The $450 million bond refinancing of the Mersin container port is the first bond issue by a Turkish infrastructure issuer. It has features much closer to a high-yield financing than a project bond, however. As such, the financing says more about the achievements of sponsors PSA and Akfen in establishing a robust operation at Mersin than the prospects for capital markets financings in Turkey.

Mersin Uluslararasi Liman Isletmeciligi

Status

Priced 1 August 2013, closed 12 August

Size

$605 million

Description

Bond refinancing of 1.2 million TEU port on Turkey’s south-eastern coast

Sponsors

PSA (50%), Akfen Holding (50%)

Debt

$450 million seven-year bond issue,

$205 million in bank debt

Bond bookrunners

Citi, DBS and UniCredit

BANK DEBT PROVIDERS

DBS, UniCredit, TSKB, Yapi Kredi

Issuer legal counsel

Latham & Watkins (international); Erdem & Erdem (Turkish)

Underwriter legal counsel

Allen & Overy (international); Gedik & Eraksoy (Turkish)

Akfen, a Turkish conglomerate, and PSA, the Singaporean port operator, acquired the concession for Mersin from the Turkish National Railways Authority in 2007. The concession runs until 2043, and covers the second-largest container port in the country by volume, and largest import-export facility.

The two sponsors, which split ownership of the concession 50/50, financed the acquisition with a $600 million debt package led by ABN Amro, Garantibank, GE, Isbank, TSKB and UniCredit/HVB. That deal closed at the start of the period of volatility that culminated in the September 2008 crisis. But the 2007 package was highly restrictive, and as soon as the sponsors had brought the performance of the port up to an acceptable level they started looking at a refinancing. In 2007 Mersin handled 804,000 TEU of containers, but by 2012 this figure had risen to 1.23 million.

The acquisition financing was not set to mature imminently, with another five years left to run in 2013, and was priced at a relatively gentle 300bp over Libor. But the 2007 deal required bank approval and full technical reports for any additional capital expenditure. And Mersin had gone from being a project to being a corporate in its own right, with several years of stable cashflows, despite the global recession that followed 2008.

For the bond refinancing, the sponsors were looking for a high-yield structure, with few restrictive covenants, which would allow them to carry out major projects as required. They mandated Citi, a bank with US and global distribution, UniCredit, with a Turkish and European presence, and DBS, a Singapore relationship bank, as equal bookrunners on the bond.

There were few comparables for the issue, and many of them were outside the ports sector. DP World and PD Ports’ Tees & Hartlepool ports have issued bonds, but DP World’s size, and Teesport’s difficult recent history, made them unsuitable comparators. For local comparison, holding company Koc was the only real benchmark.

The $450 million bond refinancing reached ratings of Baa3/BBB- (Moody’s/Fitch), but the target audience for the bonds consisted of high-yield investors, particularly in the US. The issuer can call the bonds at par plus 25% of coupon on the first call date and par plus 100% of the coupon after that. The refinancing also moved from using maintenance towards using incurrence covenants.

The leads priced the deal at 366bp over mid-swaps and a discount of 0.24% for a coupon of 5.875% and a yield of 5.95%. The deal had launched with an indicative coupon of 6% to 6.5%. Subsequent political turmoil in Turkey has made the timing of the deal look very shrewd.

Helping put pressure on pricing was the presence of three big-name policy lenders. Clifford Capital, which supports overseas equity and export activity by Singaporean corporates, wrote a $79.5 million ticket, and the European Bank for Reconstruction and Development committed the same amount. The International Finance Corporation invested $66 million.

The presence of these policy lenders required the leads to put together documentation in a way that met the policy requirements of all three, without offering these three preferential disclosures in advance of the sale. The three lenders did not require much education in bond structures, however, and are all fixed-income issuers themselves.

Shortly before the end of the year, the sponsors refinanced a $155 million PSA-backed mezzanine loan with a new seven-year bank piece, that ranks pari passu with the bonds. The lenders on the new term loan are UniCredit, DBS and TSKB, while Yapi Kredi is providing another $50 million in working capital debt.

The sponsors no longer have to expand Mersin to 1.8 million TEU per year by 2018, as the concession originally demanded, but will need to invest to see off competition from neighbours such as Iskenderun. By then, Mersin will probably serve as a local benchmark in its own right. But domestic toll roads, lacking dollar revenues, and power plants, featuring dollar or euro indexation but offtaker concentration, will struggle to exactly follow the port’s example.