What Attracts Investors to Turkey? · 9/18/2015 · Euroasia Tunnel US$1.6bn Euroasia Tunnel...

PRIVATE AND CONFIDENTIALVALYRIAN CAPITAL

What Attracts Investors to Turkey?

A Contrarian play Behind the Headline Risk

VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Turkey Aspires to Achieve Ambitious Goals by 2023

Pg. 2

In 2013, the Turkish government allocated 30% of the total infrastructure investment budget to the

transportation industry. Infrastructure investments are expected to reach TL36.6bn by 2023

Planned Major Projects

Infrastructure (TL bn) Energy and utilities infrastructure (TL bn)

2015 2016 2017 2023

Körfez Bay Bridge 1st

PhaseUS$9.2bn

EuroasiaTunnelUS$1.6bn

EuroasiaTunnelUS$1.6bn

3rd Bridge in IstambulUS$2.5bn

PPP Hospitals*US$7.7bn

Körfez Bay Bridge 2nd

PhaseUS$10.1bn

1 4 5

2 3 1

₺0

₺5

₺10

₺15

₺20

₺25

₺30

₺35

₺40

Roads and bridges

Airports

Railways

Ports, harbors, waterways

CAGR: 12%

₺0

₺10

₺20

₺30

₺40

₺50

₺60

Water infrastructure

Oil and gas pipelines

Power plants and transmission grid

CAGR: 12%


Turkish Infrastructure Covers a Wide Range of Projects

Pg. 3

Tremendous government incentives have created a strong pipeline of projects as well as capital for new

investments and opportunities for investors

▪ Natural Gas

Starting from 2003, private investors have been given concessions t toll out natural gas distribution networks in certain regions through public tenders

As a result, few companies have emerged as leading gas utilities providing service in several regions

▪ Electricity

Based on a broad liberalization program across the energy sector, the Turkish government has completed privatization of electricity utilities, a total of 21 regions in Turkey

▪ Transmission

The government has recently announced that BOTAS (national backbone operator) and TEIAS (national grid operator) are considered to be privatized

Utilities / Energy

▪ PPP Structure in Healthcare

Turkish government has been focusing on a major investment program in healthcare (over 20 city hospitals will be developed under PPP specs)

Private sponsors will construct and equip hospitals and rent the facilities to the government under long term contracts

Legal framework is now in place and preferred sponsors re selected for most of the projects

Several projects are close to financial closings and construction has began on a few of the projects

Turkish government is expected to introduce PPP scheme in other areas of social infrastructure based on the experience in healthcare

Social

▪ Airports

Airports are the first examples of privatization in infrastructure and now all major airports are being operated by private operators

▪ Ports

Most of the major seaports have been privatized except for Port of Izmir

There are currently several port developments in progress in order to tap growth to increase foreign trade volumes

▪ Toll Roads

Turkish government intends to privatize approx. 2000 km of toll road network

In addition, there are three major development projects in progress under private ownership

▪ Railways

Railways are under the privatization program and needs significant investments for rehabilitation

Transportation


Strong Fundamentals Support Infrastructure Investments

Pg. 4

Demographic shifts in Turkey’s population are driving demand for infrastructure projects

Population Increase (CAGR 2013-2022)

Unemployment Rate

Population by Age Groups: Turkey vs. EU15

Evolution of Household Income Distribution

1.6%

0.8%

0.5%0.4%

0.3% 0.3%0.2%

-0.2% -0.2% -0.3% -0.4%

0.4%

Ind

ia

Tu

rkey

Sp

ain

Gre

ece

UK

Ital

y

Cze

ch R

epu

bli

c

Po

lan

d

Ger

man

y

Ro

man

ia

Ru

ssia

Bu

lgar

ia

1,243

76 47 11 64 60 11 39 81 14321

7

Total population (mm) in 2013

80-84

70-74

60-64

50-54

40-44

30-34

20-24

10-14

<5 years

EU-16

Turkey

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Disposable Income Breakdown of households for income brackets

>$75k

$50-$75k

$25-50k

$10-25k

$1-10k

898 2,496

1,190 2,666

4,475 6,589

2,496 6,838

800 2,520

6% 13%

7% 14%

28% 35%

43% 33%

16% 4%

2007 # of households 2017 # of households


Key Parameters Reflect the Need for Further Investment

Pg. 5

Located between Europe and Asia, Turkey enables a link between three continents over 1.5 billion people

and a GDP of $25 trillion

Infrastructure Investment Per Capita

Electricity Consumption Per Capita (kWh)

Transportation Investments

Foreign Trade Volume (US$ mm)

