Turkey will offer infrastructure investors financial guarantees to attract international funding

Out-Law News | 30 Apr 2014 | 5:05 pm | 1 min. read

Private investors in some of Turkey's largest ongoing infrastructure projects will be able to secure increased financial guarantees from the Turkish Treasury according to the Financial Times.

A new regulation published in the Official Gazette of the Republic of Turkey, where new laws are published before entering into effect,- states that the Turkish Treasury will be allowed to assume the debt of companies investing in public infrastructure projects which have a value of more than $470 million, in a move which could apply to projects which have already been tendered, the Financial Times reported.

Should a project be terminated due to the project company’s default, the treasury will cover 85% of the principal loan amount. In the event of termination of the agreement due to  reasons other than the project company’s default, then the debt assumption undertaking will cover 100% of the principal loan amount, along with all financing costs.

Idil Bozoglu of Göksu Avukatlιk Bürosu, the exclusive alliance firm in Turkey of Pinsent Masons, the law firm behind Out-Law.com, said the regulation is unconventional in that the debt assumption agreements will not be published in the Official Gazette of the Republic of Turkey.

Turkey is offering the guarantees in the hope of attracting international finance to a number of infrastructure 'mega-projects', some of which have faced a reluctance to invest from some international banks for environmental and financial reasons, said the newspaper. A $30.5 billion project to create one of the world's largest airports at Istanbul has faced criticism after a report on the environment ministry's website said that construction may require the removal or felling of 2.5 million trees. The six-runway project requires $9.6 billion for the initial building phase.

Turkey has also struggled to attract international banking investment due to restrictions linked to new bank capital rules, the Financial Times said. Another major project, to build a new bridge over the Bosphorus, was funded by a $2.3 billion loan from seven Turkish banks, but the Turkish financial sector has limited capacity to help fund other mega-projects.

The development is also designed to "choke off" allegations of corruption linked to the building sectors, said the newspaper.

The decision to offer state guarantees to major infrastructure projects marks a change in practice established following a financial crisis in 2001, when the Turkish Treasury decided to limit its guarantees for such projects.

Wolfango Piccoli of the Teneo infrastructure optimisation and security consultancy, told the Financial Times: "This shows the determination of the government to push ahead with controversial mega-projects but on the other hand, these are the kind of risks the government was not willing to take 10 years ago."