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Forced bonding

By requesting a $200m bond to participate in a $5bn roads privatisation, the Turkish government is indicating that only serious bidders need apply. It will now face pressure to run a quick and efficient tender process, maintains Bruno Alves

AS STATEMENTS OF intent go, stipulating that bidders must pay $200 million to participate in a privatisation process sends a clear message to the private sector – and especially to the eventual preferred bidder: only serious bidders need apply. After all, those not planning to honour final offers will be massively out of pocket.

That’s precisely what Turkey’s Privatisation Administration wanted to convey in late August, when it finally launched the tender for the privatisation of some 2,000 kilometres of road – including Istanbul’s two suspension bridges, said to comprise up to 80 percent of the package’s value – in a deal that might net the Turkish government between $4 billion and $5 billion.


The other point to bear in mind for whoever ends up as preferred bidder is that, when the time comes for final negotiations, the Turkish government will have about $200 million of your money to use as leverage. As one source dryly puts it: “It’s a strong pressure element.”

In fairness, the Turkish government’s decision to set such a hefty price for participation is not without cause.

“The bond price is high, but the reason for that is quite simple. In some of the previous privatisation efforts in the gas and electricity sectors, the tender processes fell apart because the preferred bidders did not honour their commitments,” a source from an international advisory firm with experience in the country explains.

Conversations with two local bankers reveals support for the high bond price precisely for that reason: to ensure bidders take the auction seriously. One potential bidder, however, describes the bond price as “crazy”, adding that “it’s never that high”.

Either way, the pressure being applied by the government to bidders might just come back to haunt it.

“On the other hand,” continues the advisory source, “this means the public authorities have to develop a reliable bidding process. They have to be quick, because no one wants to have a $200 million bridge loan hanging on its balance sheet for long”. (Bidders not selected for the final bidding stage will get their money back).

Timeliness, however, is not a word readily associated with Turkey’s roads privatisation package. Initially touted in mid-2008, the tender process was ultimately aborted due to the impact of the global financial crisis, as it was considered too big for cash-strapped European banks and their developer clients to digest comfortably.

When Infrastructure Investor published its special report on Turkey in February 2011, the launch of the package was said to be “imminent”. In the end, it took about a further six months for it to come to market. 

If you are a bidder that just took out a $200 million loan to participate in the tender, you are unlikely to be happy with similar delays. As it stands, bidders are expected to submit their qualifications to the privatisation authority by November 18, with bids requested by December 15.


The positive news is that the roads package is seen as a good asset, with a “long traffic history, which supports stable traffic numbers, even during times of crisis,” Sule Kilic, head of financial advisory at Unicredit Turkey’s investment banking division, commented in our February special report.

“The assets are [also] seen as providing an attractive IRR [internal rate of return] as traffic has been forecast to increase at 15 percent per vehicle/kilometre on an annual basis,” law firm Ashurst wrote in a research note, also published in February.

That means the prize is potentially high for the future winner of the package, which may vindicate the government’s desire to have serious bidders only. The flipside is that it will now be forced to adhere to the same demanding criteria it is imposing on the private sector, if it wants to have someone present at the negotiating table.