11898

107

131109

126

80

4564

53

Bel

giu

m

Sp

ain

Fra

nce

Net

her

lan

ds

UK

Sw

eden

Cze

ch R

epu

bli

c

Bu

lgar

ia

Po

lan

d

Tu

rkey

0.7% 0.8% 0.9% 1.1% 1.2% 1.3% 1.4%

2.5%2.9%

4.3%

UK

Sw

eden

Fra

nce

Bu

lgar

ia

Tu

rkey

Sp

ain

Ru

ssia

Po

lan

d

Ro

man

ia

Ch

ina

2,709

3,832

4,864

5,380

6,289

6,599

7,081

13,246

Turkey

Poland

Bulgaria

Greece

Czech Republic

Euro Area

Germany

United States

141 186 241 237 252 262 209361

500102

114135 152 152 167 344

536

700

2009 2010 2011 2012 2013 2014E 2015E 2020E 2023E

Export Import

CAGR: 14%

CAGR: 12%


Turkey’s New Investment Incentives Program

Pg. 6

The New Investment Incentives Program in Turkey has been in effect since January 1, 2012 and offers four

different types of programs each with its own investment approach and risk tolerance level

Incentive Regions

Investment Incentive Program Options

Support Measure General Investment

Regional Investment

Large Scale Investment

Strategic Investment

Vat Exception ✓ ✓ ✓ ✓

Customs Duty Exemption ✓ ✓ ✓ ✓

Tax Deduction X ✓ ✓ ✓

Land Allocation X ✓ ✓ ✓

Interest Support X ✓ X ✓

Vat Refund X X X ✓

Employer’s SocialSecurity Premium Support

X ✓ ✓ ✓

Region 1 2 3 4 5 6

Regional Incentive Applications

Tax Reduction Investment Contribution Rate

15% 20% 25% 30% 40% 50%

Incentive for Large Scale Investments

Tax Reduction Investment ContributionRate

25% 30% 35% 40% 50% 60%

Support for Employer’s National Insurance Contribution (Both)

2 Year 3 Year 5 Year 6 Year 7 Year10

Year

General Investment Incentive Program

▪ Investment minimums vary among investment type

▪ Incentives are allocated depending on the region▪ Generally, minimum amount is TL 1 million for Regions 1 and 2

and TL 500,000 for regions 3, 4, 5 6Regional

Investment Incentive Program

Large ScaleInvestment

Incentive Program

▪ Available for all investment types▪ Investment minimum is pre determined

▪ Investment minimums vary among investment type

▪ Incentives are allocated depending on the region▪ Generally, minimum amount is TL 1 million for Regions 1 and 2

and TL 500,000 for regions 3, 4, 5 6

▪ Program that is offered for the production of intermediate and final goods that have highly dependent on imports

▪ Minimum investment for this group is TL 50vmillion and aboveStrategic Investment

Incentive Program


Source: PwC – Invest in Turkey

Business Taxation in Turkey

Pg. 7

Breakdown of Direct and Indirect Taxation

Direct Taxation in Turkey: Cash Repatriation Alternatives

Foreign Investor FAQ

Direct Tax

Corporate Tax Income Tax

Indirect Tax

VAT SCT Customs TaxSpecial

Communication Tax

Stamp TaxBanking

Insurance Transaction Tax

▪ Which jurisdiction is the most popular for investing into Turkey? Netherlands, Luxembourg, new Swiss treaty since 2013

▪ How long does it take to establish a company/partnership in practice? Generally within 2 weeks for companies / 1 week for partnerships

▪ What is the minimum capital requirement? No capital requirements for branches, TL5k for LTDs and TL50k for JSCs.

▪ What are the basic filing requirements?Month WHAT, VAT and stamp tax, social security contribution, quarterly advance corporate & annual tax return Is there any tax loss carry forward / carry back rule? Tax loss carry forward for 5 years, no carry back

▪ What is the minimum wage? What are the labor tax costs? Minimum gross wage is TL 940 (USD 520), income tax between 15-35%, social security and unemployment contribution 36.5% with a certain cap (15% employee / 21.5% employer portion)

▪ 15% - Dividend withholding tax (WHT)▪ 10% - Interest WHT (0% if lender is bank or

financial institution)▪ 20% - Royalty WHT▪ 20% - Independent professional services WHT▪ 18% - Reverse charge VAT on service, royalty

charges▪ Corporate tax 20%▪ Capital reduction: Tax neutral (lengthy process)▪ Share buy-back now works but with limitations▪ Hybrid financing is doable

Tax treaty taxation Non-tax treaty taxation

▪ Dividend withholding tax (WHT) – 5% or 10% Interest WHT – 10% (0% if lender is bank or financial institution)

