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Bonds & Loans Turkey Awards: Winners in 2018

Bonds & Loans Turkey Awards: Winners in 2018

Despite a conspicuous rise in tensions between Turkey and some of its closest neighbours and allies, the country finished 2017 as one of the fastest growing economies in the world – thanks in part to an unprecedented fiscal stimulus that helped among other things stoke the continued deepening of the capital markets. Against that backdrop, a number of leading issuers and borrowers once again set new benchmarks in the credit markets for 2018, securing a number of ‘firsts’ while making the market more robust.

Turkey ended 2017 having put in more than 6% GDP growth, outpacing almost all of its emerging market peers save China and leaving most developed markets in the dust. That growth, driven mainly by strong fiscal stimulus and an impressive turnaround in the country’s export sectors (due in part to persistently high inflation) was hard-fought.

A number of key sectors – particularly tourism – were deeply affected by the attempted coup which took place the previous year, while an erosion in the security environment and escalation of political tensions with key neighbouring countries and foreign allies like the US and Russia, respectively, led to declining trade, eroding fundamentals and consumer sentiment.

The reversal in fortunes became palpable towards the second half of the year, particularly after the government introduced a massive credit guarantee fund in May. Domestic consumption increased substantially off the back of a strong labour market recovery, while the Medium-Term Economic Programme (MTEP) 2018-20 announced in September, which sets out a number of modest but achievable economic objectives, should give investors further policy certainty as the country steams ahead towards the 2019 presidential elections. Wide-reaching tax reform introduced in October and covering corporation tax, income tax, special consumption tax, motor vehicles tax and other general tax rules will also help boost the fiscal outlook in the medium term, giving the government more room to manoeuvre in the event it faces new shocks.

Against that backdrop, the country’s credit market saw impressive growth and a raft of firsts, including the first Basel III-compliant Tier 2 domestic market issuance, the first non-bank asset backed security transaction, the first SRI project bond, and the first non-sovereign unsecured sukuk since 2014, which paved the way for additional transactions. Many borrowers were able to successfully refinance existing maturities and secure more favourable, an achievement made more impressive by context against which many were inked; the latter months of 2016 and the first half of 2017 were largely characterised by adverse economic conditions and heightened investor concerns.

While key risks certainly remain – US interest rate policy; the trajectory of the EU (both its constituent economies and the Union itself); regional and domestic security; and the effects of scaling back an ambitious domestic stimulus package – we are cautiously optimistic that Turkish borrowers will be able to navigate the challenges in store for them in 2018.

As we reflect on the deals that won first prize at this year’s Bonds & Loans Turkey Awards, our hope is that we are able to inspire the next wave of innovative transactions and ambitious debt capital markets debuts, as borrowers continue to evolve. Congratulations to all of this year’s awards winners!

 

Financial Institutions Deal of the Year

Issuer / Borrower: Is Bankası A.S.

Deal Type: Basel III-compliant Tier 2 Domestic Floating Rate Notes

Deal Size: TRY1.1bn

Issue Date: August 2017

Tenor: 10 years (NC5)

Mandated Lead Arrangers: Is Yatirim Menkul Degerler A.S.

Advisers: Yazıcı Law Offices

Is Bank set a new benchmark in the local capital markets with the placement of TRY1.1bn in Basel III-compliant Tier 2 floating rate notes, the first Basel III-compliant Tier 2 issuance in Turkey’s local markets – carving a path for other lenders to tap the market with similar instruments. At 10-years (NC5), the notes secured among the longest tenors seen in the local markets for financial sector issuers, and helped draw long-term institutional investors into the book (about 64% of the notes were placed with pension funds) – a key objective for Is Bank as it sought to broaden its investor base and improve its cost of debt. Overall, the deal helped the bank extend the average maturity on its debt, significantly reducing duration gaps, and contributed to a 40bp increase in its Cash Asset Ratio (CAR).

