Responses of IFI’s to COVID-19 – Financing Turkish Infrastructure Projects

International Financial Institutions worldwide are taking unprecedented actions to help their countries of operations to recover from the pandemic and safeguard the delivery of vital services and infrastructure. Recently, EEL Events have spoken with multilateral development banks active in Turkey on their responses and preparedness to the COVID-19 crisis. Have a look at what they have to say.

Our first speaker is Sue BarrettHead of Infrastructure for Turkey, Middle East & Africa at EBRD.

How is COVID-19 impacting the financing sources for Turkish infra projects?

In general, banks are focusing as a matter of priority on addressing the needs of their existing clients during this crisis. While some International Financial Institutions (IFIs) and local banks are still actively lending in Turkey, particularly to provide emergency support to the healthcare sector and SMEs, we observe less activity from international commercial banks, who are more selective in Turkey now than in previous years. Covid-19 is affecting the risk profile of infrastructure projects, making both sponsors and financiers more cautious. Although we would expect sound well-structured infrastructure projects to go ahead as a key component of the recovery phase, for now, sizeable infrastructure projects are either on hold or proceeding slowly due to the crisis.

What big challenges have arisen from the pandemic and what are the likely consequences for the sector?

One of the biggest challenges has been the dramatic drop in revenues felt most acutely in areas of the transport sector, where global travel restrictions have left airlines, airports, rail operators and toll road operators stranded and in need of liquidity support or more significant financial restructuring. The impact on the ports appears mixed, with immediate effects felt by cruise ports and cargo terminals impacted with a lag, as the majority of these will be adversely effected by the decline in the global trade. During the pandemic, the logistics service providers have become more of an essential business with a key role to play in preventing the disruption to global and domestic supply chains. While the demand for logistics services has increased, the availability of the short term liquidity is vital for the continuation of these operations. Cities are also seeing a significant drop in revenues with urban infrastructure investments also halted or postponed. Investments in the healthcare sector in Turkey have come under spotlight during the pandemic. The timely opening of several PPP hospitals has helped to address the initial pandemic wave, while new pandemic hospitals have been constructed in record time to control the future waves of COVID-19.

Although it is too early to assess the longer-term impact of the pandemic, infrastructure and private investment remain critical to the Turkey’s economy, and will hopefully recover quickly with new projects emerging. It is highly likely that experiences and lessons learned during the pandemic will lead to more conservative deal structures for long term investments, especially for those assets with demand risk. The Government is likely to face greater demands for support for investments by private investors, who are critical to delivering much needed infrastructure investment in Turkey. This means that the partnership between the Government and private investors will need to become stronger.

What is your COVID-19 response?

EBRD is responding to the impact of Covid-19 by providing emergency support to existing clients, as well as preparing to help our countries of operations recover from the pandemic in the coming years. To this end, EBRD’s Shareholders approved a comprehensive series of response and recovery measures, including a Resilience Framework to finance short-term liquidity and working capital needs of our existing clients, as well as a Vital Infrastructure Support Programme, which aims to meet critical infrastructure needs, including financing for working capital, stabilisation and essential public investments in our countries of operation. The EBRD stands ready to provide support worth €21 billion over the period 2020-21.

More specifically, in Turkey, we have provided a EUR 25 million liquidity facility to Netlog Logistics, an internationally acclaimed integrated logistics service provider aimed at ensuring its sustainability during the Covid-19 crisis. We also anticipate supporting other Turkish companies with strong business fundamentals during these challenging times in order to sustain vital infrastructure. In addition, we are considering providing support to municipalities for expansion of their transport systems, which will indirectly support crisis response measures by increasing urban transport capacity which has become vital to facilitate social distancing measures.

EEL Events also spoke to Fuphan Chou, Investment Officer at IFC.

How is COVID-19 impacting the financing sources for Turkish infra projects?

Broadly speaking, we see reduced liquidity and increased cost of financing. We see a pulling back from international commercial banks due to lower credit ratings in the country following downgrades, and there has been a focus on projects and companies generating FX/ exports. From the perspective of our clients, we see some taking a pause to reassess certain investments within the current context.

What big challenges have arisen from the pandemic and what are the likely consequences for the sector?

The big challenges arising from the pandemic can be viewed in terms of the initial impacts of the restrictions on personal movement and business activity, and the subsequent recovery. The transport and logistics space is clearly impacted as a result of these restricted movements, lower demand and supply-chains disruptions. Another key sector of impact is the subnational sector, where municipalities are challenged on the one hand with decreased revenues from taxes and fees (e.g. public transport fees), while making increased expenditures on sanitation and healthcare.

Another includes the power generation sector, which is being impacted by lower prices driven by reduced electricity demand amongst other factors.

Finally, utilities – for example, both power distribution and water supply – are also seeing shifts in consumption patterns and strains from end-user affordability and customer ability to pay monthly bills on a timely basis. How the recovery path looks will depend on the path to regain economic growth and stabilization of the currency.

What is your COVID-19 response?

IFC is providing $8 billion in fast-track financing to our private-sector clients to sustain economies and protect jobs during this unprecedented global crisis. Within our $8-billion package, $2 billion will support existing clients in the infrastructure, manufacturing, agriculture and services industries vulnerable to the pandemic. The other $6 billion will go to client financial institutions to enable them to continue to offer trade financing, working-capital support and medium-term financing to private companies struggling with disruptions in supply chains, especially small and medium-sized enterprises.

IFC is moving quickly to soften the economic blow through financing that will help companies continue to operate and accelerate the recovery when the pandemic recedes. Specifically in Turkey, we are actively exploring areas of support, including investments in the subnational, energy, and transport sectors, to help clients adapt to and recover from COVID-19.

international development banks, which are active in Turkey along with those who are not directly funding projects about international projects of Turkish sponsors, have extended their Covid-19 support lines to infrastructure sponsors. The local commercial and investment banks are also facilitating the funding lines, through Central Budgetary sources of Public Finance. The effects of the pandemic were mitigated with the loan and support provided in this context.



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