Tupras: Take two

The Turkish banking market for the first time opened up to taking commitments beyond $200 million to $300 million for long-dated non-recourse debt in 2006. The tipping point was Koc Holding's $4.14 billion acquisition of a 51% stake in oil refiner Tupras, which ranked as the largest acquisition finance facility at the time in Turkey. The financing comprised a $2.5 billion corporate tranche arranged by JP Morgan and a $1.8 billion non-recourse facility backed almost entirely by domestic banks.

The $1.8 billion project component was signed on 21 January 2006, with first drawdown on the 26 of January when the Privatisation Administration (OIB) was paid the purchase price and the consortium took control.

The SPV, Enerji Yatirimlari, which is a partnership of Koc Holding (75%), Turkish gas company Aygaz (20%), Opet (3%) and Shell (2%), acquired 51% of Tupras' shares with its offer of $4.1 billion. The Koc family that runs Koc Holding is placed 103rd on the Forbes' 2005 list of the world's richest people.
The consortium outbid eight other competitors in 11 stages of bidding. The other bidders included Oyak, OMV Aktiengesellschaft, ENI, MOL, Anadolu-Cukurova Group, PKN Orlen SA-Zorlu Holding, Indian Oil Corp.-ÇALIK Enerji and Tratson-OMNI consortium.

The $1.8 billion financing provided for this acquisition is structured based on the cash flow in the form of dividends to be paid by Tupras to the SPV. The structure is entirely non-recourse and does not involve any guarantee from the shareholders. The debt was provided by Garanti Bank, Akbank, Is Bank, Standard Bank and Vakifbank as mandated lead arrangers, and Halkbank as lead arranger.

The privatisation of Turkish Petroleum Refineries (Tupras) is one of the most important and sizeable deals to close in Turkey. The financing was able to set new benchmarks principally because of the quality of the underlying asset: Tupras is the sole petroleum refinery in Turkey which meets more than 80% of Turkey's refined product demand with its 500,000 bbl/d capacity. It is the largest industrial enterprise of Turkey and it has the highest refining capacity in Eastern Europe and the Balkans.

The 10-year facility features a grace period of 2.5 years and is has a sculpted repayment schedule that gives an average maturity of 7 years. The participation amount of each bank is as follows: Garanti Bank $400 million, Vakifbank $400 million, Akbank $350 million, Is Bank $350 million, Halkbank $200 million, Standard Bank $100 million. Garanti Bank acted as facility agent while Is Bank acted as security agent.

JP Morgan provided $1.5 billion of its $2.5 billion facility on a bilateral basis in the form of a $950 million seven-year facility and a $550 million loan with a 732-day maturity and a 366-day extension option.
For the remaining $1 billion corporate portion JP Morgan brought in WestLB and Calyon as joint bookrunners and launched a senior syndication at the beginning of February, offering banks a $100 million ticket paying 90bp in fees. The loan paid a margin of 100bp over Libor. Banks that committed to the facility included ABN Amro, Bank of Tokyo-Mitsubishi UFJ, Citigroup, Fortis Bank, HSBC, Natexis Banques Populaires and Standard Chartered.

The retail phase, during which lenders were offered a top ticket of $50 million for a fee of 70bp, was launched towards the end of March and secured commitments from Alpha Bank, Banca Intesa, EFG Bank, ING and Mizuho. The facility was signed at the end of April.

The novelty value of the total package meant that even banks with a long track record in Turkey had to spend a long time in credit, and for the corporate tranche it became clear that a lot of banks did not have credit lines for that kind of deal.

However, the banks that did come in on the deal, particularly the domestic lead arrangers on the non-recourse portion have opened the Turkish market to large ticket non-recourse acquisition structures. Since the deal closed some of the arrangers have been approached about replicating parts of the deals by both private equity firms (who are natural uses of project debt) and foreign strategic investors looking to form SPVs with local firms.

As well as the possibility of tapping Turkish bank liquidity, prospective foreign investors in Turkey will have taken heart that the court challenge to the Tupras acquisition that was raised after the signing of the financing was rejected by the Supreme Court in July 2006.

The High Court halted the privatisation of the state oil refiner Tupras following a legal action brought by a trade union representing Tupras employees claiming that the deal should be rescinded because some of the formalities of the privatisation law were not followed. Despite control of Tupras being handed over in January the ruling seemed to reiterate Turkey's tainted reputation for judicial interference in privatisations.
However, following the Supreme Court's decision and the various benchmarks set by the Tupras acquisition financing, Turkey has become a more hospitable and conducive place to invest.

Enerji Yatirimlari
Status: Non-recourse debt signed 21 January 2006, retail phase of corporate facility closed end of April
Description: Financing for Koc Holding's $4.14 billion acquisition of a 51% stake in state oil refiner – comprised a $2.5 billion corporate tranche and a $1.8 billion non-recourse facility.
Sponsors: Koc Holding (75%), Aygaz (20%), Opet (3%) and Shell (2%)
1) Non-recourse debt
Mandated lead arrangers: Garanti Bank (facility agent), Akbank, Is Bank (security agent), Standard Bank, Vakifbank
Lead arranger: Halkbank
Legal counsel to lenders: Allen & Overy (English law), Paksoy (Turkish law)
Legal counsel to borrower: HBO
2) Corporate debt
Bilateral lender: JP Morgan
Joint bookrunners: JP Morgan, Calyon, WestLB