Turkey’s energy sector will be able to get new loans or re-finance existing ones with the backing of companies’ powerful shareholders and through diversification in means to generate income, analysts said.
“I don’t foresee a problem in terms of companies getting new loans or re-financing existing loans in the mid-to-long term,” Selim Kunter, equity research director at Istanbul-based Deniz Invest, told Anadolu Agency.
"Banks also provide loans keeping in mind most energy projects are long-term. They also take into account seasonal volatility,” Kunter added.
Turkish energy companies have not had trouble rolling over their debt in the last two years, he said.
Kazanci Holding's subsidiary, Aksa Energy, Turkey’s largest independent power producer, obtained an $800 million loan at the start of August, signing an agreement with a consortium of banks, including Garanti and Isbank, two of Turkey’s largest lenders.
Akenerji, a subsidiary of Turkey’s Akkok Holding, received a 12-year $1.1 billion loan late last year from Turkey’s Yapi Kredi Bank, a joint-venture between Turkey’s Koc Holding and Rome-based UniCredit SpA.
- Renewable investments have advantages
Turkey’s energy companies owe more than $60 billion in loans, about 85 percent of which were obtained from Turkish banks, according to data provided by companies. Firms have to pay back the debt on their investments in dollars, while the revenues are based in Turkish liras.
Companies’ costs have risen with the lira’s decline against the U.S. dollar and the euro in the last two years.
“Revenues are lira-based and the debt is foreign-currency-based and this may create some operational risk,” Ugursel Onder, senior associate for Is Investment, Turkey’s largest broker by trading volume, says. “Also the decline in electricity prices since 2013 affects net profits negatively.”
Electricity prices for consumers have fallen by more than 10 percent in the first six months of this year, according to data from the Turkish Energy Regulatory Market (EPDK) website.
But the debt outlook is more positive for companies who have a renewable energy portfolio, according to Onder.
Currently Turkish energy companies generating electricity from renewables receive feed-in tariffs from the government through the Supporting Mechanism of Renewable Energy or YEKDEM scheme. The tariff is 7.3 cents per kilowatt hours (kWh) for wind and hydropower, 10.5 cents for geothermal facilities and 13.3 cents for biomass geothermal and solar energy plants.
The figures go up even higher for companies using locally-produced equipment, Onder said.
“Companies who invest in renewable energy already have a natural edge against currency risk in this way,” she said.
- Bond sales may go up
Energy companies are also selling bonds, thus borrowing in Turkish lira, and lessening their dependency on foreign currency, according to analysts. Nine energy companies’ bonds currently trade in Turkish capital markets.
“Bonds issued by energy companies such as Enerjisa, Aksa Enerji and Zorlu Enerji enable cash flow in Turkish lira and prevent firms from getting affected by currency fluctuations,” Kunter says. “As debt in financial markets increases, companies will try alternative ways of borrowing. Bond sales may increase.”
Enerjisa Company Baskent Elektrik Dagitim AS (EDAS) (Baskent Electric Distribution Co.) sold 200 million liras worth of three-year bonds in August, indexed to inflation. Enerjisa is a joint venture between Dusseldorf-based energy giant E.ON and Turkey’s Sabanci Holding.
Baskent EDAS may carry out a second bond issue next month, Enerjisa CEO told Anadolu Agency last month. The fact that Baskent EDAS is the first private company to carry out the sale of bonds linked to the Consumer Price Index (CPI) in Turkey is a significant step, Onder says.
“Other energy companies can also start issuing bonds indexed to inflation in the near future,” she says and added “currently, there are upward inflationary risks and it is attractive for investors to take positions in CPI-linkers.”
The continuation of the flow of funds into Turkey despite the failed coup attempt of July 15 is also a positive sign in terms of financing and re-financing possibilities for energy, according to analysts.
Loan rates are on a falling trend and this is a good development for companies trying to roll over their debt, according to Bora Tamer Yilmaz, an economist for Ziraat Securities, a unit of Ziraat Bankasi, Turkey’s largest lender.
A total of $496 million in funds entered Turkey in August this year. Total assets coming into the country since the start of 2016 have reached $3.8 billion in line with positive global liquidity, Yilmaz said.
“I don’t expect another shock in the dollar/lira rate if these conditions persist,” he said.
“With the lira’s recent stable trend, things will be easier for energy companies who have borrowed in foreign currency,” he added.
But the business environment may not affect all companies in the same way as companies determine the shape of their financial structures according to their own strategies, Yilmaz said.
The energy sector, especially electricity distribution, is in need of serious investment and this may cause significant risks, according to Onder.
But it is unlikely the Turkish government would let a strategic sector such as energy, where sustainability is very important, slip into difficulties, she says.
“That’s why I believe energy companies will keep on financing their debt one way or another,” she concluded.
By Sibel Akbay
Anadolu Agency
enerji@aa.com.tr