▪ Royalty WHT – generally 10% ▪ Ind. Pro. services WHT – 0% or 20%▪ 18% Reverse charge VAT on service, royalty

charges▪ No registration requirement for service/royalty

agreements▪ No pre-clearance required for applying reduced

treaty rates

Foreign Parent company

Turkish company


The Evolving Turkish PPP Market


PPP Projects in Turkey at a Glance

Pg. 9

Due to the limited available public resources to fund these new investments in healthcare, the government

has decided to procure them by using a build-lease-transfer model via public-private partnerships (or PPPs)

PPP Projects (Project agreements signed)

A Development Period for new PPP

21.68117.894

13.147

3.8171.599

1.307 0.36 0.271

17

68

30

5

20

2

13 13

0

10

20

30

40

50

60

70

80

0

5

10

15

20

25(#)

(mm

$)

167 PPP Projects▪ 97 - Build – operate – transfer ▪ 60 - Transfer of Operating Rights▪ 5 - Build – operate ▪ 5 - Build Lease

Bankability has significantly improved…▪ There is still room for improvement▪ Different comfort levels for lenders/investors in

different PPP models applied by different authorities

▪ TOR Models: Still in need of additional bankable structures

▪ Government has increased its efforts to improve BOT scheme and legislative framework for Turkish PPP structure

▪ New Models successfully achieved in greenfield Motorways

▪ Healthcare Projects – New health PPP law passed▪ Successful closing on capital for:

▪ Eurasia Tunnel Project – ($3bn)▪ Gebze-izmir Motorway – ($2bn) (P1 & P2A)▪ 3rd Bosporus Bridge – ($2.3bn)▪ Electricity Distribution Privatizations completed

– ($12.7bn)▪ Tender completed fro 3rd Istanbul Airport – (€7-9bn

projected)

1.30

7

0.81

2

0.86

7 2.48

4

2.08

2

0.48 1.

363

0.19

0.11

3

0.53

2

4.35

5

0.62

4.05

7

4.19

1

2.55

8

10.2

94

3.52

9

2.71

8

16.1

39

0

2

4

6

8

10

12

14

16

18

(mm

$)

# of PPP projects are trending upward


A Closer Look into the PPP Structure in Turkey

Pg. 10

Since 2011, Turkey has seen a boost in investor demand for Infrastructure PPP projects with a combined operating

monetary value of approximately USD $25 billion. Turkey is especially active in the energy and healthcare sector

PPP Infrastructure Investment in Turkey Remains Steady

Stakeholders in PPP

MoD▪ The Ministry of Development is responsible for

macroeconomic planning

The Treasury▪ The Treasury is responsible for overseeing state

funds

MoF▪ The Ministry of Finance handles the budgeting on

all projects (new and existing)

The PublicProcurement

Agency

▪ Public Procurement Agency is responsible for overseeing tender offers on projects

The Privatization Administration

▪ Private Administration Agency deals with the implementation process primarily with TOR PPP projects

The Line Ministries

▪ Handle implementation of BOT, BO and BL models for relevant projects

Municipalities▪ Municipalities are very active among the BOT and

BO PPP model, as well as concessions

▪ Significant government reform in 2008 has continued to influence energy investment in Turkey which has amounted to approximately $10.5 billion in investment

▪ Turkey’s seventeen most recent projects, which include the privatization of power plants and the construction of new highways and ports, amounted to an investment volume of USD 12.5 billion.

▪ A total of $22.6 billion worth of transportation PPP projects have been realized and include; two airports in Istanbul (Ankara Esenboğa and Izmir) as well as 19 functioning ports/marinas.

PPP

Privatization Administratio

n

The Ministry of Finance

The Lines Ministries

The Ministry of

Development

The Treasury

Public Private Agency

Municipalities

Source: TR Privatization Administration, Ministry of Development


Turkey is Aggressively Encouraging PPPs

Pg. 11

The term Public-Private Partnership (PPP) refers to a long term partnership between the public and private

sector in order to finance, implement and operate infrastructure services

The PPP Methods in Turkey

▪ Turkey was one of the first countries to implement its own PPP legislation. The law was enacted in 1994 for various fields within the infrastructure sector such as transpiration, energy, water supply and treatment

Build-Operate-Transfer (BOT)

A private sector company builds an infrastructure project and operates it for a pre-agree period and eventually transfers the ownership back to the government

Build-Operate (BO)

A private organization builds and operates a project within certain incentives from the government instead of receiving direct funding (i.e. tax-exempt status)

Transfer of Operation Rights (ToR)

This model involves transferring the rights of a selected project to the private sector for a predetermined duration of time under certain conditions

Build-Lease (BL)

The private sector organization builds the project and leases it to the relevant public organization. Build-Lease is generally used in the healthcare sector.

