy, transport and other sectors supported by targeted political focus that helped boost investments. Renewables was the most active market in terms of number of deals, though power, transport, and telecoms attracted most investment, as chart 2 shows. Power has been dominated by gas-fired, followed by hydro, power generation projects and renewables by onshore wind and small hydro generation plants. The high volume for telecoms comes primarily from the OTAS Turk Telekom acquisition and its subsequent refinancings. In Turkey, power has been the dominant sector - over 43.1 per cent of primary Turkey infrastructure market by source of funding to October IJ s data show that in 213 to October five deals reached financial close in Turkey with a total value of US$7.2 billion, of which US$7.9 billion was debt. Although the number of deals is a far cry from the 11, 9,9 8,8 IFI Government Support Equity Bonds Loans level of activity in 211, it is the result of 7,7 14 a difficult economic environment and the reduced availability of international project finance debt, as well as some delays to some deals procurements. 6,6 5,5 4, ,3 6 When economic activity was at a record high in 211, there were closings for greenfield hydro and wind power plants, ports privatisations, and for big-ticket assets such as the Izmir oil refinery, Gebze combined-cycle gas turbine plant, OTAS Turk Telekom second refinancing, 145MW Enerjisa 2 portfolio. 2,2 1, Turkey market by sector to October 4 2 When growth fell sharply in 212, financing activity fell and power and renewables saw the largest decrease. Several prominent transactions did 14, 12,6 Total value Total debt 25 close, however - Aeroports de Paris (AdP) completed the purchase of 38% of Turkey s TAV, and the US$1.2 billion 45MW Tufanbeyli coal-fired power plant and 11,2 9,8 8, US$1.24 billion Eurasia Bosphorus Tunnel 7, were able to raise financing. 5,6 1 So far in 213, the OTAS Turk Telekom acquisition refinancing, requiring US$4.75 4,2 2,8 5 billion in debt, helped to boost secondary 1,4 market activity in 213, as chart 3 indicates. The Third Bosphorus Bridge was the second largest deal, and featured Mining Oil & Gas Power Renewables Social & Defence Telecoms Transport US$2.3 billion in financing.

3 /3 market transactions were in power, followed by transport (24.6 per cent), while oil & gas, renewables and telecoms represented 8.9 per cent, 8.5 per cent and 8.4 per cent respectively In the primary market this year, the Third Bosphorus Bridge has accounted for 94.6 per cent of total investment. In the secondary market, the power and telecoms sectors witnessed the US$15 million privatisation of the Hamitabat CCGT and the US$4.75 billion OTAS Turk Turkey infrastructure market by type to October 9, 8, 7, 6, 5, 4, 3, 2, 1, 27 Dougas Group 28 Top equity investors breakdown by type to October Invested ERN 29 Sabanci 21 Primary Verbund 211 Garanti Bank 212 TSKB 213 Yapi Kredi ADP Management 29 Azeri Enery 21 Injaz Projects 211 Secondary Total value Total debt Turcas 212 Dougas Group Telekom acquisition refinancing. One of the key deals this year was the 457MW privatisation of Kangal coal-fired power plant, which Konya Seker bought for US$1.2 billion. Another significant power sector privatisation was the 6MW Seyitomer thermal power plant, where the purchase price was US$2.25 billion. Turkish players, both equity investors and lenders, dominate the Turkish infrastructure market. Foreign companies primarily invest in the Turkish market alongside local entities. Foreign investors will often approach winning local bidders, minimising their exposure to costly tender processes that can run for between 1.5 and 3 years. Procurement processes and project documentation also often favour local developers. If documentation was prepared in line with international standards for change in law protection, foreign currency exposure, international arbitration, tariff-setting mechanisms, and if bidding deadlines were generous enough to allow international sponsors to prepare documentation foreign companies might find it easier to bid directly for Turkish infrastructure. Since 27, 31 foreign companies invested equity in around 28 projects in Turkey. Over the same period 47 Turkish equity sponsors participated in a total of 59 deals. Those Turkish sponsors invested around US$5.5 billion, or around 63 per cent of equity invested since 27. The liquid Turkish banks are the largest debt providers in the country, because they are usually better equipped to assess the domestic economic and political environment and have better familiarity with its risks. Turkish lenders also arguably have less onerous environmental and social risk mitigation demands and less nervousness about gaps in project documentation

4 /4 Top lenders breakdown by type to October 6,5 5,85 5,2 4,55 3,9 3,25 2,6 1,95 1,3 65 Value Invested Garanti Bank BNP Paribas Fortis Isbank Akbank Citygroup Yapi Kredi Deutsche Bank UniCredit ABN AMRO Bank Vakifbank IFC EBRD EIB SACE KEXIM EKN FMO EDC Proparco BSTDB KfW Euler Hermes OUTLOOK Turkey offers an impressive pipeline of infrastructure projects in transport, healthcare and energy but government will need to prioritise projects, given their sheer number. In the short term, financial market conditions will create practical difficulties in raising large volumes of financing. Aviation sector will be a focus, as Turkey follows the example of the United Arab Emirates and Qatar in using aviation to serve economic development. Istanbul is within four hours flying time of most of Western Europe, the world s largest market for international travel, and within relatively short reach of regions such as Central Asia, Middle East and North Africa. The energy sector offers several opportunities, given growing domestic demand. Turkish energy imports remain high, and account for about 74 per cent of total demand. According to the Energy Market Regulatory Authority of Turkey, annual electricity demand is increasing by 5.68 per cent, compared to growth in the EU of only 1.6 per cent. The Turkish government has brought more IPPs to market, as well as two nuclear power plants - AKKUYU and Sinop and additional renewable energy generation projects. European utilities, facing thinning margins in Western Europe, are searching for opportunities elsewhere, and Turkey is one of their favorite destinations. Despite recent signs of macro-financial weakness, Turkey s investment grade status is attracting interest from private equity and infrastructure funds. Conflict near the country s borders may make some investors wary, but its economic and social fundamentals - rapid urbanisation, population growth, steady decade-long GDP and per capita GDP growth - are key reasons for investors interest in Turkish infrastructure. Infrastructure Journal Published date: 19 December 213 Brought to you by 7th Annual Turkey Energy and Infrastructure Finance Conference Data from #TEIF14

5 /5 What does the future hold for the Turkish energy and infrastructure market? Discuss with the people who know at the 7th Annual Turkey Energy & Infrastructure Finance Conference 12th & 13th March 214 Swissôtel The Bosphorus, Istanbul Find out more at Tel: +44 () DELEGATES REPRESENTED ALL PLAYERS IN THE INDUSTRY Turkish Project Sponsor 27% International Project Sponsor 1% Lawyer & Consultants 18% International Lenders 16% Turkish Lenders 15% Multilaterals, ECAs and government 8% Other 6% JOIN THEM IN 214 TO STAY AHEAD OF THE MARKET!