In September Moody’s downgraded Turkey’s credit rating to junk, following the lead of S&P Global Ratings, in response to the attempted coup against the country’s government.

Moody’s downgrade was accompanied by predictions that Turkish GDP will grow at an average of 2.7% over the 2016-19 period, compared to average growth of 5.5% between 2010-14. The ratings agency also pointed to the “risk of a sudden, disruptive reversal in foreign capital flows” and in the worst-case scenario, a balance of payments crisis.

Data from Turkey’s Ministry of Tourism shows that the number of foreign tourists visiting Turkey fell 37.96% year-on-year to 3.2 million in August, and 32.84% to 2.8 million in September.

Meanwhile, debt pricing for the country’s healthcare PPP projects also seems to have been negatively impacted, at least from a sponsor perspective.

Türkerler Construction, Gama Holding and GE Healthcare, sponsors of the €769.6 million ($839 million) Izmir Bayrakli Hospital PPP project, signed financing documents for PPP project on 19 October 2016.

According to sources, pricing on the hospital’s debt of €590 million is at a flat margin of 390bp over Euribor. This is similar to levels seen when the first Turkish healthcare PPPs signed in 2014, one source explained, but is about 50bp higher than margins achieved a few months later.

Grounds for optimism 

The Izmir Bayrakli Hospital demonstrates however that banks are still willing to lend to healthcare projects in Turkey and provide long tenors.

For some of the first Turkish health PPP projects, part of the debt—typically the part provided by multilateral banks—was offered with an 18-year tenor, while commercial banks were unwilling to go further than 15 years.

Transactions closed over recent months—starting with the Ankara Etlik Hospital PPP project in mid-2015—saw commercial bank tenors stretching a further three years, a development that has not been lost since July’s attempted coup.

Izmir Bayrakli is receiving $250 million (€229 million) from the Overseas Private Investment Corporation (OPIC), €65 million from Export Development Canada, and €85 million in A-loans from the European Bank of Reconstruction and Development (EBRD). And as B-loans, the EBRD syndicated €213.6 million to UniCredit, Industrial and Commercial Bank of China (ICBC) and Intesa Sanpaolo. The debt-to-equity ratio is 80:20, and the concession length is 28 years.

“It’s a good development because it shows that these projects, which require very long maturities, remain financeable at acceptable interest rate levels and the programme can continue,” the EBRD’s director for Turkey Jean-Patrick Marquet told IJGlobal.

Türkerler and Gama each own 45% each of the project, while General Electric’s subsidiary GE Healthcare owns the remaining 10%.

Twin developments

Türkerler and Gama won the concession to design, build, finance, maintain and provide non-medical services for the hospital in 2013, with GE joining two years later.

The hospital, which is expected to start operating in 2019, will have capacity for 2,060 beds. The project will include a main hospital, a maternity hospital, a cardiology and heart surgery hospital, an oncology hospital, a physical therapy and rehabilitation hospital, a psychiatric hospital, a high security psychiatric hospital, over 50 surgery rooms and commercial areas.

Both this hospital and the Kocaeli hospital, which is being developed by the same consortium and will have the same lenders, are expected to reach financial close by the end of the year.

Asian entry

ICBC’s participation on Izmir Bayrakli is illustrative of an interesting trend in the Turkish PPP market. As western investors have become more cautious over last 18 months, Asian investors, particularly from the Middle East and the Far East, have shown increasing interest in the country.

Qatar National Bank recently took over Turkey's Finansbank, while China Merchants Holdings (International) Company (CMHI), COSCO Pacific and CIC Capital Corporation acquired a 64.5% stake in the Kumport container terminal.

A number of Korean investors are also involved in the Gaziantep integrated health campus. The project’s sponsors are Korea’s Samsung, Turkey’s Kayı Construction, Italy’s Salini and a private equity investment fund. Lenders for this deal, which is expected to sign off in November, will be Samsung Life—the Samsung conglomerate’s pension fund, which is investing both equity and debt—the Export–Import Bank of Korea (Kexim), Korea Trade Insurance Corporation (K-Sure), as well as the EBRD, the European Investment Bank, and possibly others.

This influx of Asian capital may have helped emboldened the government to quickly extend the PPP programme. At the signing for Izmir Bayrakli Hospital, Health Minister Recep Akdag announced that tenders for nine or 10 further healthcare PPPs will be tendered soon.

Advisers

UniCredit is financial adviser to the sponsors, while White and Case and Çakmak Avukatlık Bürosu law firm are their legal advisers. Freshfields Bruckhaus Deringer and Hergüner Bilgen Özeke are legal advisers to the lenders, and BTY is providing technical advice to the lenders. The banks’ insurance is coming from JLT.

* Image provided by the EBRD