The Eu1 billion ($1.6 billion) financing for Enerjisa's 1.9GW hydro portfolio – lead arranged and signed last month by Akbank, IFC and WestLB – is the largest debt facility to date for a greenfield power project in Turkey.

The fully subscribed deal will enable Enerjisa, which is 50/50 owned by Sabanci Holding and Verbund, to finance the first phase of a Eu1.4 billion expansion project. Moreover, Enerjisa will begin negotiating a second round of financing later this year – the initiative will cover the remainder of the first-phase project and the construction of a new coal-fired power plant for which Enerjisa will need an additional Eu750 million-Eu1 billion.

Under the current project, Enerjisa plans to build 11 power plants to generate 1,900MW of electricity per year, reaching 3.6 million consumers and helping meet surging power demand in Turkey's fast-growing economy.

The project 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 to bankroll the strategy, which will require more borrowing and equity contributions from the sponsors in coming years.

The latest financing package, most of which was signed on June 13, comprises a Eu355 million B-loan, a Eu140 million A-loan and a Eu18 million C-loan arranged and underwritten by IFC and West LB. Turkey's Akbank arranged and underwrote Eu252 million of parallel financing while the National Bank of Greece/ Finansbank chipped in with $100 million. The average DSCR is 1.2x and debt/equity split 60:40.

When it announced the financing, Enerjisa said it had raised Eu865 million and that it would seek additional funds to boost the sum to Eu1 billion by the end of the year. However, that goal was achieved shortly after when the European Investment Bank (EIB) decided to contribute Eu135 million to the project.

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

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.

During syndication, the B-loan was 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 deal has obtained aggressive pricing by Turkish project margin norms, and in a difficult funding market, mainly because of the sponsor's strong backing according to bankers on the deal. 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 paid 250bp-300bp which has been the average for most Turkish projects over the past 12 months. But as a banker in the deal says: "The financing was fully subscribed so why should the company pay more? For a project without the strong sponsor support seen here, and on a purely Turkish basis, without the involvement of Verbund, I would have expected the pricing to be north of 300bp."

Although the portfolio of projects will be completely exposed to the spot market the risk is relatively low given 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 plans to sell all 20 of the regional grids (the sale is already underway and Enerjisa has just won the tender for the Ankara Baskent EDAS power grid with a bid of $1.23 billion for which it will be back in the bank market soon) and many of its state-run power plants which will also help plug a current account deficit of $50 billion and potentially kickstart a nuclear programme.

Enerjisa hopes to bring the project portfolio fully on stream in 2015, which will give it 10% market share of Turkey's liberalised power market. Currently, Enerjisa runs eight power plants with 435MW of capacity. 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.

Enerjisa broke ground on the gas-fired facility in March and has been working to get the licenses, environmental permits and conduct other due diligence for the projects since 2006.

Enerjisa

Status: Financial close 13 June 2008
Sponsors: Sabanci Holding, Verbund
Financial advisers: none
Commercial lead arrangers: Akbank, IFC, WestLB
Legal counsel to lenders: Clifford Chance
Legal counsel to sponsors: White & Case