TBY talks to Michael Davey, Director of the European Bank of Reconstruction and Development (EBRD) in Turkey, on the bank’s contribution to the development of the country.
TBY How do you evaluate the EBRD’s contribution to the development of Turkey since its entrance into the country?
MICHAEL DAVEY We have been here for three years. Turkey is a new country of operations for the EBRD outside of the former communist block, so it was a different country for us and we deliberately had a modest investment of €150 million in the first year, €500 million in the second year, increasing to €1 billion in 2011. That’s supplemented by co-financing. We have been focused on key areas, including sustainable energy, which is very important for Turkey. We’ve put quite a lot of money into things like renewable energy as well as energy efficiency for industries and for small businesses, and I think that has made quite a good impact. The EBRD has been able to give resources to banks to use in areas that they would not have looked at otherwise. Small business finance, for example, is another area where we have been able to make a difference. The EBRD has also been supporting privatization. We have provided financing for a privatized power distribution company and a privatized gas distribution company. As well, we have been looking at ports and supporting large public-private partnership (PPP) projects.
How do you assess overall financing for renewable energy companies, and how is the EBRD co-financing this sector?
The lack of medium- and long-term resources in the banks is a big issue. They do not have any access to longer-term debt financing in Turkish lira, and that’s one issue in the country that everybody is concerned about and must work on. However, the banks also do not receive significant medium- or longer-term resources from the international market. This is important because renewable projects need funding for 10 to 12 years, and Turkish banks typically can’t provide 12-year financing without running a maturity mismatch. Alongside that, we have a strong consultancy group in place to advise on financing structures for renewable projects, environmental issues, and social due diligence. Our project is very focused on those three things: delivering expertise for structuring, delivering expertise for environmental due diligence, and delivering longer-term money. So far we have co-financed €900 million. We are in the process of delivering this through the banks, and although it isn’t much, it is enough to make a difference. We have also financed some larger renewable projects directly with Turkish sponsors.
What is the level of awareness of the EBRD’s activities among Turkish banks?
The Turkish banking sector knows us very well and actively seeks our finance. In 2011, around 40% of the funding to Turkey will go through banks. Within the corporate sector we are getting a few high-profile transactions. When we arrived in Turkey, Turkish business already knew us quite well because we had invested and supported a number of Turkish investors in other countries and there was a queue of people at our door immediately. Our issue was more how to squeeze significant business potential into the available funding envelope rather than developing a deeper market. The target regions for us are the south and east—the most difficult parts of the country. We’d like to make a real difference, and so it has taken a lot of time going out and meeting with businesses, business associations, development agencies, and regional development agencies, trying to build a profile. It’s a big country. Mining is fairly big down in these areas as well as manufacturing, but agribusiness has the most potential. That’s what we are trying to target with our money.
How would you say transparency among corporate business has improved in Turkey since the EBRD started operations here?
We are getting a lot of interest from mid-sized, family-owned companies that are going through a transition themselves. Turkish businesses are dominated by family ownership, and after two or three generations they are growing aware of all sorts of things: raising capital, listing publicly, and dealing with the markets in general in a transparent way. One of the main reasons for coming to work with the EBRD is that companies can use our approaches to present themselves internationally in a transparent manner. There is a good attitude, and there is certainly a lot of demand for our involvement for those reasons.
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