International Bond Deal of the Year

Issuer / Borrower: Coca-Cola Icecek

Deal Type: Senior Unsecured Bond

Deal Size: USD500mn

Issue Date: September 2017

Tenor: 7 years

Mandated Lead Arrangers / Bookrunners: BNP Paribas, Citi, JPMorgan, HSBC, MUFG

Advisers: Dentons; Balcıoglu Selcuk, Allen&Overy; Gedik&Eraksoy

One of the few Turkish corporate bond issuances of 2017, and the first in more than 18 months, Coca-Cola Icecek’s benchmark bond issuance reopened the international capital markets for the country’s borrowers. At a final spread of MS+225pb, the hugely oversubscribed deal priced 20bp through the sovereign curve – not only impressive for a Turkish Baa3 / BBB (Fitch) credit, it’s also a rare achievement in the emerging market credit universe, one that speaks to the company’s strong fundamentals and standing among emerging market credit investors. With over USD4.6bn in orders, the transaction managed to attract a significant number of investment grade crossover investors in addition to traditional emerging market fund managers, a core part of the company’s and deal managers’ strategy to help minimise final pricing and diversify the investor base.

 

Local Bond Deal of the Year

Issuer / Borrower: Türkiye Halk Bankası A.Ş.

Deal Type:  Basel III-compliant Tier 2 Domestic Floating Rate Notes

Deal Size: TRY1bn

Issue Date: October 2017

Tenor: 10 years (NC5)

Bookrunner / Underwriter / Structuring Agent: Halk Yatırım Menkul Değerler A.Ş.

Advisers: Halkbank

Halkbank became just the third lender to issue Tier 2 Basel III-compliant instrument in Turkey’s domestic markets, but it did so without a first-mover advantage and within an aggressive executive schedule – just over four weeks. The lender’s decision to pay monthly instead of the usual quarterly coupons was one of the mechanisms that helped it secure substantial investor interest, attracting new domestic buyers to the table – beyond those that typically invest in comparable domestic instruments, a feat made more impressive by constricting market regulations on the investors' side. The central objectives of the transaction – to create new funds to support credit operations, to find new long-term sources of revenue, and change the funding terms composition of the bank – were achieved, which, taken together with the above, make this a standout deal in the local markets.

 

Transport Finance Deal of the Year

Issuer / Borrower / Sponsors: Fraport - IC Içtaş Antalya Havalimanı Terminal Yatırım ve İşletmeciliği A.Ş. (ICF Antalya Airport); Fraport AG; IC İbrahim Çeçen Yatırım Holding A.Ş.

Deal Type: Triple-Tranche Senior Loan

Deal Size: EUR362.3mn

Pricing Date: July 2017

Tenor: 6-8 years

Mandated Lead Arrangers: Akbank T.A.Ş.

Advisers: Freshfields Bruckhaus Deringer, Ergün Law Office, White & Case LLP; Çakmak-Gökçe Law Office

This transaction included an innovative structure and was crucial for the borrower, which needed to refinance key maturities at a time of heightened political tensions with Russia – resulting lower passenger footfall at the Antalya Airport. In addition to simplifying its debt management strategy (moving from more than twenty lenders on its previous debt package to just one), providing the borrower with more lenient distribution covenants, and optimising its overall balance between working capital and long-term credit, the transaction priced competitively given the market context. A non-replenishable top-up guarantee from the Sponsors helped alleviate any concerns around a prolonged tourism drought, helping the borrowers and lenders hedge against any escalation in political risk.

 

Syndicated Loan Deal of the Year

Issuer / Borrower: UMV Global Foods Company Ltd. (United Biscuits)

Deal Type: Triple-Tranche Loan Facility

Deal Size: GBP725mn

Pricing Date: August 2017

Tenor: 5 years

Mandated Lead Arrangers / Bookrunners: Bank of America Merrill Lynch, HSBC, ABN Amro, ING, Rabobank, BNP Paribas, JPMorgan, Bank of China, Bank of Ireland, Bank of Communications, Mizuho,

SMBC, Goldman Sachs, Mediobanca, DZ Bank, Societe Generale, Türkiye İş Bankası A.Ş.

Advisers: Çakmak-Gökçe

United Biscuits’ very successful GBP725mn syndication is a rarity in Turkey, given the currency choice, and speaks to the company’s strong market share and standing among an array of local and global lenders. The new facilities, which replace the company GBP985mn leveraged facilities put in place at the time of United Biscuits' acquisition by Yildiz Holding in 2014, helped the company successfully restructure its balance sheet and extend its tenors. The food maker also managed to attract an array of new lenders from North America, Western Europe, and Asia, part of its broader diversification strategy; the rarity of GBP-denominated transactions in the Turkish market also helped attract strong interest among European lenders.

