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%
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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%
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
PRIVATE AND CONFIDENTIALVALYRIAN CAPITAL
The Evolving Turkish PPP Market
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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.
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
$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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
PRIVATE AND CONFIDENTIALVALYRIAN CAPITAL
A Closer Look at Turkish Healthcare PPPs
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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)
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
…
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
PRIVATE AND CONFIDENTIALVALYRIAN CAPITAL
Infrastructure Project Finance Market Update
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
Note: capital structure percentage calculations based on typical 70/30 debt/equity project funding mix and breakdown of total $2.947 trillion projects finance debt issuance over 2003-2014
between loans (91%) and bonds (9%), with loan components segmented as follows; 80% commercial bank loans, 17% sovereign agency loans and 3% supranational agency loans.
Typical Project Finance Capital Structure
Pg. 26
Supranational Agency Loans
• 1-2% average cost of debt• World Bank average yield on loans = 1.43 in FY2014• Asian Development Bank average on loans = 1.23% in 2013• Multilateral development banks (World Bank, Asian Development Bank and
European
2%
Sovereign Agency Loans
• 2-3% average cost of debt• Export Development Canada average yield on loans = 2.43% in 2013• Government owned financial institutions (Export Development Canada, KfW Group,
Japan Bank for International Cooperation, Korea Finance Corporation, IDBI Bank and Stank Bank of India
11%
Commercial Bank Loans
• 3-4% average cost of debt• L+250 – 350 bp• European banks (BNL Paribas, Royal Bank of Scotland, Credit Agricole, Banco
Santander and Societe Generale)• Japanese banks (Mitsubishi UFJ Financial, Sumitomo Mitsui Financial and Mizuho
Financial)
52%
Bonds
• 4-6% average cost of debt• T + 200 – 300 bp• Investment grade bonds (traditional and 144A private placements)• Insurance companies (AIG, Allstate, John Hancock, MetLife, New York Life,
Northwestern Mutual and Prudential)
5%
Equity
• 8-15% targeted IRR• Governments (United Kingdom and corporate sponsors (BHP Billiton, EDF, Chevron,
Exxon Mobil, Lyondell Basell)• PF infrastructure funds (Alinda Capital Partners, Brookfield Asset Management and
Global Infrastructure Partners and Morgan Stanley Infrastructure
30%
% Capital
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
Source: Dealogic; McKinsey Global Institute
Project Finance Debt Market Snapshot
0
100
200
300
400
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Bonds
Loans
Pg. 27
Global Project Finance Debt by Type ($ 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
VALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL
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
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