▪ The most commonly used PPP strategy in Turkey is the BOT model ▪ It has been used in a wide variety of projects including the Marmaray Project, Zafer Airport in Kuthahya, the Istanbul-Izmir motorway,

the Yuvacik power plant, the Birecik power plant and the Yamula power plant in Kayseri.


$35+ bn of Infrastructure projects are Financed via PPPs

Pg. 12

Turkey’s strategic location, expanding population and robust economic growth rate are expected to remain

key drivers of infrastructure development

PPP Projects Continue to Thrive

Total Contract Value of PPPs in USD, 1986-2011

Average Investment in Sectors

▪ Infrastructure construction was the second-largest market in the Turkish construction industry in 2012, accounting for 31.2% share, valued at $23.4 billion and registering a CAGR of 10.6%

▪ Turkey’s expanding population, robust economic growth and cross-border trade flow are expected to remain key drivers of infrastructure development

▪ In terms of the number of projects, the energy sector leads all PPP projects, however in terms of total amount invested, investment into airport infrastructure projects has been the most attractive choice.

0

10

20

30

40

50

60

0

200

400

600

800

Air

po

rts

Urb

an

Ro

ad

Hea

lth

En

erg

y

Po

rt

Bo

rder

Mar

ina

Pro

ject

s

US

D (

mm

)

Average Value Number of Projects

USD (mm) Roads Airports Ports Tourism Customs Energy Urban Infra Healthcare Total

BOT 8,195 2,467 122 241 219 4,3270 1,168 - 16,782

BO - - - - - 4,394 - - 4,394

BL - - - - - - - 385 385

TOR - 10,652 1,444 - - 1,721 - - 13,817

Total 8,195 13,119 1,566 214 219 10,485 1,168 385 35,378

Source: Ministry of Development


Source: World Bank Group

Supranationals can be a Source of Low Cost Capital

Pg. 13

Turkey’s development priorities provide ample opportunities for unlocking value from closer cooperation

across international financial organizations such as the World Bank, IFC, EBRD and MIGA

European Bank for Reconstruction and Development

Multilateral Investment Guarantee Agency (MIGA)

The World Bank (IBRD-IDA)

International Finance Corporation (IFC)

▪ Began investing in Turkey in 2009

▪ Has invested approximately €4.5 billion to date across 130 projects in

the infrastructure, energy, agribusiness, manufacturing and finance

space

▪ Has worked closely with the Turkish MoH over the past two years to

enable greater private sector involvement in the hospital sector

▪ Recently played a key role in securing a €433 million long-term

financing package for the Adana Hospital Project

▪ The project is part of a €12 billion Turkish government

program to build or expand 60 hospitals across the

country

▪ Under the current CPS program, MIGA has delivered approximately

$65 million in financing to Turkey

▪ Institutions guarantee portfolio has grown to $288 million

▪ Turkey is a main focus for MIGA business development efforts to

unlock opportunities for credit enhancement and political risk

insurance coverage (PRI)

▪ MIGA thrives best in the financial sector (supporting on-lending to

SMEs and exporters), urban transport, and PPPs in the healthcare

sector

1%

22%

51%

26%

Net Commitments by Sector (active

projects as of February 2015

HealthcareEnergy & ExtractivesFinance & MarketsUrban Development

▪ Turkey’s active portfolio of investment operations with IBRD

financing includes 13 projects with total net commitments of $4.8

billion

▪ The portfolio supports the energy sector, financial and private sector

development, urban development and healthcare

▪ Turkey has been a member of IFC since 1956 and is their second-largest

client

▪ From 2008 to 2011, IFC invested $3.7 billion in 47 projects in Turkey

463 551 680342 396 459 451

958

495

50

413557

209 68

898

130 6510

8

14

9 9 1013

20

14

0

5

10

15

20

25

0

500

1000

1500

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

YTD

IFC Annual Commitments in Turkey, $mn (as of December 31,

2013)

IFC own account Mobilization Project count


A Closer Look at Turkish Healthcare PPPs


SOURCE: European PPP Expertise Center; Deloitte Survey

Turkish Healthcare PPP Sector at a Glance

Pg. 15

Turkey is considered to be the second most attractive market globally for Healthcare PPP projects in the

medium to long term

Turkish Healthcare PPP Highlights Highly Desirable PPP Market

Value of PPP Contracts Recently Closed

Additional Bed Capacity:

