Light at the end of the tunnel – Infrastructure Turkey (M&A)

                                                  Version française : La lumière au bout du tunnel - L'infrastructure Turquie (M&A)

Infrastructure investments = M&A opportunities in Turkey?

Excluding energy & telecom industries, infrastructure investments in Turkey are expected to reach USD700bn for the next decade.  Majority of this amount will be channeled to urban development in order to rebuild 6.5m residential units that face earthquake risk.

Transportation will remain as the second investment focus in terms of value, consisting 35% of the total infrastructure investments. Other specific projects such as Health campuses, Canal Istanbul, 2020 Olympics are also on the investment agenda, bringing along new business opportunities. Given that, M&A activity in Turkey is expected to peak as it represents substantial investment opportunities not only in infrastructure but also in many related industries.

First of all, construction activity will gradually rise as urban development projects will largely be undertaken by the private sector. Moreover, Istanbul Finance Centre (IFC) project will have a positive impact on the financial services industry.

With this project, it is aimed to develop Istanbul into a regional finance hub while taking advantage of its geographical position and solid banking sector of the country. Consequently, financial services and construction sectors in Turkey are expected to be in the radar of the investors for the next years which may also increase related M&A deals.

Safe-haven government bonds versus Infrastructure

Considering Eurozone crisis coupled with the fall in yields on safe-haven government bonds, infrastructure sector in Turkey seemed an attractive option among investors focused on assets with stable cash flow. Turkey’s robust foreign trade fuelled by high GDP growth rates attracted many international investors including government-backed funds.

French Inframinervois’ investment in Iskenderun Port, Kumport investment by Ministry of Finance-Oman and Italian VEI Capital’s stake acquisition in Global Liman have been remarkable M&A deals in Turkish infrastructure sector.

Besides, transportation investments (of c. USD250bn) also foreshadow an increase in related M&A activity as the project aims to connect the underdeveloped Anatolian hinterland to coastal hubs. Realization of this project may boost both domestic and foreign trade in the area while resulting in higher cash flows.

Consequently, cost-efficiency in exports and growing dynamism in the region will definitely whet the appetite of strategic investors that seek geographical diversification. Furthermore, private equity and venture capital funds are also expected to seize the undiscovered opportunities in Anatolia, as the region has remained isolated from foreign investments mainly due to infrastructure problems.

Edit: As of May 2013, two important infrastructure projects have found their investors. Firstly, Turkish consortium Limak-Cengiz-Kolin-Mapa-Kalyon OGG has won the tender for 25-year build-operate-transfer (BOT) contract for İstanbul's third airport with 22.1 billion euros bid. 

Secondly, Doguş Holding won Galataport tender as it bid $702m for the right to develop and operate the port area for 30 years.

Even the above-mentioned projects will significantly ameliorate related industries, many other projects will ensue as there are still numerous projects available for prospective investors. 

In conclusion, about USD70bn  investment per year on infrastructure for the next decade can be considered as a sign of a breakthrough in overall Turkish M&A activity and it may be the light at the end of the tunnel for investors recovering in the post-crisis period.

Melih Ardalı

For further information: mergerturkey@gmail.com

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