What Attracts Investors to Turkey? A Contrarian play Behind the - PowerPoint PPT Presentation

What Attracts Investors to Turkey? A Contrarian play Behind the Headline Risk V ALYRIAN C APITAL P RIVATE AND CONFIDENTIAL

Turkey Aspires to Achieve Ambitious Goals by 2023 In 2013, the Turkish government allocated 30% of the total infrastructure investment budget to the transportation industry. Infrastructure investments are expected to reach TL36.6bn by 2023 Planned Major Projects Körfez Bay Euroasia Euroasia 1 4 5 Bridge 1 st Tunnel Tunnel Phase US$1.6bn US$1.6bn US$9.2bn 2016 2017 2023 2015 3 rd Bridge 2 3 1 PPP Körfez Bay in Istambul Bridge 2 nd Hospitals* US$2.5bn US$7.7bn Phase US$10.1bn Infrastructure (TL bn) Energy and utilities infrastructure (TL bn) ₺ 60 ₺ 40 CAGR: 12% CAGR: 12% Roads and bridges ₺ 35 Water infrastructure ₺ 50 Airports ₺ 30 Oil and gas pipelines ₺ 40 Railways Power plants and transmission grid ₺ 25 Ports, harbors, waterways ₺ 30 ₺ 20 ₺ 15 ₺ 20 ₺ 10 ₺ 10 ₺ 5 ₺ 0 ₺ 0 V ALYRIAN C APITAL P RIVATE AND CONFIDENTIAL Pg. 2

Turkish Infrastructure Covers a Wide Range of Projects Tremendous government incentives have created a strong pipeline of projects as well as capital for new investments and opportunities for investors Utilities / Energy Transportation Social ▪ PPP Structure in Healthcare ▪ Natural Gas ▪ Airports Starting from 2003, private Airports are the first examples of investors have been given privatization in infrastructure and now all Turkish government has been concessions t toll out natural gas major airports are being operated by focusing on a major investment distribution networks in certain private operators program in healthcare (over 20 regions through public tenders city hospitals will be developed As a result, few companies have under PPP specs) ▪ Ports emerged as leading gas utilities providing service in several Private sponsors will construct Most of the major seaports have been regions and equip hospitals and rent the privatized except for Port of Izmir facilities to the government There are currently several port under long term contracts ▪ Electricity developments in progress in order to tap Legal framework is now in place Based on a broad liberalization growth to increase foreign trade volumes and preferred sponsors re program across the energy sector, the Turkish government selected for most of the projects has completed privatization of ▪ Toll Roads Several projects are close to electricity utilities, a total of 21 financial closings and regions in Turkey Turkish government intends to privatize construction has began on a few approx. 2000 km of toll road network of the projects ▪ Transmission In addition, there are three major Turkish government is expected development projects in progress under The government has recently to introduce PPP scheme in other private ownership announced that BOTAS (national areas of social infrastructure backbone operator) and TEIAS based on the experience in (national grid operator) are ▪ Railways healthcare considered to be privatized Railways are under the privatization program and needs significant investments for rehabilitation V ALYRIAN C APITAL P RIVATE AND CONFIDENTIAL Pg. 3

Strong Fundamentals Support Infrastructure Investments Demographic shifts in Turkey’s population are driving demand for infrastructure projects Population Increase (CAGR 2013-2022) Population by Age Groups: Turkey vs. EU15 1,243 21 47 1.6% 76 11 64 11 39 81 143 7 60 EU-16 80-84 Turkey 70-74 0.8% Total population (mm) in 2013 60-64 0.5% 0.4% 0.4% 0.3% 0.3% 50-54 0.2% -0.2% -0.2% -0.3% 40-44 -0.4% 30-34 India Turkey Spain Greece UK Italy Czech Republic Poland Germany Romania Russia Bulgaria 20-24 10-14 <5 years Unemployment Rate Evolution of Household Income Distribution 16% Breakdown of households for Disposable Income 14% income brackets 12% >$75k 898 2,496 6% 13% 10% 8% $50-$75k 1,190 2,666 7% 14% 6% 4% 2% $25-50k 4,475 6,589 28% 35% 0% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 -2% $10-25k 2,496 6,838 43% 33% -4% $1-10k 16% 800 2,520 4% 2007 # of households 2017 # of households V ALYRIAN C APITAL P RIVATE AND CONFIDENTIAL Pg. 4