50

Planned PPP Projects:

35

Lease Payments per

year:$1.7 billion

Current PPP Projects:

20

Average Lease Period:

25 Years

Legislation adopted in 2013 requires that at

least 20% of the medical equipment used in healthcare PPPs are

produced locally

Total Lease Payments:$14 billion

23%

30%19%

16%

12% Turkey

USA

Brazil

India

Colombia

0 1000 2000 3000 4000 5000

Lithuania

Poland

France

Netherlands

Italy

PPP Projects ( $mm)


Source: Investment Support and Promotion Agency of Turkey

Transformation of the Turkish Healthcare System

Pg. 16

Since 2003, the Turkish healthcare system has undergone a major transformation

1980 - 20021st Phase of HTP

2003 - 20092nd Phase of HTP

2010 - 2013

▪ Provisions regarding both citizen’s rights to social security and the State’s responsibility to effectuate this right

▪ The Fundamental Law on Health Services was adopted on 1987

▪ In 1990, the first National Health Congress was held. The development of a “Master Plan for the Health Sector” was considered to the the beginning of healthcare reform

▪ The Green Card Program was introduced

▪ The “Health Transformation Program” (HTP) regulated by MoH is announced

▪ 3 public insurance systems (GEPF, BagKur and SSK) were consolidated under one umbrella, SSI

▪ Members of the Government Employee Pension Fund and patients covered by the Social Security Organization are now allowed to get service from private hospitals and clinics as well as public healthcare institutions

▪ A cap was put on surcharges (30%) to beneficiaries receiving healthcare from private hospitals

▪ Hospitals of other public institutions, including those of SSI were transferred to MoH jurisdications

▪ Implementation of Universal Health Insurance began

▪ The Green Card Program was brought under the SSI and its coverage was expanded

▪ The legal foundation for Public Private Partnerships is revised

▪ A performance-based contribution payment system was introduced

▪ The Family Medicine Program was established throughout Turkey

▪ SSI allowed therapeutic area based on contracts with private hospitals

▪ The maximum surcharge ratio for private hospitals was raised to 90%

▪ SSI has amended the healthcare service agreements signed with the healthcare providers

▪ New clauses invoke tighter regulation and stronger deterrence not to breach the maximum limits of surcharge

▪ Access to health insurance has been expanded by including stateless persons and refuges within the scope of Universal Health Insurance


Source: IHC: Integrated Health Campus, CH; City Hospital ERH; Education & Research Center

Illustrated project whose tenders are completed and awarded. There are 5 remaining projects who's tenders are still in progress

Turkish Healthcare PPPs: Integrated Health Campuses

▪ New legislation has been enacted for the planning, construction

and management of health care facilities all across Turkey

▪ International tenders have been launched for the design,

financing, construction and operation of the integrated health

campuses (Ankara Etlik Campus pictured below)

▪ 20 hospitals of which 14 tenders are completed and awarded, have

been planned in the introduction phase of the PPP model

▪ Projects have been structured as long-term 28 year design, finance,

operate and transfer model deals with a 36 months construction

period and a 25 year operating period

▪ The Turkish Government aims to utilize the financing capabilities

of the private section in public health investments

Pg. 17

In 2007 the Ministry of Health (MoH), through collaboration with the Department of Public Partnership,

enacted The Public Private Partnership (PPP) model utilized in the Turkish Healthcare Sector today

Highlights

Ankara Etlik Integrated Health campus project

Project Locations

# Project Name SponsorBed

CapacityCAPEX

(mm US$)

1 Adana IHC Rӧnesans-Meridiam-Sila-Sam 1,150 481

2 Bilkent IHC IC Ictaş-DIA-Intersun 3,662 1,100

3 Bursa IHC Rӧnesans-Sila-Ş.A.M 1,355 1,327

4 Elaziğ IHC Rӧnesans-Sila-Ş.A.M-TTT 1,038 N/A

5 Etlik IHC Astaldi-Türkerler 3,566 1,121

6 Gaziantep IHC Samsung C&T-Kayi 1,875 467

7 Isparta CH Akfen 755 268

8 Bayrakli IHC Türkerler-GAMA 2,060 765

9 Ikitelli IHC EMSAŞ-PBK-Ascension-A&S 2,682 1,200

10 Kayseri IHC YDA – Inso Systemi 1,587 650

11 Karatay IHC YDA – Inso Systemi 838 253

12 Manisa ERH YDA – Inso Systemi 558 N/A

13 Mersin IHC IC Ictaş - Intersun 1,253 N/A

14 Yozgat ERH Rӧnesans-Sila-Ş.A.M-TTT 475 129


Source: MoH, TurkStat

Demand Remains Steady for Private Healthcare Facilities

Pg. 18

Private hospitals in Turkey are concentrated in the western region, with the highest concentration in Istanbul

