Islamic Structured Finance Seminar Cases of Infrastructure Finance - - PowerPoint PPT Presentation

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Islamic Structured Finance Seminar

12 November 2019

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Cases of Infrastructure Finance with IsDB financing

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TSKB at a Glance

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First Privately Owned Development and Investment Bank

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

Long lasting relationship with Development Finance Institutions (DFIs) Privately

• wned

Development and Investment Bank Multi- disciplinary credit evaluation, appraisal and monitoring Access to TR Ministry of Treasury and Finance guaranteed funding Integrated Business Model with Sustainability principles

▪ Established in 1950 further to World War II & Marshall Aid Programme with the support of World Bank. ▪ 1st CEO was from World Bank. ▪ Between 1963 and 1979, IFC was a shareholder. ▪ TSKB has been involved in promoting the development of the Turkish economy by providing LT investments for Turkish companies. ▪ Independent project appraisal process comprising of separate disciplines. ▪ Non-deposit taking institution, which primarily funds its lending from DFI’s guaranteed by the TR Ministry of Treasury and Finance. ▪ 52% of non-equity liability is state guaranteed.

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CLIENTS MINISTRY of TREASURY and FINANCE DFIs & FIs MISSION CLUBS NGOs REGULATORY BODIES

• Large Corporates, MidCap Companies &

SME’s

• Cooperation in various areas such as;

corporate loans, investment banking activities and advisory services

• UNEP FI
• UN Global Compact
• Global Reporting Initiative
• TUSIAD
• DEİK (Foreign Economic Relations Board)
• Long-lasting relationship with

policy makers and public institutions

• Opinion provider
• Consultancy services

A trustworthy partner in;

• its field experience
• its capacity to introduce innovative

themes w.r.t. investment projects

• documentation & negotiation
• monitoring existing projects

Main Stakeholders

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• ADFIMI
• LTIC
• ELTI
• IDFC
• IIF
• Theme generation
• Fast utilization
• Add-value generation
• Capacity building

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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Overview

Ratings TSKB Turkey Fitch LTFC B+ BB- Moody’s LTIR B3 B1 SAHA 9.56/10

50.9% 8.4% 40.7%

Shareholder Structure

İs Bank Group Vakifbank Free Float and Other

▪ TRY 41.6 bn asset size ▪ 13th bank in terms of asset size ▪ 58.4% of free float belongs to foreign investors ▪ 369 employees, 1 branch

Subsidiaries

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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Main Business Lines supporting the Bank’s mission

Corporate Banking

▪ Direct loan financing – industrial investments, energy and resource efficiency, renewable energy, inclusiveness, women empowerment, education and health investments ▪ Project finance solutions – Renewable energy, PPPs, energy, infrastructure and logistic investments ▪ On-lending of multilateral APEX funds for SME and Export Finance secured from: ▪ IBRD ▪ CEB ▪ EIB

Investment Banking

▪ Manages own securities portfolio ▪ Structured risk management and funding solutions, including currency and interest rate derivatives ▪ Customized corporate finance solutions: ▪ Equity and bond issuances ▪ M&A advisory ▪ Strategic consultancy ▪ Asset purchase and sales advisory ▪ Privatization activities

Advisory Services

▪ Advisory services: ▪ Economic Research ▪ Industrial Research ▪ Financial Advisory ▪ Engineering & Technical Advisory ▪ Industrial Strategy Development ▪ Real estate appraisals ▪ Sustainability and environmental consulting: ▪ ESMS ▪ Technical consulting ▪ Climate change management ▪ Renewable energy consulting ▪ Investment monitoring for FIs

% of Assets (2019 Q2)

72% 23% 5%

*Advisory services & Other operations

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Banking Sector vs TSKB

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35.8% 13.1% Banking Sector TSKB

Cost to Income

18.4% 17.8% Banking Sector TSKB

CAR

62.3% 74.0% Banking Sector TSKB

Loans/Assets

4.7% 3.2% Banking Sector TSKB

NPL

* Sector data as of June 30, 2019

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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Funding Structure

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Funding Diversification Important Milestones

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FIRST GREEN BOND FIRST SUSTAINABLE TIER II BOND

1951 1967 1969 2000 2005 2011 2014 2016 2004 2012 2017 2018 2019

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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%80 of DFI Funding

guaranteed by Turkish Ministry of Treasury and Finance.

