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BUSINESS > Record $5.7 billion given for highways, bridges in Turkey

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Turkish industry leaders Koç and Ülker cash in on a massive tender to privatize the country’s roads and bridges as part of a huge joint venture

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The winning consortium will take over the operation and maintenance of 1,975-kilometer toll roads in Turkey (inset), in addition to the two bridges in IStanbul, Fatih Sultan Mehmet and Bosphorus.

The winning consortium will take over the operation and maintenance of 1,975-kilometer toll roads in Turkey (inset), in addition to the two bridges in IStanbul, Fatih Sultan Mehmet and Bosphorus.

A consortium of Koç Holding, Gözde Girişim and Malaysia’s UEM Group Berhad has won the tender for the privatization of Turkey’s toll roads and bridges with a bid of $5.72 billion.

The roads and bridges, including the Edirne-Istanbul-Ankara motorway and the Bosphorus and Fatih Sultan Mehmet bridges linking Europe and Asia, are being privatized in a single package for a period of 25 years. The agreement also includes the operation and maintenance of 1,975-kilometer toll roads in Turkey.

Official data from the country’s highways agency showed that the toll roads and bridges generated revenue of 740 million Turkish Liras in the first 11 months of the year. Koç and Gözde Girişim hold 40 percent and 20 percent in the consortium respectively, while UEM Group holds a 40 percent equity stake. Gözde Girişim is owned by members of the Ülker family, who control the food giant Yıldız Holding.

Shares go up
The other two ventures that submitted their bids in the tender are Nurol Holding, MV Holding, Alsim Alarko, Kalyon İnşaat, Fernas Construction and Autostrade Per I’Italia SPA, Doguş Holding Makyol Construction Industrial Tourism and Commerce and Akfen Holding Joint Venture.

The assets in the package are the Edirne-Istanbul-Ankara highway, the Pozantı-Tarsus-Mersin highway, the Tarsus-Adana-Gaziantep highway, the Gaziantep-Şanlıurfa highway, the Toprakkale-İskenderun highway, the İzmir-Çesme highway, the İzmir-Aydın highway, the Izmir and Ankara connecting roads, the Bosphorus Bridge, the Fatih Sultan Mehmet Bridge and their connecting roads.

The tender commission’s announcement yesterday sent shares in Gözde Girişim up more than 9 percent after the tender, while shares in Koç Holding rose 2 percent to 8.92 lira immediately after the results.

“With a bid of this amount, we consolidate confidence in Turkey’s future,” Tamer Haşimoğlu, head of Koç Holding’s retail, tourism and food division, told journalists after the tender.

“We have made necessary preparations for financing, but it’s a long process. There could be changes,” he said, adding that it had been a transparent process.

UEM Group’s Managing Director and Chief Executive Officer Datuk Izzaddin Idris said the win was a significant milestone for the group, as they had always aimed to expand their expressway service offerings beyond Malaysia, India and Indonesia. He said the consortium’s success in the bid was due to the group’s strong experience in expressway management and strong partnership with Koç and Gözde.

“Our partnership is complementary and we were able to leverage on each other’s strengths,” the New Strait Times website quoted Izzaddin as saying.

The tender submitted by the consortium will be subject to approval from Turkey’s Privatization High Council, the Competition Board and the Council of State. The transfer of the toll roads from the Directorate of Highways to the consortium will be realized following these approvals and the final payment of the bid value.

The tender is the second highest privatization tender in Turkish history, after a Türk Telekom tender that totaled $6.55 billion. The bid came days after another tender for Boğaziçi Electricity Distribution Company (BEDAŞ), received $1.96 billion.

Price in highways tender is debatable

Erdal Sağlam / Analysis

The price in yesterday’s tender to rent out highways and bridges for 25 years was $5.7 billion, and that will be a source of debate for some time.

One might say that the price is reasonable at a time when the global crisis is continuing and Turkey needs permanent capital. This price might even be said to be right because the revenue will be received in advance and it will be used in the construction of new highways and bridges.

But the obvious truth shows that the price is not sufficient considering the tender’s volume, the opportunity to create cash revenue and the long term.

If you take into account that the bridges and highways generated an income of 740 million Turkish Liras ($411 million), I believe it is obvious that the price is not high, in fact, it is unsatisfactory.

The two bridges over the Bosphorus and eight highways bring 800 million liras of revenue into the hands of the public. There is no reason for the private sector to increase that revenue to 1 billion liras in a very short time. In addition to that, highway routes that are not much in use now will be handed over to the private sector with this tender, and with good management, it is possible to earn major income from those operations.
Of course, the company will have the burden of highway and bridge maintenance. But regardless, it is somewhat impossible for the company to have an annual net income below $500 million. The winning consortium can gain access to finance opportunities by both putting in their reputable names and by collateralizing future revenues.

By the way, we should also take into account that the budget will be devoid of considerable income.
In short, the calculations are clear and the price is not high, but that is a political choice.

December/18/2012

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Socialist TRK

12/20/2012 11:56:26 AM

JRC you are right in your complaint but the figures are not correct, as you would have to discount at rate of expected inflation, and revenue is TRY payment in USD. Using assumptions of 3% annual growth in traffic, 95% EBITDA margin (as its a very low cost business), and inflation rate of 6% per annum (over 25 years I assume inflation will decraese even more but this is conservative), the project is worth 8.13 billion USD (nearly 2.5 bn USD or 4.2 bn TRY more). Govt is a sell out

maria parada

12/18/2012 6:32:34 PM

You can build a lot of mosques with that kind of money!

Vargen Vargen

12/18/2012 12:05:59 PM

What the Government is doing is actually to collect 25 years of future payment in one day. This means that the buyer will get all the payments in future, against a lumpsum today. Personally i would have preferred to have a stable cashflow for a longer period of time in the future. But the government wants to invest the money in other things which probably will not give such a steady cash flow.

JRC JRC

12/18/2012 9:18:40 AM

Assuming no increase in fees, 25 years at 740m is 18.5 billion. There will be increases in fees though, probably from the day the highways are handed over, so there is a very good chance that over 25 years a profit of 20 billion plus will be made, even taking into account repairs and management costs. That's 20 billion that could go into other projects that Turkey needs, but will now go into a few very big pockets.
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