Number of Private Hospitals in Turkey

Percentage of Private Hospitals in Turkey, 2012

Number of Private Hospital Beds in Turkey

Regional Distribution of Private Hospitals in Turkey

0

250

500

750

2002 2009 2010 2011 2012

# o

f h

osp

ital

s (t

ho

usa

nd

s) CAGR14.8%

0

10

20

30

40

2002 2009 2010 2011 2012

# o

f b

eds

(th

ou

san

ds)

CAGR23.6%

37%

56%

4%3%

Private

MoH

University

Other


Turkish Demographics Drive Healthcare Demand Growth

Pg. 19

Demand Drivers

Favorable Demographic

Profile

Improvements in Healthcare

Regulations

Improved Healthcare Awareness

Increasing Lifestyle Diseases

▪ Rising Population▪ Aging Demographic

▪ Introduction of mandatory health insurance▪ Creation of independent healthcare regulators▪ Reforms to weed out low quality medical providers to protect patients

▪ Rising literacy rates ▪ Government initiatives to increase awareness on general healthcare issues

▪ Urbanization and rising per capita income▪ Higher incidence of lifestyle diseases

Healthcare Demand Drivers

Top Opportunities Top Challenges

▪ Increased participation of the private sector in Turkey’s healthcare industry

▪ Rising patient expectations for medical services with higher quality and accessibility

▪ Rapid increase in the number of hospitals and clinics opening in the country

▪ Declining prevalence rate of communicable diseases; increased prevalence of chronic diseases

▪ Increasing popularity of medical tourism in the GCC region▪ Low insurance penetration despite increasing healthcare

expenditure per capita

▪ Steady increase in coronary heart diseases, cancers, accidents and mental-ill health

▪ Heavy reliance on non-Turkish health professionals to support the expanding health system

▪ Improving healthcare services systems in the GCC countries▪ Growing outbound medical tourism as neighboring

countries are more attractive destinations for treatment

▪ Substantial government investments to expand & regulate the healthcare industry

▪ Introduction of compulsory medical insurance for all expatriates in Turkey


Source: Source: OECD, WHO

Healthcare Sector is Poised for Continued Growth

Pg. 20

As economic welfare in Turkey is increasing, the healthcare sector still has room for growth as it catches up

with high income countries

Healthcare Spending per Capita and GDP per Capita in Turkey

Density of Healthcare Resources Healthcare Spending as a % of GDP

186 235 307 374 436545 620 567

668 701 707 734 751 796 847 912

0

2

4

6

8

10

12

14

0

200

400

600

800

1000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f

($ Th

ou

sand

s)Sp

end

ing

($)

Healthcare Spending per Capita GDP per Capita

1.7 1.7 2.53.2

8.7

4.8

0

5

10

Physicians Nurses Hospital Beds

Turkey

6.79.3

17.7

0

4

8

12

16

20

Est

on

ia

Mex

ico

Lu

xem

bo

…

Tu

rkey

Po

and

Cze

ch R

ep

Slo

ven

ia

Fin

lan

d

Gre

ece

No

rway

OE

CD

Den

mar

k

Can

ada

Ger

man

y

Net

her

la…

Un

ited

…


Financing Climate

▪ Club deals continue to dominate the market

▪ Maximum ticket size: $400 - $500mm ( generally supplied by

local leading bank)

▪ Local banks will continue to dominate the market

▪ Lenders: local banks, IFIs, ECA, foreign banks

▪ Hospital PPPs are receiving the most international investor

interest/demand

▪ Maturities are generally 12-13 years

15 years for Hospital PPPs

▪ Equity: 20-35% for infrastructure projects

Pg. 21

The Turkish healthcare market has undergone major reforms that will require substantial new investments. These

reforms have occurred as a result of liberalizing the healthcare market and the fast pace of healthcare market growth

Financing Conditions Going Forward

Challenges and Solutions - Infrastructure

Turkish banks are capable of raising $2 to

$3bn in funding for a single project1

IPOs and Project Bonds will bring additional

liquidity to the market place2

TL financing – serves as an alternative to hard

currencies3

Hospital PPPs – Covered IFI Tranches – 18

year maturities4

Bankability Issues

▪ Risk sharing

▪ Large financing need

▪ Long tenors

Legislative Framework

▪ Different comfort levels provided to Financiers in different PPP models

Mitigations

▪ Government support: Step-in, termination payments

▪ Strong track record of authority

▪ Turkish Bank’s increased capacity to lend in 15 year maturities

Mitigations

▪ Improved government support in TOR type PPPs


Co-Investment Process

Pg. 22

The following is a brief co-investment structure for illustrative purpose. Various investment structures can

be considered, reflecting the specific requirements of the investors

Co-Investment Process (Illustrative)

