Wednesday, May 05, 2010

Latest IPOs (initial public offering) in Turkey

Dear Energy Professional, Dear Colleagues,

We have recent IPOs (initial public offering) of Akfen and Aksa from our local market. The conglomerate Akfen and energy group Aksa are among several sizeable companies launching IPOs this spring, and the Istanbul Stock Exchange says it expects 15 to 20 new listings this year.

Akfen Holding, the Turkish construction conglomerate, plans to raise $500 million to $700 million in an initial public offering, potentially Istanbul's biggest since 2008, people familiar with the matter said. A total of 29.2 percent of its enlarged share capital will be offered, of which 85 percent is primary shares and the remaining 15 percent are secondary, they added. One third of the IPO proceeds will be used to pay down debts while the rest will be invested in projects. The bookbuilding process is expected to start on April 19. Turkish energy firm Aksa Enerji Uretim also launched a listing on the Istanbul stock exchange on Thursday, seeking to raise $400 million to $500 million.

Akfen is related with new airport constructions TAV and their operations. They are very successful in this business. There is little competition at this time, and business is booming in this sector- Akfen is also mobilized for new energy investments, new 800 MWe thermal power plant firing naturalgas in Samsun TekkeKoy, and 1600 MWe in Sinop Erfelek firing imported coal. They have these new licenses to construct the combined cycle power plant in Samsun where gas is coming from Blue Stream gas pipeline and the imported coal from Russia. That may create questions on supply security. Imported coal firing power plant investment is not so easy due to local public reactions. Combined cycle power plants are easy to construct, and easy to finance. Another 450 MWe naturalgas firing new thermal power plant construction is planned in the Iskenderun bay on the south Mediterranean coast. However it is not so easy to say that the company is well structured with new engineering staff but it is expected that they will have soon, since the company is originally formed to fabricate small size household steam boilers in the past.

Weakspot of Akfen is that it is a one-man company with greed and huge self esteem, but unfortunately with limited engineering staff. Akfen has to get restructuring and have better in-house engineering capability in the long term which is deemed necessary for new energy investments.

Aksa Enerji, one of Turkey's largest private power producers, is looking to get as much as $414 million in an initial public offering as the company aims to boost its share of Turkey's fast growing power market. Aksa plans to sell a 13.52 percent stake in the company, which could rise to 15.55 percent with a greenshoe option. The company said on Monday it targeted a price of 4.9 to 7.2 lira per share with the top end of the range bringing in 619.2 million lira ($414 million) and the lower end of the range fetching 421.4 million lira. Growth potential in Turkey's power production sector is huge. The country will need between $3-5 billion annually over the next five years in order to prevent power shortfalls as demand is seen outstripping current capacity. The company expects to finish bookbuilding for the offering by May 13-14. The company said it plans to make investments of $3 billion by 2014 to boost its capacity to 4,129 megawatts from a current capacity of 1,500 MW. It aims to hold a 10 percent market share of Turkey's power production industry by the same time. "Our growth will continue both organically and through mergers and acquisitions. Privatisations are within our areas of interest, especially (power) production privatisations and we are interested in distribution," said Aksa Chairman Cemil Kazanci. He also said that the company aims to boost renewable energy capacity to 1,100 MW from a current level of 130 MW. The company has allotted 70 percent of the offering to foreign investors and 30 percent to domestic demand.

Aksa company is known as diesel generator fabricator based on foreign licenses upto 2 MWe electricity generation. They are almost a monopoly in the local market. Company has good relations with Russian gas supplier. Company has strong engineering backbone to carry out all types of in-house engineering works. They are also interested in gas distribution privatizations. They have recently completed new 1500 MWe gas fired combined cycle power plant in Antalya region Selimiye Kovanli village. Antalya is the Turkish Riviera with many luxurious tourist hotels. That region had electricity shortage for many years in the past, especially in summer time for air conditions. New combined cycle power plant will erase that power shortage. However the plant cooling system is designed to agricultural water supply rather than air cooling which is more expensive That design may create drinking water shortage in the region since it is situated on the drinking water supply of underground supply of the region. The plant is operated now in simple cycle so there is little water consumption. Anyhow the plant will be operated in the combined cycle soon and the underground water supply will be used and that may create water shortage in the long run. Plant has to change the overall cooling mode to air cooling mode in the long run to avoid water stortage in nearby agricultural land and the population of Antalya region. The same plant has extension program to add 1000 MWe more in future.

Strong point of Aksa is that they are a family company with professionals plus a strong professional and experienced engineering staff on energy projects. Weak point is that they have lack of sensitivity on environmental concerns in their energy projects and reluctance to respond to local environmental reactions. That may not be a problem in the short term due to their close relations with the ruling administration, but in the long term that may create legal and financial problems.

Please do note that both companies have renewable power plant projects mostly in wind power also they are looking for a substantial share in hydro privatizations.

Your comments are always welcome.
Haluk Direskeneli, Ankara based Energy Analyst


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