 

Natural Resources Deal of the Year

Issuer / Borrower: Anagold Madencilik Sanayi ve Ticaret A.Ş (Alacer Gold)

Deal Type: Syndicated Senior Project Finance Facility

Deal Size: USD350mn

Pricing Date: April 2017

Tenor: 8 years

Mandated Lead Arrangers: BNP Paribas, ING, Unicredit, Societe Generale

Advisers: Esin Attorney Partnership, Norton Rose

To finance the expansion of one of the largest gold mines in Turkey, the Copler Gold Mine located in the country’s Erzincan province, Anagold Madencilik Sanayi ve Ticaret A.Ş secured a well-structured and competitively-priced USD350mn project finance facility. The deal was syndicated exclusively among a group of European lenders, while final structure of the facility allowed the borrower to secure extremely preferential conditions – including no prepayment penalties or mandatory hedging requirements. The facility is of critical sector importance, as the expansion of the mine – which has estimated reserves of more than 6 million ounces of gold – will undoubtedly contribute to bolstering the economic prosperity of the region.

 

Structured Finance Deal of the Year

Issuer / Borrower: Turkcell Finansman A.S. (Turkcell)

Deal Type: Multi-Tranche Asset-Backed Local Currency Bond

Deal Size: TRY100mn

Pricing Date: April 2017

Tenor: 6 months – 1.7 years

Deal Manager / Structuring Bank: Aktif Yatırım Bankası A.S.

This widely successful transaction was the first non-bank asset backed security (ABS) issue out of Turkey, an innovative approach to securing short-term funding while diversifying its balance sheet away from conventional banking sources and towards asset managers and pension funds. Despite the novelty of the structure, the company managed to secure funding at more competitive rates than would have been available within the local banking market. The transaction involves the transfer of a series of future cashflows – stemming from the loans the borrower extended to its customers – into an asset financing fund; there were roughly 75,000 loans which were transferred to this fund and placed into seven tranches with different maturities. This innovative transaction set an important benchmark for other asset-light companies to launch similar transactions in the local market.

 

Infrastructure Finance Deal of the Year

Issuer / Borrower: Istanbul PPP Sağlık Yatırım A.Ş. (Rönesans Holding A.Ş.; Rönesans Sağlık Yatırım A.Ş., Sojitz Corporation)

Deal Type: Triple-Tranche Structure Finance Facility

Deal Size: JPY194.7bn

Pricing Date: July 2017

Tenor: 18 years

Mandated Lead Arrangers / ECAs: SMBC, MUFG, Standard Chartered Bank, JBIC, NEXI

Advisers: Willkie Farr & Gallagher; Bezen & Partners, White & Case, Ergün Law Office

The Istanbul PPP Sağlık Yatırım A.Ş JPY194.7bn structured finance deal marked another landmark transaction for leading developers that are fast-becoming veterans of the country’s healthcare transformation programme. The hospital, of significant strategic importance for Turkey, is one of the largest hospitals to have been tendered so far, while the transaction is the first social infrastructure project that JBIC & NEXI invested into in Turkey, helping to de-risk the project and bring in foreign government support. In addition to being the first Japanese Yen-funded PPP project in Turkey, it is the first transaction in the country to have been participated by Dai-ichi and Nissay, two of Japan’s largest insurance companies, an indication of the robustness of the structure and returns; structuring the deal in Yen also allowed the borrower to maximise the transaction’s liquidity, reducing the overall cost of funding. Overall, the deal was a resounding success for the borrower and the wider healthcare sector, and set the pace for others to launch into the Japanese market.

 

Trade & Export Finance Deal of the Year

Issuer / Borrower: Hanwha Energy Corporation

Deal Type: Dual-Tranche Project Finance Facility

Deal Size: USD31.1mn

Pricing Date: December 2016

Tenor: 12-13 years

Mandated Lead Arrangers / ECAs: Yapı ve Kredi Bankası A.Ş., K-EXIM

Advisers: Çakmak & Gökçe

This was the first renewable energy project in Turkey to be financed by the Korean export finance entity KEXIM via a commercial bank, and the first solar energy project developed by Hanwha Group with 100 % ownership in Turkey. The limited recourse nature of the facility was an important win for the borrower, while additional funding from the European Investment Bank Claimed Change Fund coupled with KEXIM’s participation helped entice Hanwha Group, a Korean firm, further into the Turkish market. Above all, the deal will help Turkey progress towards its climate change mitigation goals, and helped draw in crucial foreign direct investment into the country’s budding renewable energy sector.