Operating Partners

Potential Investors

Project Sponsor

Valyrian

Project SPC

End User

EPC O&M

EPC Contract

O&M Contract

Investment

Off-takeContract

Operating partners & potential investors can form Consortium for the Project

Potential investors can benefit from operating partners’ EPC Expertise & Financial Capabilities

Potential Investors can benefit from operating partners’ local expertise on Turkey

Role Division on EPC or O&M sector among operating partners and potential investors are negotiable

Valyrian can make its investment either in the equity side, debt side, or both


Healthcare PPP Structure and Regulatory Framework

Pg. 23

Contractual Structure

Revenue Structure & Provided Services

Legal Framework

Joint VentureEquity

Investor

Ministry of Health

SPV(Borrower)

EPC JV(EPC

Contractor)EPC JV

(EPC Contractor)

O&MCompanies

Subcontractors

Ministry of Health

O&MAgreement

EPC Contract

Shareholder’s AgreementProject Finance

Agreements

Project Agreement

Subcontract AgreementDirect Agreement

Service Payments

Availability Payments

Rev. From Commercial

Activities

Non Volume Service

Payments

Volume Service

Payments

Vol. Clinical Support

Payments

Vol. Clinical Service

Payments

Re

ven

ues

3

1 2

ObligatoryBuilding & Land Services

Extraordinary MaintenanceFurnishing Services

Other Clinical Support etc.

1

Operational Non-VolPest Control, Car Parking,

Cleaning, Security etc.

2

Optional VolumeLaboratory & Imaging

Sterilization & Disinfection

RehabilitationLaundry & Catering etc.

3

1 2

3

1

2

3

Authority▪ PPP Program is regulated by the Turkish Ministry of

Health (MoH) – Department of Public Private Partnership (the “Administrator”

Revenues

▪ Project revenues are based off of availability payments, services payments and revenues from commercial activities

▪ Availability payments are paid to sponsors by the Administration for the availability of the Campus facilities during the relevant operating period

▪ Service payments are also made by the government for services such as laboratory and imaging, laundry, catering and cleaning

▪ Project Company will collect revenues from the commercial areas at its own cost, risk and responsibility (i.e. medical equipment stores, shopping malls, restaurants, hotels etc.

Indexation▪ Annual adjustment mechanism is introduced in order

to compensate the Project Company for risks arising from inflation and FX rate fluctuations

Security▪ Payments will be made by the Administration,

monthly and quarterly, through central government budget, hence carry sovereign risk

Bankability

▪ Administration can terminate the contract on certain events and termination compensations payable by the Administration to the Project Company will differ depending on the Termination Event

▪ Lenders are provided with certain step in rights to protect them in the event of default

▪ Minimum 20% of equity required from sponsors▪ Share transfers in the Project Company are subject to

approval of the Administration


Turkish Healthcare PPP Guarantee Mechanics

▪ Rehabilitation of approximately 50,000 bed capacity

▪ State hospitals – staffed by MoH (Ministry of Health)

▪ Build to Lease – Transfer Model

▪ 25 year operation period

▪ Essential part of revenue production:

Availability Payments from MoH

₋ Account for ≈ 90% of EBITDA

₋ Collected separate from hospital occupancy rates

₋ Guaranteed by MoH

₋ Payable quarterly in advance by the MoH (denominated in Turkish

Lira)

₋ Adjusted quarterly by inflation / devaluation

₋ Protection against:

• Inflation – 100% coverage

• Devaluation – 87.5% coverage

Service Payments

₋ Paid monthly by the MoH

₋ Adjusted for inflation annually

₋ Volume Based Services: the MoH guarantees certain for certain

volumes

₋ Non-volume services independent of volume, occupancy,

consumption

Commercial Revenues

₋ Less than 2% of total turnover, where 3rd Party risk is taken

▪ MoH is the lessee

▪ Facility management, capital intensive and clinical support

services to be provided by SPV (outsourced)

Pg. 24

The total estimated financing needed for Hospital PPPs in Turkey is approximately $15bn