Key Parameters Reflect the Need for Further Investment Located between Europe and Asia, Turkey enables a link between three continents over 1.5 billion people and a GDP of $25 trillion Infrastructure Investment Per Capita Transportation Investments 131 126 118 109 107 4.3% 98 80 2.9% 64 2.5% 53 45 1.4% 1.3% 1.2% 1.1% 0.7% 0.9% 0.8% UK Sweden France Bulgaria Turkey Spain Russia Poland Romania China Belgium Spain France Netherlands UK Sweden Bulgaria Poland Turkey Czech Republic Electricity Consumption Per Capita (kWh) Foreign Trade Volume (US$ mm) CAGR: 12% United States 13,246 Germany 7,081 CAGR: 14% Euro Area 6,599 700 536 Czech Republic 6,289 Greece 344 5,380 167 152 152 135 500 114 102 361 252 262 Bulgaria 241 237 4,864 209 186 141 Poland 3,832 2009 2010 2011 2012 2013 2014E 2015E 2020E 2023E Turkey 2,709 Export Import V ALYRIAN C APITAL P RIVATE AND CONFIDENTIAL Pg. 5

Turkey’s New Investment Incentives Program The New Investment Incentives Program in Turkey has been in effect since January 1, 2012 and offers four different types of programs each with its own investment approach and risk tolerance level Incentive Regions Support Measure General Regional Large Scale Strategic Investment Investment Investment Investment ✓ ✓ ✓ ✓ Vat Exception Customs Duty ✓ ✓ ✓ ✓ Exemption ✓ ✓ ✓ Tax Deduction X ✓ ✓ ✓ Land Allocation X ✓ ✓ Interest Support X X ✓ Vat Refund X X X Employer’s Social ✓ ✓ ✓ Security Premium X Support Investment Incentive Program Options Region 1 2 3 4 5 6 Regional Incentive Applications ▪ Available for all investment types General Investment ▪ Investment minimum is pre determined Incentive Program Tax Reduction Investment Contribution 15% 20% 25% 30% 40% 50% ▪ Investment minimums vary among investment type Rate ▪ Incentives are allocated depending on the region ▪ Generally, minimum amount is TL 1 million for Regions 1 and 2 Regional and TL 500,000 for regions 3, 4, 5 6 Incentive for Large Scale Investments Investment Incentive Program ▪ Investment minimums vary among investment type Tax Reduction ▪ Incentives are allocated depending on the region Large Scale Investment Contribution 25% 30% 35% 40% 50% 60% ▪ Generally, minimum amount is TL 1 million for Regions 1 and 2 Investment and TL 500,000 for regions 3, 4, 5 6 Rate Incentive Program ▪ Program that is offered for the production of intermediate and final goods that have highly dependent on imports Support for Employer’s Strategic 10 ▪ Minimum investment for this group is TL 50vmillion and above National Insurance 2 Year 3 Year 5 Year 6 Year 7 Year Investment Year Incentive Program Contribution (Both) V ALYRIAN C APITAL P RIVATE AND CONFIDENTIAL Pg. 6

Business Taxation in Turkey Breakdown of Direct and Indirect Taxation Foreign Investor FAQ ▪ Which jurisdiction is the most popular for investing into Turkey? Direct Tax Netherlands, Luxembourg, new Swiss treaty since 2013 ▪ How long does it take to establish a company/partnership in practice? Corporate Tax Income Tax Generally within 2 weeks for companies / 1 week for partnerships ▪ What is the minimum capital requirement? No capital requirements for branches, TL5k for LTDs and TL50k for JSCs. ▪ What are the basic filing requirements? Indirect Tax Month WHAT, VAT and stamp tax, social security contribution, quarterly advance corporate & annual tax return Is there any tax Special loss carry forward / carry back rule? VAT SCT Customs Tax Communication Tax loss carry forward for 5 years, no carry back Tax ▪ What is the minimum wage? What are the labor tax costs? Banking Minimum gross wage is TL 940 (USD 520), income tax between 15- Stamp Tax Insurance 35%, social security and unemployment contribution 36.5% with a Transaction Tax certain cap (15% employee / 21.5% employer portion) Direct Taxation in Turkey: Cash Repatriation Alternatives Tax treaty taxation Non-tax treaty taxation Foreign Parent ▪ ▪ Dividend withholding tax (WHT) – 5% or 10% 15% - Dividend withholding tax (WHT) company ▪ Interest WHT – 10% (0% if lender is bank or 10% - Interest WHT (0% if lender is bank or financial institution) financial institution) ▪ ▪ Royalty WHT – generally 10% 20% - Royalty WHT ▪ ▪ Ind. Pro. services WHT – 0% or 20% 20% - Independent professional services WHT ▪ ▪ 18% Reverse charge VAT on service, royalty 18% - Reverse charge VAT on service, royalty Turkish company charges charges ▪ ▪ No registration requirement for service/royalty Corporate tax 20% ▪ agreements Capital reduction: Tax neutral (lengthy process) ▪ ▪ No pre-clearance required for applying reduced Share buy-back now works but with limitations ▪ treaty rates Hybrid financing is doable Source: PwC – Invest in Turkey V ALYRIAN C APITAL P RIVATE AND CONFIDENTIAL Pg. 7

The Evolving Turkish PPP Market V ALYRIAN C APITAL P RIVATE AND CONFIDENTIAL