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

PRIVATE AND CONFIDENTIAL

V

ALYRIAN CAPITAL

What Attracts Investors to Turkey?

A Contrarian play Behind the Headline Risk

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Turkey Aspires to Achieve Ambitious Goals by 2023

• Pg. 2

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 Infrastructure (TL bn) Energy and utilities infrastructure (TL bn)

2015 2016 2017 2023

Körfez Bay Bridge 1st Phase US$9.2bn Euroasia Tunnel US$1.6bn Euroasia Tunnel US$1.6bn 3rd Bridge in Istambul US$2.5bn PPP Hospitals* US$7.7bn Körfez Bay Bridge 2nd Phase US$10.1bn

1 4 5 2 3 1

₺0 ₺5 ₺10 ₺15 ₺20 ₺25 ₺30 ₺35 ₺40

Roads and bridges Airports Railways Ports, harbors, waterways

CAGR: 12%

₺0 ₺10 ₺20 ₺30 ₺40 ₺50 ₺60 Water infrastructure Oil and gas pipelines Power plants and transmission grid

CAGR: 12%

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Turkish Infrastructure Covers a Wide Range of Projects

• Pg. 3

Tremendous government incentives have created a strong pipeline of projects as well as capital for new investments and opportunities for investors

▪ Natural Gas Starting from 2003, private investors have been given concessions t toll out natural gas distribution networks in certain regions through public tenders As a result, few companies have emerged as leading gas utilities providing service in several regions ▪ Electricity Based on a broad liberalization program across the energy sector, the Turkish government has completed privatization of electricity utilities, a total of 21 regions in Turkey ▪ Transmission The government has recently announced that BOTAS (national backbone operator) and TEIAS (national grid operator) are considered to be privatized

Utilities / Energy

▪ PPP Structure in Healthcare Turkish government has been focusing on a major investment program in healthcare (over 20 city hospitals will be developed under PPP specs) Private sponsors will construct and equip hospitals and rent the facilities to the government under long term contracts Legal framework is now in place and preferred sponsors re selected for most of the projects Several projects are close to financial closings and construction has began on a few

• f the projects

Turkish government is expected to introduce PPP scheme in other areas of social infrastructure based on the experience in healthcare

Social

▪ Airports Airports are the first examples of privatization in infrastructure and now all major airports are being operated by private operators ▪ Ports Most of the major seaports have been privatized except for Port of Izmir There are currently several port developments in progress in order to tap growth to increase foreign trade volumes ▪ Toll Roads Turkish government intends to privatize

• approx. 2000 km of toll road network

In addition, there are three major development projects in progress under private ownership ▪ Railways Railways are under the privatization program and needs significant investments for rehabilitation

Transportation

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Strong Fundamentals Support Infrastructure Investments

• Pg. 4

Demographic shifts in Turkey’s population are driving demand for infrastructure projects

Population Increase (CAGR 2013-2022) Unemployment Rate Population by Age Groups: Turkey vs. EU15 Evolution of Household Income Distribution

1.6% 0.8% 0.5% 0.4% 0.3% 0.3% 0.2%

• 0.2%
• 0.2% -0.3%
• 0.4%

0.4% India Turkey Spain Greece UK Italy Czech Republic Poland Germany Romania Russia Bulgaria

1,243 76 47 11 64 60 11 39 81 143 21 7

Total population (mm) in 2013

80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 <5 years EU-16 Turkey

• 4%
• 2%

0% 2% 4% 6% 8% 10% 12% 14% 16% 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 Disposable Income Breakdown of households for income brackets >$75k $50-$75k $25-50k $10-25k $1-10k 898 2,496 1,190 2,666 4,475 6,589 2,496 6,838 800 2,520 6% 13% 7% 14% 28% 35% 43% 33% 16% 4%

2007 # of households 2017 # of households

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Key Parameters Reflect the Need for Further Investment

• Pg. 5

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 Electricity Consumption Per Capita (kWh) Transportation Investments Foreign Trade Volume (US$ mm)

118 98 107 131 109 126 80 45 64 53 Belgium Spain France Netherlands UK Sweden Czech Republic Bulgaria Poland Turkey 0.7%

0.8% 0.9% 1.1% 1.2% 1.3% 1.4% 2.5% 2.9% 4.3%

UK Sweden France Bulgaria Turkey Spain Russia Poland Romania China

2,709 3,832 4,864 5,380 6,289 6,599 7,081 13,246 Turkey Poland Bulgaria Greece Czech Republic Euro Area Germany United States