Turkish Hospital PPP Scheme Structure of the Project

MoH Payments

O&M

ServiceSubcontractor

ServiceSubcontractor

EPC

SPV Sponsors

LendersMoHDirect

Agreement

Monthly Service Payments&

Quarterly Lease Payments

Services &Facilities Availability

O&M Fee Payments

O&M Agreement

EPC Contract

Construction PricePayments

Loan Agreement

ShareholdersAgreement

EPCSubcontractor

EPCSubcontractor

RevenuesService

Payments

Availability Payments

Commercial Revenues

VolumeBased

Services

Non-Volume Services

Medical Support

Support


Infrastructure Project Finance Market Update


Note: capital structure percentage calculations based on typical 70/30 debt/equity project funding mix and breakdown of total $2.947 trillion projects finance debt issuance over 2003-2014

between loans (91%) and bonds (9%), with loan components segmented as follows; 80% commercial bank loans, 17% sovereign agency loans and 3% supranational agency loans.

Typical Project Finance Capital Structure

Pg. 26

Supranational Agency Loans

• 1-2% average cost of debt• World Bank average yield on loans = 1.43 in FY2014• Asian Development Bank average on loans = 1.23% in 2013• Multilateral development banks (World Bank, Asian Development Bank and

European

2%

Sovereign Agency Loans

• 2-3% average cost of debt• Export Development Canada average yield on loans = 2.43% in 2013• Government owned financial institutions (Export Development Canada, KfW Group,

Japan Bank for International Cooperation, Korea Finance Corporation, IDBI Bank and Stank Bank of India

11%

Commercial Bank Loans

• 3-4% average cost of debt• L+250 – 350 bp• European banks (BNL Paribas, Royal Bank of Scotland, Credit Agricole, Banco

Santander and Societe Generale)• Japanese banks (Mitsubishi UFJ Financial, Sumitomo Mitsui Financial and Mizuho

Financial)

52%

Bonds

• 4-6% average cost of debt• T + 200 – 300 bp• Investment grade bonds (traditional and 144A private placements)• Insurance companies (AIG, Allstate, John Hancock, MetLife, New York Life,

Northwestern Mutual and Prudential)

5%

Equity

• 8-15% targeted IRR• Governments (United Kingdom and corporate sponsors (BHP Billiton, EDF, Chevron,

Exxon Mobil, Lyondell Basell)• PF infrastructure funds (Alinda Capital Partners, Brookfield Asset Management and

Global Infrastructure Partners and Morgan Stanley Infrastructure

30%

% Capital


Source: Dealogic; McKinsey Global Institute

Project Finance Debt Market Snapshot

0

100

200

300

400

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Bonds

Loans

Pg. 27

Global Project Finance Debt by Type ($ in billions)

0

100

200

300

400

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Other

Africa and Middle East

Asia

North America

Europe

Global Project Finance Debt by Region ($ in billions)

Global Project Finance Debt by Sector ($ in billions)

0

25

50

75

100

1993-2010 2013-2030

Telecommunications

Water

Power

Shipping and Transportation

Global Infrastructure Spending (2010 constant $ in trillions)

0

100

200

300

400

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Energy and Power

Renewables

Shipping and Transportation

Social Infrastructure

Other

$36.1 trillion

$57.3 trillion


Source: infrastructure Journal

Historic Turkish Infrastructure Sources of Financing

Pg. 28

Turkey Infrastructure Market by Source of Funding 2007 – 2013 to October

Top Lenders Breakdown by Type 2007 – 2013 to September

0

2

4

6

8

10

12

14

16

18

20

0

1,100

2,200

3,300

4,400

5,500

6,600

7,700

8,800

9,900

11,000

2007 2008 2009 2010 2011 2012 2013

Dea

l C

ou

nt

US

$ (m

m)

IFI Government

Support

Equity

Bonds

Loans

0

10

20

30

40

50

60

0

650

1,300

1,950

2,600

3,250

3,900

4,550

5,200

5,850

6,500

Gar

anti

Ban

k

BN

P P

arib

as F

ort

is

Isb

ank

Ak

ban

k

Cit

i G

rou

p

Yap

i K

red

i

Deu

tsch

e B

ank

Un

iCre

dit

AB

N A

MR

O B

ank

Vak

ifB

ank

IFC

EB

RD

EIB

SA

CE

KE

XIM

EK

N

FM

O

ED

C

Pro

par

co

ES

TD

B

KfW

Eu

ler

Hem

es

Dea

l C

ou

nt

US

$ (m

m)

Value Invested Deal Count

Government/ECA/DFICommercial Banks

What Attracts Investors to Turkey? · 9/18/2015 · Euroasia Tunnel US$1.6bn Euroasia Tunnel...

Documents

Transcript of What Attracts Investors to Turkey? · 9/18/2015 · Euroasia Tunnel US$1.6bn Euroasia Tunnel...