Funding Structure (2019 Q3)

Funding / Total Liabilities (exc. equity) Strong multilateral funding base (% of DFI Funding)

▪ 92% of the Total Funding is long term. ▪ Long term funding comprises funds obtained from DFIs and Eurobond Issuances.

10 1% 1% 2% 1% 2% 5% 5% 7% 12% 28% 38%

1% 1% 2% 2% 2% 4% 5% 7% 12% 28% 37%

AIIB OEB JBIC EBRD IFC AFD CEB IDB KFW EIB IBRD 2018 3Q-19

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

DFI Funding Agreements in 2019 China Development Bank – USD 200 mn First Treasury Guaranteed CDB loan with long maturity in Turkey Manufacturing sector, SME, Energy, Infrastructure, Health and Education DFI Funding Agreements in 2018 World Bank – USD 400 mn Inclusive Access to Finance Project AIIB – USD 200 mn Sustainable Energy and Infrastructure

53% 53% 52% 11% 11% 10% 21% 21% 22% 5% 5% 5% 4% 4% 4% 3% 3% 4% 4Q-18 2Q-19 3Q-19

• T. Guarenteed DFI Funding

Unguarenteed DFI Funding Securities Issued Subordinated Debt Syndication & Other Repo &Money Market

6,540 6,383 6,272

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Corporate Banking

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Women’s Employment and Equal Opportunity Energy and Resource Efficiency Renewable Energy Occupational Health and Safety Sustainable Agriculture Sustainable Tourism

Outstanding Project Themes

SME Support Environmental Pollution Abatement in Industry Industrial Development Research & Development Social Infrastructure:

Health, Education & Clean Transportation

Infrastructure Midcap Financing Supporting Exporters Innovation

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Regional Development & Support Employment

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

Loan Portfolio

Loans by sector (Q3 19)

▪ 73% is attributable to the sustainable investments. ▪ 147 Projects in Energy & Resource efficiency, contributing to 6% of the portfolio in the sectors ranging from metal to chemistry.

Medium term focus

Supporting medium-size infrastructure projects, acting as pioneering institution in renewable energy, energy and resource efficiency investments, R&D, gender equality, innovation, healthcare and education projects and investments that will support sustainable development such as Midcap and SME financing. Loans by category (% in loan book) Loans by currency (Q2 19) FX, 91.3% TRY, 8.7%

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10% 2% 3% 3% 4% 4% 4% 4% 7% 9% 13% 37% Other Textile Health & Education Tourism Non-residential Real Estate Chemistry and Plastics Construction Metal and Machinery Electricity/Gas Distribution Telecom/Logistics Finance Electricity Generation Other: %4 Food&Beverage, %2 Automative,%1 Packaging, %3 Other

Investment, 71% Working Capital, 20% APEX, 9%

Investor Relations I BRSA Unconsolidated Earnings Presentation 2Q-19

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Renewable Energy and Energy&Resource Efficiency

With respect to their installed capacity (MW), 87% of them are operative. Within 289 REL projects, 90% is in operation. Sectors: Tourism, Chemistry, Automotive, Steel, Cement, Textile Steel, Cement, Textile 62 projects Sectors: Chemistry, Automotive, Cement, Minery, Energy, Steel, Textile 85 projects

Energy Efficiency Resource Efficiency

147 Projects in Energy & Resource Efficiency

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In terms of MW power, 97% of the operating energy projects are backed by Feed-in Tariff Mechanism (Yekdem).

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

75% 69% 51% 46% 37% 35% 35% 3% 9% 14% 17% 18% 19% 18% 22% 34% 32% 35% 37% 33% 7% 7% 6% 6% 5% 5% 5% 2% 4% 6% 7% 2013 2014 2015 2016 2017 2018 2019 Q3 Renewable Energy Portfolio (Outstanding)

Renewable Energy Portfolio (Outstanding)

Hydro Geothermal Wind Biomass Solar

1.3 bn 1.4 bn 1.5 bn 1.6 bn 1.9 bn 1.9 bn 1.8 bn

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Supporting SMEs

While responding working capital needs of SMEs, TSKB also finances the investments of the firms in a variety of fields: technology update investments, capacity development, energy efficiency, environmental projects. The financing could be either a direct facility or an APEX loan. The share of SME loans within the total loan portfolio is circa 18%. An innovative facility: The first Turkish InnovFin SME Guarantee Agreement signed with the EIF to support innovative investments by SMEs.

