Q. Congratulations on your recent TL 200 million issuance. Can you explain the thought-process behind your decision to issue in Turkish Lira rather than issue on the international markets, or the syndicated loan market?
As a developer and operator of large-scale infrastructure projects, YDA has been working with top-tier local and global banks and major IFIs for a long time. YDA’s participation to local bond market was the first step of its plans to become a globally-recognized player in the international capital markets. After YDA’s successful introduction to Turkish capital markets in July 2014, we pursued to expand our investor base further. EBRD’s first participation to a TL-denominated bond issue of a non-FIG Turkish issuer was one of the unique features of this transaction and totally in line with our diversification policy. Today, YDA takes firm steps further to become a globally-recognized player with its planned SUKUK and Initial Public Offering.
Q. How are the proceeds of this bond going to be used in the PPP projects you are involved in?
A portion of the proceeds of the bond issue will be utilized in PPP projects to fund the equity portion of YDA. The Group has 3 PPP projects in financing stage: Kayseri, Konya and Manisa Hospitals. The total investment requirement is around Eur 1bn and the equity share is around Eur 250m. The Group will fund a portion of the equity from its internal cash generation and the remaining portion from the Bond issue.
Q. Can you walk us through your transactions stage-by-stage, highlighting key challenges you faced and overcame along the way?
Having a validly existing CMB approved issuance certificate, the regulatory work was quite less. Apart from it, we can break down the whole process in 4 pieces: i) The Rating Process ii) EBRD’s Due Diligence iii) Management Roadshow iv) The Bookbuilding
i) The rating process began just after the kick-off meeting which was held between the management of YDA and the mandated banks Yapi Kredi Yatirim and Ziraat Yatirim. The process was carried smoothly thanks to the quality and content of the data provided by YDA’s management team.
ii) Although EBRD’s involvement brought some degree of complexity to a standard issuance process, owing to already established relations and strong collaboration with the banks, the due diligence process was also carried out in an effective way which led EBRD’s participation as an anchor investor to the issuance.
iii) The management roadshow was an unprecedented success in Turkish local markets in terms of its comprehensiveness. YDA’s management team visited more than 40 institutional investors including portfolio managers, banks, insurance companies, REITs, endowments, retirement funds and corporates from diverse sectors.
iv) The bookbuilding was held for 2 days where Yapi Kredi Yatirim and Ziraat Yatirim act as joint bookrunners.
Q. How long did the process take you from start to finish?
The whole process took roughly 4 months including EBRD’s due diligence.
Q. What were the criteria by which you mandated banks for your transaction?
Strong track-record and distribution power in local TL market were among the first things that we put emphasis on. We had a successful debut issuance in July 2014 which led by Yapi Kredi Yatirim. By mandating two banks for this transaction, we benefited from Yapi Kredi Yatirim’s established relations with IFIs like EBRD and we enhanced the sales power by adding Ziraat Yatirim, the brokerage arm of the largest bank in Turkey, into the equation.
Q. What was your initial expectation on pricing? Did those expectations change during the transaction? And consequently did you adjust your strategy at all?
Our first issue was a 2 year bond, which was priced at 375 bps premium over the benchmark and has been well received by the market. Just 5 months after this transaction, we set ourselves an ambitious goal of doubling the offering size to TL 200 million, while extending the maturity to 3 years, longest tenor available in the market. Looking at other issuers, which have outstanding bonds of both 2 and 3 year maturity, we realized that the term premium for extra year has been around 50 -75 bps in the market. However, pricing was a very important consideration for us and we did not want to pay that much premium over the existing bond. Therefore, we left the pricing decision to be made after the roadshow, which is somewhat unusual in Turkish market. We provided a rough guidance that the issue will be priced inside of 400 bps during the roadshow, suggesting only 25 bps premium over the existing bond. Encouraged by the feedback we received, we decided to price the bonds at 390 bps just before the official book building started. Hence, we paid only 15 bps premium over the existing bonds, which is a remarkable achievement.
Q. What advice would you give to other project developers who are considering raising capital on the local markets and project bonds?
Construction and infrastructure companies tend to have complex corporate structures and a number of projects with different risk and return profiles. Therefore, content and quality of the roadshow material as well as the management’s grasp over operational and financial performance of the company are crucial to provide transparency and visibility in the eye of investors. Apart from managerial qualities, issuers should work with banks that are capable of providing objective, sound and comprehensive feedback.
