Turkey Breaks a New Record in Energy Deals

Hurriyet Daily News

ISTANBUL - Amid the onslaught of the global crisis, Turkey’s energy deals prove to be a shield, says a report by PricewaterhouseCoopers. The country has set a new record with its energy deals worth $6.6 billion last year.

Turkey proved to be better positioned to weather the crisis than in the past and has done relatively well to be a safe shelter particularly for energy deals, according to a recent report by PricewaterhouseCoopers Turkey.

The first edition of "Energy Deals," which is an analysis of mergers and acquisitions in the Turkish energy market, aims to provide current and future investors with an updated and a deeper insight on the deal activities that took place in the Turkish oil, power and gas markets in 2008.

The total energy deal volume surged to $6.6 billion in 2008, shadowing those of previous periods mainly on the back of big ticket privatizations of the electricity and gas distribution companies, coupled with growing interest in renewable energy generation, according to the report.

"Looking to the future, we by and large agree with recent market outlooks indicating that tighter liquidity and lower risk appetite will likely translate into tougher and higher-cost access to financing. The credit and recession concerns are already rendering the investment landscape more conservative," PricewaterhouseCoopers said.

The firm remains confident in further enlargement in the energy deals landscape, on the back of growing domestic demand for energy and the busy privatization agenda of the state energy assets. "With this in mind, we hope to see the current regulatory challenges and the financing problems overcome and translated into much higher transaction figures in 2009."

Energy deals reach record values

The Turkish energy market has seen tremendous interest from both domestic and foreign investors in 2008; total deal volume reached $6.6 billion from 19 deals. The launch of big-ticket privatizations in the electricity and gas distribution segments was the key driver of this momentum.

Utilities have been the busiest deal venue in 2008. Of the total 19 deals, 16 were related to utilities, with a total activity of $6 billion, i.e. 90 percent of the total deal value.

Privatizations of electricity and gas distribution companies in Ankara and the electricity distribution company in Sakarya were the top three deals in 2008 in the utilities sector.

In privatizations, foreign players preferred to engage in consortiums with local counterparts, rather than participating by themselves. The main reason behind their low interest was the uncertainties in the tariff structures in the electricity and gas markets. The acquisition of İzgaz, the gas distribution company operating in Kocaeli, by GdF Suez, on the other hand, constituted an exception to the absence of pure foreign interest in the privatization tenders.

The privatization tenders left incomplete in 2008 will constitute main transactions in 2009 and most probably in 2010, the report says. In the power arena, privatization of state-owned distribution and generation assets as well as private deals in renewable energy will constitute the bulk of the deal activities.

In the gas front, the privatization of İGDAŞ, the gas distribution company in Istanbul, scheduled for the post-municipal election period, is the biggest deal prospect.

The PricewaterhouseCoopers report’s outlook for the deal potential in the Turkish oil market is doubtful given the existing market-related and regulatory constraints.

Western Europe continues to be the most active region in energy deals in Turkey. In fact, major players from France, Germany, Italy, the Netherlands and Austria comprised 58 percent of total deal volume in 2008, including their local partners’ shares where applicable, in line with their strategy to extend their reach beyond their motherlands.

The survey indicates that regulatory uncertainties are the biggest challenge for investors during the deal process. In the post acquisition period, on the other hand, obtaining regulatory approvals remains the biggest obstacle.