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APEX Banking

DFIs TSKB PFIs Companies

TSKB plays a key role in wholesale banking with an aim to reach

• ut the SMEs, which is also a priority to DFIs.

DFIs take TSKB’s risk, TSKB transfers the risk to PFIs, who in turn carries the risk of final beneficiaries. Under APEX loan schemes, TSKB works through commercial banks, leasing companies and very recently factoring companies and participation banks to extend SME & export financing loans that contribute to proliferating workforce in Turkey. To this end, TSKB channeled nearly USD 2 bn secured through IBRD, EIB and CEB since the beginning of such operations, where 2,330 companies financed via 30 PFIs*.

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*PFI: Participating Financial Institutions

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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Multi-Disciplinary Loan Appraisal and Monitoring

Appraisal report submitted to Loan Allocation Department for further evaluation Subject to satisfactory output, loan allocation request submitted to Credit Evaluation Committee and the decision is taken unanimously Board of Directors Approval

Engineering Vision Financial Analysis Economic Research

Loan Evaluation, Appraisal and Allocation

▪ Detailed technical analysis of the investment projects ▪ Capacity determination of the investments ▪ Review and justification of the business model ▪ Establishing & reporting KPIs ▪ Supporting innovative investments ▪ Detailed financial analysis of the subject company ▪ Cash flow projections ▪ Financial valuation ▪ Business model feasibility ▪ Social Impact assessment and measurement ▪ Setting economical value added KPI’s ▪ Monitoring the market and sector dynamics ▪Publishing sectoral reports ▪ Providing input for project valuation

Monitoring and Collateralization

▪ Loan concentration is prudently watched during loan allocation and monitoring processes, and is also limited by internal ratios through Risk Management. ▪ TSKB has a comprehensive monitoring process involving ▪ Compliance rules. ▪ Credit risk monitoring for borrower and its group, ▪ Collateral package monitoring, ▪ Sectoral and regional analysis, ▪ NPL management ▪ Collateral package for project finance loans includes ▪ pledges over the shares, ▪ mortgages over immovable ▪ commercial enterprise pledges ▪ pledges over bank accounts ▪ project completion guarantees ▪ assignment of receivables.

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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Sustainability and TSKB

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Sustainability and Inclusiveness at TSKB

2011

▪ Supporting The “Water

Disclosure Project” (WDP)

▪ First Progress Report Under

The UN Global Compact

▪ Establishment Of TSKB

Sustainability Consultancy- ESCARUS

▪ Founding Member Of

International Development Finance Club (IDFC) 2012

▪ First Turkish bank to be

granted ISO 14064 Greenhouse Gas Management Standard Certificate

▪ Establishment of the

Sustainability Management System

▪ Establishment of the list for

sectors and operations not suitable for lending (Exclusion List) 2009

▪ First Bank in Turkey to become a member of

the UNEP FI

▪ Partnering With The Global Reporting

Initiative (GRI) as a Corporate Stakeholder 2010

▪ Publishing the First GRI-Approved

Sustainability Report in the finance sector

▪ Involvement in the Carbon Disclosure Project

(CDP)

▪ Signing of the UN Global Compact ▪ Membership to Long-Term Investors Club

(LTIC) 1980

▪ Considering the

Environmental Factor in Credit Appraisal Processes 1990

▪ First Environmental

Loans Offered to Turkish Industry 2005

▪ Environmental

Management System 2006

▪ Sharing the

Environmental Policy with Stakeholders and the Public 2007

▪ First Turkish Bank To

Obtain ISO 14001 Certificate

▪ www.cevreciyiz.com ▪ Launch of ERET

Model 2008

▪ Turkey’s First Carbon

Neutral Bank 2014

▪ Establishment of the

Sustainability Committee

▪ Drafting of the Sustainability

Policy and Complementary Policies

▪ First Carbon-Neutral Concert of

Turkey 2015

▪ GRI G4 Sustainability Report ▪ Inclusion in the BIST Sustainability

Index

▪ Signing of UN Women’s

Empowerment Principles (WEPS) 2016

▪ First Green/ Sustainable Bond issuance in Turkey ▪ Publication of TSKB declaration on Climate Change ▪ Inclusion in the FTSE4good Emerging Market Index

2017

▪ First Basel 3 compliant Sustainable Tier 2 Bond in

the World.

