EnerjiSA: Expansion in a contracting debt market

The Eu1 billion ($1.6 billion) financing for phase 1 of EnerjiSA's 1.9GW power portfolio expansion is the biggest debt facility to date for a greenfield power portfolio in Turkey. The deal was also structured to give EnerjiSA maximum flexibility to buy and sell generating assets and raise an additional Eu2 billion of project debt to achieve its strategy of developing into the strongest generator in the recently liberalized Turkish power market.

EnerjiSA is a joint venture between Verbund and Sabanci. At time of financing it operated four hydroelectric and four thermal plants with a total installed capacity of 456MW. The new funding backs 10 hydroelectric power plants in Cambasi, Ceyhan, and Seyhan basins in south-west Turkey and a 920MW gas-fired powered plant to be set up in Bandirma in the north-west.

The project financing is just one part of a major expansion that will see the company install 5,000MW of generation capacity by 2015 through greenfield projects and acquisitions of state-owned power plants. EnerjiSA plans to invest $6.5 billion in the strategy, which will require more borrowing and equity contributions from the sponsors in coming years.

The deal involved sourcing funding from eleven commercial lenders and multilateral institutions in a very difficult credit environment.

The financing package, most of which had signed commitments on June 13, comprises a Eu140 million IFC A-loan, a Eu355 million IFC B-loan, and a Eu18 million IFC C-loan, arranged and underwritten by IFC and WestLB. Akbank arranged and underwrote Eu252 million of parallel financing along with the National Bank of Greece/Finansbank which chipped in a further Eu100 million. The EIB came in at a slightly later date with a Eu135 million loan. The average DSCR is 1.2x and debt/equity split 60/40.

KfW IPEX-Bank, Bank Austria Creditanstalt, Erste Bank, Raiffeisen Zentralbank Oesterreich, and Société Générale helped finance the B-loan through undisclosed contributions on a club basis. Clifford Chance was legal counsel to the lenders while White & Case acted for the sponsors.

During syndication, the B loan was initially expected to reach Eu305 million but ING stepped in, contributing an additional Eu50 million to the financing. Meanwhile, Akbank and Finansbank cut their original commitment of Eu405 million due to pro-rata adjustments after the EIB joined. ING, which was not part of the original syndicate club, decided to participate as part of plans to boost its presence in Turkey's banking sector, where it is expanding through acquisitions.

The loans have 12-year tenors. The B tranche pays 195bp over Libor until 2015. Akbank and National Bank of Greece's contribution pays a 20bp premium over the B loan margin. Amortisation is semi-annual with a four-year grace period.

After the project's seventh year, pricing could rise to 275bp if the sponsors exercise an option to withdraw their support. That support includes equity contributions during pre-completion and post-completion if something goes wrong with the project, 380MW of existing Sabanci assets to the project company as added security, and a deficiency guarantee.

The deal obtained aggressive pricing by Turkish project margin norms, and in a difficult funding market, mainly because of the sponsor's strong backing. Verbund and Sabanci are blue chip firms with leading businesses and market capitalisations of over Eu2.5 billion. Their guarantees and the banks' confidence that Turkey's power market will be fully liberalised in 2012 – clearing up a cloud of regulatory uncertainty – enabled EnerjiSA to procure the funds at a discount.

A power financing in Turkey, given the uncertain regulatory environment and the country's political volatility, should have been priced at 250bp-300bp, which had been the average for most Turkish projects over the previous 12 months.

Although the portfolio of projects will be completely exposed to the spot market, the risk is relatively low became electricity demand is growing at 8% a year in Turkey. Furthermore, power purchase agreements are unpopular with Turkish sponsors because the demand for, and therefore price of power, is not expected to come down for many years.

The Turkish government has also pledged to reduce the state's more than 80% share of the electricity generation and distribution markets in a bid to finally liberalise and upgrade the inefficient power network. It is in the process of selling all 20 of the regional grids and Enerjisa, which won the tender for the Baskent EDAS power grid with a bid of $1.23 billion, has just closed that first acquisition.

The deal involves an initial $650 million direct payment from Verbund and Sabanci on 20 January, and a further two payments due in 2010 and 2011 guaranteed by a consortium of banks led by Sabanci-owned Akbank. The letter of guarantee is expected to be replaced with long-term debt once the loan market stabilises.

Enerjisa hopes to bring its project portfolio fully on stream in 2015, which will give it a 10% market share of Turkey's liberalized power market. Enerjisa had the groundbreaking ceremonies for Bandýrma CCGT, Kavsak Bendi Hydro and Hacininoglu Hydro simultaneously on 22 October 2008.

EnerjiSA Enerji Üretim A.S
Financial close: 17 December 2008
Description: Turkish greenfield power portfolio financing
Sponsors: Verbund; Sabanci
Total debt: Eu1 billion
Lead Arrangers: IFC; WestLB; Akbank; National Bank of Greece
Global co-ordinators/bookrunners: Akbank; WestLB; IFC
IFC B Loan Participants: Société Générale; WestLB; KfW IPEX-Bank; Bank Austria; UniCredit; Erste Bank der Oesterreichischen Sparkassen; ING Bank; Raiffeisen Zentralbank Oesterreich
Sponsor legal counsel: White & Case
Lender legal counsel: Clifford Chance