In the past few years, I have been optimistic in my analysis of the Turkish market, which was quite uncharacteristic of me really, considering my profession. Together with other positive views prevailing in relation to the future of Turkish project finance market, one could not help being confident that it was about time that Turkey's potential could now turn into reality.
Was I proven wrong? Not exactly. With consolidated effort by the relevant governmental agencies, sponsors and interested financiers, a number of major transactions have reached financial close.
The Mersin port transaction was the first of its kind, a successful port privatization which reached financial close in 2007 despite a very demanding timetable in its final stages which was commendably met, thanks to very hard work by the sponsors and the lenders, all of whom had all the intention to see the deal reach closure. This naturally paved the way for the port financing transactions in the pipeline, such as Izmir port, by way of setting a successful benchmark. There are also relatively smaller ports that are expected to be privatized which will also benefit from these precedents.
Similarly, the continued commitment of the sponsors and the banks in the vehicle inspection services project, a multi-million dollar financing for the acquisition of the operation rights for a period of all of the vehicle inspection service stations in Turkey, has considerably helped the transaction overcome the hurdles it faced throughout the prolonged privatization process.
The activity in airport financings did not slacken its recent pace. The Ankara Airport has been successfully refinanced and the financing documentation for the Antalya Airport transaction has recently been signed. It can be expected that the financing of Istanbul Sabiha Gokcen Airport, which has recently been tendered for a record amount of €2.3 billion inclusive of VAT, will be out in the market attracting financiers. Like smaller port projects, there are also smaller airports in the queue for development or reconstruction which will no doubt be exploring financing opportunities in the project finance market.
What about the other sectors? An increased activity in the energy market not witnessed since the glory days of early nineties may soon recur. There are talks of state roads' privatization which is likely to gain pace in 2008. The transportation financings will also be a route sought by municipalities that are keen on improving local transportation. The needs for the local municipalities to improve their ability to service will also likely create new opportunities (although the unique status of the municipalities compared to the governmental agencies or private sponsors is likely to present novel challenges to the players in the market).
So where is the catch? Those that are familiar with Turkey will know that it is a country that has an indescribable appetite for challenges. A perfect example were the political developments earlier this year that led to an early election, although the election was already scheduled to take place later in the year. This caused a degree of uneasiness in the market. The players in project finance have understandably been wary of the possibility of a coalition government or a radical change in the administration, which could have meant that it was time to bid farewell to some of the key elements in the Turkey's economic programme as well as its infrastructure strategy.
Being reliant on the continuity of certain conditions that enable an environment and the relevant project to be bankable, the lenders have demonstrated a more cautious approach to the Turkish market during the period preceding the elections in July. As a result, there was an atmosphere which was created out of nowhere due to some political motivations which had the potential to undermine the positive trend of the Turkish market.
Even then, however, there continued to be confidence in the future of Turkish projects. Each of the transactions mentioned above closed just before or after the elections when the political picture was not so clear. Neither the sponsors (both local and international) nor the financiers used such a situation as an excuse to pull out of the market. The reasons for their willingness to stand by the deals could be many, such as their belief that the stability will carry on in view of the political surroundings or that Turkey was in need of these projects, which was unlikely to change after any change in the administration.
However, most significantly, it was their confidence in the project's viability, sponsors' commitment and Turkey's now enhanced track record and a sound bankable structure that helped them to persevere. Whilst in the past a slight likelihood of instability would have frightened financiers and investors from assuming a significant role in Turkey, it would now seem that Turkey is immune from the impact of these events.
After the landslide victory in the elections of the ruling party has reassured all that the economic programme will continue to be in place and there will not be a radical change in the conditions concerning the project finance market, the financiers and the sponsors that did not lose their confidence in Turkey have proven to be right.
It would be correct to point out that the magical formula that ensured interest and commitment to the Turkish projects includes, amongst other things, the creation of a sound structure taking into account all commercial, regulatory, legal and environmental factors. This can only be achieved by close collaboration of all the parties involved in the project from the early days. Our role as legal advisers in this process is particularly critical and as such it would be crucial to involve local counsel at the outset to avoid any legal complications. Turkish projects have always suffered from legal ambiguities or hurdles which can only be avoided if the action is taken by the appropriate legal advisers together with other advisers helping sponsors and financiers to build a framework and structure a transaction in such a way that will only inspire confidence for those active in the market.