141 186 241 237 252 262 209 361 500 102 114 135 152 152 167 344 536 700

2009 2010 2011 2012 2013 2014E 2015E 2020E 2023E

Export Import

CAGR: 14% CAGR: 12%

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Turkey’s New Investment Incentives Program

• Pg. 6

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 Investment Incentive Program Options

Support Measure General Investment Regional Investment Large Scale Investment Strategic 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 Support

X ✓ ✓ ✓

Region 1 2 3 4 5 6

Regional Incentive Applications

Tax Reduction Investment Contribution Rate

15% 20% 25% 30% 40% 50% Incentive for Large Scale Investments

Tax Reduction Investment Contribution Rate

25% 30% 35% 40% 50% 60%

Support for Employer’s National Insurance Contribution (Both)

2 Year 3 Year 5 Year 6 Year 7 Year 10 Year General Investment Incentive Program ▪ Investment minimums vary among investment type ▪ Incentives are allocated depending on the region ▪ Generally, minimum amount is TL 1 million for Regions 1 and 2 and TL 500,000 for regions 3, 4, 5 6

Regional Investment Incentive Program Large Scale Investment Incentive Program

▪ Available for all investment types ▪ Investment minimum is pre determined ▪ Investment minimums vary among investment type ▪ Incentives are allocated depending on the region ▪ Generally, minimum amount is TL 1 million for Regions 1 and 2 and TL 500,000 for regions 3, 4, 5 6 ▪ Program that is offered for the production of intermediate and final goods that have highly dependent on imports ▪ Minimum investment for this group is TL 50vmillion and above

Strategic Investment Incentive Program

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Source: PwC – Invest in Turkey

Business Taxation in Turkey

• Pg. 7

Breakdown of Direct and Indirect Taxation Direct Taxation in Turkey: Cash Repatriation Alternatives Foreign Investor FAQ

Direct Tax

Corporate Tax Income Tax

Indirect Tax

VAT SCT Customs Tax

Special Communication Tax

Stamp Tax

Banking Insurance Transaction Tax

▪ Which jurisdiction is the most popular for investing into Turkey? Netherlands, Luxembourg, new Swiss treaty since 2013 ▪ How long does it take to establish a company/partnership in practice? 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? Month WHAT, VAT and stamp tax, social security contribution, quarterly advance corporate & annual tax return Is there any tax loss carry forward / carry back rule? Tax loss carry forward for 5 years, no carry back ▪ What is the minimum wage? What are the labor tax costs? Minimum gross wage is TL 940 (USD 520), income tax between 15- 35%, social security and unemployment contribution 36.5% with a certain cap (15% employee / 21.5% employer portion) ▪ 15% - Dividend withholding tax (WHT) ▪ 10% - Interest WHT (0% if lender is bank or financial institution) ▪ 20% - Royalty WHT ▪ 20% - Independent professional services WHT ▪ 18% - Reverse charge VAT on service, royalty charges ▪ Corporate tax 20% ▪ Capital reduction: Tax neutral (lengthy process) ▪ Share buy-back now works but with limitations ▪ Hybrid financing is doable Tax treaty taxation Non-tax treaty taxation ▪ Dividend withholding tax (WHT) – 5% or 10% Interest WHT – 10% (0% if lender is bank or financial institution) ▪ Royalty WHT – generally 10% ▪

• Ind. Pro. services WHT – 0% or 20%

▪ 18% Reverse charge VAT on service, royalty charges ▪ No registration requirement for service/royalty agreements ▪ No pre-clearance required for applying reduced treaty rates Foreign Parent company Turkish company

PRIVATE AND CONFIDENTIAL

V

ALYRIAN CAPITAL

The Evolving Turkish PPP Market

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

PPP Projects in Turkey at a Glance

• Pg. 9

Due to the limited available public resources to fund these new investments in healthcare, the government has decided to procure them by using a build-lease-transfer model via public-private partnerships (or PPPs)

PPP Projects (Project agreements signed)

A Development Period for new PPP

21.681 17.894 13.147 3.817 1.599 1.307 0.36 0.271 17 68 30 5 20 2 13 13

10 20 30 40 50 60 70 80 5 10 15 20 25 (#) (mm$)