▪ First Integrated Report of the Turkish Finance

Sector

▪ Establishment of a new Working Group under IDFC

with a focus of «Gender Equality» 2013

▪ GRI A+

Sustainability Report

▪ Founding Member

• f European

Association of Long- Term Investors (ELTI)

1980-1990 2005-2010 2011-2015 2016-2019

2018

▪ Gender Equality Certification («Equal

Opportunities Model (FEM)») led by KAGIDER (Women Entrepreneurs Association of Turkey) and the World Bank

▪ Establishment of the «Social Impact Assessment

Analysis» and «Gender Equality» Working Groups under Sustainability Committee of TSKB

▪ Second Integrated Report with second party

assurance for the first time in Turkey

▪ Publication of Allocation and Impact Reporting of

two outstanding sustainable bonds with the «Assurance» of Ernst & Young 2019

▪ Becoming one of the founding signatories of the

UNEP FI «Principles of Responsible Banking» 19 TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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An Acknowledged Environmental Model by TSKB

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The first implementation of an environmental appraisal and assessment models in Turkey: Environmental Risk Evaluation Tool (ERET)

Engineering Expertise

What is ERET?

An evaluation model used to calculate the environmental and social risks associated with a Project. It seamlessly overlaps with the criteria in Equator Principles, which have been drafted by the IFC and widely adopted by banks currently operating in developed economies.

Where to use it?

During the appraisal phase of each project before submitting the appraisal report to the Credit Evaluation Committee. In line with the scores for environmental and social risk, how the environmental and social impacts will be mitigated and monitored is structured within the framework of a plan drafted in cooperation with the project’s sponsor company.

Content:

Composed of thirty five separate headings seeking to assess environmental and social impact of each project by identifying and analysing every possible effect of a Project.

A B+ B- C

High Risk Medium Sensitive Risk Medium Risk Low Risk

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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Sustainable Development Goals

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SDG Mapping

Beginning from 2019, TSKB has implemented in its credit evaluation process a section dedicated to SDG Mapping of the proposed sub-financing.

TSKB directly contributes to 14 of the 17 SDGs Ministry of Development SDG Project

• SDG Due Diligence Analysis of Turkey
• Stakeholder meetings, quantitative and

qualitative analysis on 17 SDGs and 169 targets

• 17 SDG Reports and a Final Report

summarizing findings, areas for development policy recommendations and proposed SDG governance structure for the country

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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TSKB - IsDB Relationship

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• 1980
• Started with intermediation
• f equity participation in

private sector companies

• 2010
• Search for an applicable

financing models

• 2012
• Reached an agreement on

applicability of Restricted Mudarabah

• Today
• Our work progressed in two

channels

• Identifying plausible

financing model

• Finding the companies that

would benefit from the IDB funds

Restricted Mudarabah I 4 December 2012 Restricted Mudarabah II 30 December 2013

• Renewable Energy
• Energy Efficiency

Themes

• Renewable Energy
• Energy Efficiency

Themes

Relationship with IsDB

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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Restricted Mudarabah Financing

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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Cases

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Total Installed Capacity 370 MW Annual Carbon Emission Reduction 1,006,000 tons eqv. Total Fixed Project Cost 641 million USD Annual Energy Savings 270 GWh

2 X 1 X 1 X 6 X

Energy Efficiency Hydro Power Wind Power Solar Power MAJOR IMPACTS

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

Restricted Mudarabah I – USD 100 mio

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Total Installed Capacity 489 MW Annual Carbon Emission Reduction 1,736,202 tons eqv. Total Fixed Project Cost 1 billion USD Annual Energy Savings 1,338 GWh

1 X 5 X 5 X

Energy Efficiency Hydro Power Wind Power MAJOR IMPACTS

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

Restricted Mudarabah II – USD 220 mio

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Wind Power Plant

27.5 MW

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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Hydroelectric Power Plant

275 MW

TSKB at a Glance Funding Structure Corporate Banking Sustainability and TSKB TSKB - IsDB Relationship Cases

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TSKB Development Finance Institutions Department

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www.tskb.com.tr