The European Bank for Reconstruction and Development (EBRD) is strengthening Turkey’s capital markets by investing in the country’s longest tenor corporate bond.

The Bank is investing TRY70 million (US$23 million) in a four-year bond issued by the Turkish industrial conglomerate YDA İnşaat Sanayi ve Ticaret A.Ş. The senior unsecured local currency bond is part of a TRY 250 (US$82 million) issuance in two equal tranches, with four- and two-year maturities respectively.

The four-year tranche uses the Turkish Lira Interbank Offer Rate (TRLIBOR) as its benchmark rate, which allows for effective interest rate hedging and wider investor participation.

The bond is being raised to finance a state-of-the-art hospital in the central Anatolian city of Konya and to refinance part of YDA’s short-term debt. The hospital will be built by a construction subsidiary of YDA as part of a public-private partnership (PPP) under which the private developer will provide building maintenance and non-clinical services, while the medical services will be provided by the Turkish Ministry of Health.

The EBRD has previously arranged a €147.5 million (US$162 million) syndicated loan for the development of the Konya hospital. It is expected to become operational in 2019.

This is the EBRD’s second investment in YDA bonds and comes under the Bank’s TRY700 (US$230 million) program dedicated to supporting Turkish lira-denominated bonds. The Bank’s investments under this program promote longer tenor and greater transparency and aim to attract a wider pool of international investors to Turkish capital markets. Developing debt and equity capital markets in Turkey is one of the EBRD’s top priorities there, as set out in the Bank’s strategy for the country.

The EBRD started investing in Turkey in 2009 and currently operates from offices in Istanbul, Ankara and Gaziantep. 98 per cent of the Bank’s investments in the country are in the private sector. To date, the EBRD has invested over €7 billion (US$7.7 billion) through more than 180 projects in infrastructure, energy, agribusiness, industry and finance. It has also mobilized about €17 billion (US$18.7 billion) for these ventures from other sources of financing.

The EBRD’s strategic priorities for the period 2016-18 for its countries of operations, including Turkey, are re-energising growth, strengthening regional integration and addressing global challenges.

YDA, together with its subsidiaries, is one of Turkey’s leading industrial groups and a long-standing client of the EBRD. The Ankara-based company builds roads, airports (Dalaman airport), ports (Trans-shipment container terminal AsyaPort) bridges, housing, business centres, hotels, hospitals (Kayseri integrated health campus), school complexes and industrial facilities and is also expanding its role as a concessionaire for developing and operating infrastructure facilities under PPP arrangements.

Jean Patrick Marquet, Director for EBRD operations in Turkey, said:

“Corporate bonds are important tools to meet the capital needs that large companies like YDA require for their investment projects. This is YDA’s third corporate bond issuance and the market’s first with four years maturity. In addition, it has managed to reduce the cost of borrowing while extending the average maturity and also increase its share in corporate bonds market. We are working together on several projects with YDA and our strategic partnership will go from strength to strength."

Hüseyin Arslan, YDA Group Chairman, said:

“We sincerely thank all our local and foreign investors, primarily the EBRD, for their trust in us and the Turkish economy, enabling us to improve market sentiment through this issuance. A four-year tenor for a corporate bond is an important achievement for the local bond market and we are grateful to the investors who supported this issuance despite the latest developments in local and foreign markets.”