167 PPP Projects ▪ 97 - Build – operate – transfer ▪ 60 - Transfer of Operating Rights ▪ 5 - Build – operate ▪ 5 - Build Lease Bankability has significantly improved… ▪ There is still room for improvement ▪ Different comfort levels for lenders/investors in different PPP models applied by different authorities ▪ TOR Models: Still in need of additional bankable structures

▪ Government has increased its efforts to improve BOT scheme and legislative framework for Turkish PPP structure ▪ New Models successfully achieved in greenfield Motorways ▪ Healthcare Projects – New health PPP law passed ▪ Successful closing on capital for: ▪ Eurasia Tunnel Project – ($3bn) ▪ Gebze-izmir Motorway – ($2bn) (P1 & P2A) ▪ 3rd Bosporus Bridge – ($2.3bn) ▪ Electricity Distribution Privatizations completed – ($12.7bn) ▪ Tender completed fro 3rd Istanbul Airport – (€7-9bn projected)

1.307 0.812 0.867 2.484 2.082 0.48 1.363 0.19 0.113 0.532 4.355 0.62 4.057 4.191 2.558 10.294 3.529 2.718 16.139 2 4 6 8 10 12 14 16 18 (mm$)

# of PPP projects are trending upward

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

A Closer Look into the PPP Structure in Turkey

• Pg. 10

Since 2011, Turkey has seen a boost in investor demand for Infrastructure PPP projects with a combined operating monetary value of approximately USD $25 billion. Turkey is especially active in the energy and healthcare sector

PPP Infrastructure Investment in Turkey Remains Steady Stakeholders in PPP

MoD ▪ The Ministry of Development is responsible for macroeconomic planning The Treasury ▪ The Treasury is responsible for overseeing state funds MoF ▪ The Ministry of Finance handles the budgeting on all projects (new and existing)

The Public Procurement Agency

▪ Public Procurement Agency is responsible for

• verseeing tender offers on projects

The Privatization Administration

▪ Private Administration Agency deals with the implementation process primarily with TOR PPP projects The Line Ministries ▪ Handle implementation of BOT, BO and BL models for relevant projects

Municipalities

▪ Municipalities are very active among the BOT and BO PPP model, as well as concessions

▪ Significant government reform in 2008 has continued to influence energy investment in Turkey which has amounted to approximately $10.5 billion in investment ▪ Turkey’s seventeen most recent projects, which include the privatization of power plants and the construction of new highways and ports, amounted to an investment volume of USD 12.5 billion. ▪ A total of $22.6 billion worth of transportation PPP projects have been realized and include; two airports in Istanbul (Ankara Esenboğa and Izmir) as well as 19 functioning ports/marinas.

PPP

Privatization Administratio n The Ministry

• f Finance

The Lines Ministries The Ministry

• f

Development The Treasury Public Private Agency Municipalities

Source: TR Privatization Administration, Ministry of Development

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Turkey is Aggressively Encouraging PPPs

• Pg. 11

The term Public-Private Partnership (PPP) refers to a long term partnership between the public and private sector in order to finance, implement and operate infrastructure services

The PPP Methods in Turkey

▪ Turkey was one of the first countries to implement its own PPP legislation. The law was enacted in 1994 for various fields within the infrastructure sector such as transpiration, energy, water supply and treatment

Build-Operate-Transfer (BOT)

A private sector company builds an infrastructure project and operates it for a pre-agree period and eventually transfers the ownership back to the government

Build-Operate (BO)

A private organization builds and operates a project within certain incentives from the government instead of receiving direct funding (i.e. tax-exempt status)

Transfer of Operation Rights (ToR)

This model involves transferring the rights of a selected project to the private sector for a predetermined duration of time under certain conditions

Build-Lease (BL)

The private sector organization builds the project and leases it to the relevant public

• rganization. Build-Lease is generally used in the healthcare sector.

▪ The most commonly used PPP strategy in Turkey is the BOT model ▪ It has been used in a wide variety of projects including the Marmaray Project, Zafer Airport in Kuthahya, the Istanbul-Izmir motorway, the Yuvacik power plant, the Birecik power plant and the Yamula power plant in Kayseri.

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

$35+ bn of Infrastructure projects are Financed via PPPs

• Pg. 12

Turkey’s strategic location, expanding population and robust economic growth rate are expected to remain key drivers of infrastructure development

PPP Projects Continue to Thrive Total Contract Value of PPPs in USD, 1986-2011 Average Investment in Sectors ▪ Infrastructure construction was the second-largest market in the Turkish construction industry in 2012, accounting for 31.2% share, valued at $23.4 billion and registering a CAGR of 10.6% ▪ Turkey’s expanding population, robust economic growth and cross-border trade flow are expected to remain key drivers of infrastructure development ▪ In terms of the number of projects, the energy sector leads all PPP projects, however in terms of total amount invested, investment into airport infrastructure projects has been the most attractive choice.