 

M&A / Acquisition Finance Deal of the Year

Issuer / Borrower: Vitol (VIP) Turkey Enerji A.Ş.

Deal Type: Dual-Currency Dual-Tranche Acquisition Financing Facility

Deal Size: USD500mn, TRY720mn

Pricing Date: June 2017

Tenor: 5 years

Mandated Lead Arrangers / Coordinators / Structuring Banks: ING Bank N.V., Akbank T.A.S, HSBC, Qatar National Bank, Finansbank, Isbank, Garanti

Advisers: Allen & Overy; Gedik & Eraksoy, Linklaters, Esin Attorney Partnership

Arguably one of the most significant M&A transactions in Turkey in 2017, the combination of Vitol’s downstream network and local knowledge with OMV’s strong brand and global scale is a game changer for the country’s energy sector. The facility, which provides the leverage required for OMV Petrol Ofisi to optimise its capital structure ahead of the merger with VIP Turkey Enerji, provided a good mix of hard and local currency, helping the combined entity secure a natural hedge to optimise the new revenue mix while optimising for overall cost through an upsized hard currency tranche. Additionally, the minimal secondary market trading on the transaction and competitive pricing speak to the attractiveness of the deal on the lender side, while the scarcity of M&A deals at the time helped the borrower secure favourable terms.

 

Project Finance Deal of the Year

Issuer / Borrower: ELZ Sağlık Yatırım A.Ş. (Ronesans Group, Meridiam Eastern Europe Sarl, Şam, Sıla)

Deal Type: Dual-Tranche PPP Project Bond

Deal Size: EUR288mn

Issue Date: December 2016

Tenor: 20 years

Mandated Lead Arrangers: HSBC

Advisers: Bezen & Partners; Willkie, Farr and Gallagher LLP, Clifford Chance LLP, Yegin Çiftçi Attorney Partnership

The EUR288mn project bond, issued to finance the strategically important Elaziğ integrated hospital, was the first greenfield infrastructure project bond in Turkey, as well as the first project bond to carry a 20-year maturity, setting a new benchmark for the country’s capital markets. The borrower created a hybrid funding structure consisting of a loan and a bond issuance – contrary to the typical structure, which sees a loan with a bond take-out. At the same time, the EBRD's and MIGA's involvement in the funding arrangement allowed the bond to achieve a credit rating two notches higher than Turkey's sovereign debt rating. Overall, the strategically important transaction helped carve out a path for other SRI borrowers and helped put Turkey on the map for green and sustainability bond investors globally.

 

Islamic Finance Deal of the Year

Issuer / Borrower: KT Kira Sertifikalari Varlik Kiralama A.Ş. (Kuveyt Türk Katilim Bankasi A.Ş.)

Deal Type: Sukuk al-Wakala

Deal Size: USD500mn

Issue Date: November 2016

Tenor: 5 years

Bookrunners, Coordinators, Mandated Lead Arrangers: KFH Capital Investment Company K.S.C.C., BankABC, Dubai Islamic Bank, Emirates NBD, Qinvest, Standard Chartered Bank

Advisers: Clifford Chance LLP; Yegin Ciftci , King & Spalding; Mutlu Law Firm

The first senior unsecured sukuk issued by a non-sovereign Turkish borrower since 2014, Kuveyt Türk’s USD500mn sukuk achieved the tightest pricing among any Turkish FI issuance at the time despite elevated political volatility in the country, and with pricing at MS+385bp saw the tightest spread levels achieved among all Turkish FI trades priced in October 2016 at the 5-year level. The success of the deal – which saw among the highest oversubscription rates in the country’s sukuk market – helped the lender attract new investment accounts from the Middle East, Asia and Europe, despite growing supply in the Turkish FI market. The transaction bolstered the country’s burgeoning non-sovereign Islamic capital markets and helped set a benchmark for other FIs looking to tap into sukuk to diversify their funding sources.

 

 

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