Turkey to form Energy Fund for $2B non-performing loans

By Nuran Erkul Kaya

ANKARA (AA) - Banks in Turkey are currently working on an Energy Venture Capital Fund as a method of refinancing non-performing loans up to US$2 billion, Garanti Bank's Executive Vice President told Anadolu Agency on Thursday.

The fund will see the financial transfer of four to five natural gas and hydropower plants with 1,500-2,000 megawatts of capacity.

Over the last 10 years, in the financing of a number of energy projects in which banks provided $70 billion credit, investors repaid $23 billion, but the repayments of the financing balance of $12-13 billion became problematic.

As a solution, banks authorized a refinancing scheme in the last two years to recuperate the $12-$13 billion, leaving a $2 billion outstanding debt. To recover the $2 billion, a number of bankers are working on structuring an Energy Venture Capital Fund with the Banks Association of Turkey (TBB).

Investors in the Turkish energy sector have experienced difficulties because of the weakened Turkish lira currency against the dollar as the repayments were in dollars while revenues were earned in liras.

The currency disparity between the dollar and the lira intensified since August 2018 and reached a rate with a six-fold differential. As a result, investors experienced greater difficulties in repaying the costlier loan repayments.

The drop in electricity sale prices amid stable energy demand in Turkey further contributed to the financial burden of these investors.

Ebru Dildar Edin, executive vice-president of Garanti Bank, as one of the representatives working on the fund, explained that the first step for the fund's creation will be with TBB's invitation to all banks to participate in the fund, after which the participants will set up a portfolio management company.

The portfolio management company will become an umbrella structure in which all banks will have equal shares. For each project the banks will have shares in proportion to the credit amount provided to the project.

The management company will act as a higher body while making decisions for the better management of the fund companies. The management company will also have representation from the energy sector through an executive placement while the banks will have representation on the board of directors.

"The important point is that under the portfolio management company, there will be separate fund companies for each project with the non-performing loans transferred," she said referring to the four or five separate fund companies that will work under the portfolio management company.

However, Edin said a third independent institution will undertake the valuation of the projects based on current rates.

The expectation is that as the projects will have fewer loans repayments in the fund, they will be able to recover leaving room for revenue generation.

"We foresee that Turkey's energy sector will recover in the coming three years. As the circumstances improve, these projects will be earning money again. After they start to become more valuable assets, we might think of selling them," Edin said noting that any sale would be in at least three year's time.

She also said that should any payment problems in the refinanced projects occur, they could be transferred to the fund, thereby enlarging the fund if necessary.

The fund will form the basis in acting as a working body for any problematic credit project in the future too, she concluded.