10 20 30 40 50 60 200 400 600 800 Airports Urban Road Health Energy Port Border Marina Projects USD (mm) Average Value Number of Projects

USD (mm) Roads Airports Ports Tourism Customs Energy Urban Infra Healthcare Total BOT 8,195 2,467 122 241 219 4,3270 1,168

• 16,782

BO

• 4,394
• 4,394

BL

• 385

385 TOR

• 10,652

1,444

• 1,721
• 13,817

Total 8,195 13,119 1,566 214 219 10,485 1,168 385 35,378

Source: Ministry of Development

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Source: World Bank Group

Supranationals can be a Source of Low Cost Capital

• Pg. 13

Turkey’s development priorities provide ample opportunities for unlocking value from closer cooperation across international financial organizations such as the World Bank, IFC, EBRD and MIGA

European Bank for Reconstruction and Development Multilateral Investment Guarantee Agency (MIGA) The World Bank (IBRD-IDA) International Finance Corporation (IFC)

▪ Began investing in Turkey in 2009 ▪ Has invested approximately €4.5 billion to date across 130 projects in the infrastructure, energy, agribusiness, manufacturing and finance space ▪ Has worked closely with the Turkish MoH over the past two years to enable greater private sector involvement in the hospital sector ▪ Recently played a key role in securing a €433 million long-term financing package for the Adana Hospital Project ▪ The project is part of a €12 billion Turkish government program to build or expand 60 hospitals across the country ▪ Under the current CPS program, MIGA has delivered approximately $65 million in financing to Turkey ▪ Institutions guarantee portfolio has grown to $288 million ▪ Turkey is a main focus for MIGA business development efforts to unlock opportunities for credit enhancement and political risk insurance coverage (PRI) ▪ MIGA thrives best in the financial sector (supporting on-lending to SMEs and exporters), urban transport, and PPPs in the healthcare sector

1% 22% 51% 26%

Net Commitments by Sector (active projects as of February 2015

Healthcare Energy & Extractives Finance & Markets Urban Development

▪ Turkey’s active portfolio of investment operations with IBRD financing includes 13 projects with total net commitments of $4.8 billion ▪ The portfolio supports the energy sector, financial and private sector development, urban development and healthcare ▪ Turkey has been a member of IFC since 1956 and is their second-largest client ▪ From 2008 to 2011, IFC invested $3.7 billion in 47 projects in Turkey

463 551 680 342 396 459 451 958 495 50 413 557 209 68 898 130 65 10 8 14 9 9 10 13 20 14 5 10 15 20 25 500 1000 1500 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 YTD IFC Annual Commitments in Turkey, $mn (as of December 31, 2013) IFC own account Mobilization Project count

PRIVATE AND CONFIDENTIAL

V

ALYRIAN CAPITAL

A Closer Look at Turkish Healthcare PPPs

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

SOURCE: European PPP Expertise Center; Deloitte Survey

Turkish Healthcare PPP Sector at a Glance

• Pg. 15

Turkey is considered to be the second most attractive market globally for Healthcare PPP projects in the medium to long term

Turkish Healthcare PPP Highlights Highly Desirable PPP Market Value of PPP Contracts Recently Closed

Additional Bed Capacity: 50 Planned PPP Projects: 35 Lease Payments per year: $1.7 billion Current PPP Projects: 20 Average Lease Period: 25 Years Legislation adopted in 2013 requires that at least 20% of the medical equipment used in healthcare PPPs are produced locally Total Lease Payments: $14 billion

23% 30% 19% 16% 12% Turkey USA Brazil India Colombia 1000 2000 3000 4000 5000 Lithuania Poland France Netherlands Italy PPP Projects ( $mm)

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Source: Investment Support and Promotion Agency of Turkey

Transformation of the Turkish Healthcare System

• Pg. 16

Since 2003, the Turkish healthcare system has undergone a major transformation

1980 - 2002 1st Phase of HTP 2003 - 2009 2nd Phase of HTP 2010 - 2013

▪ Provisions regarding both citizen’s rights to social security and the State’s responsibility to effectuate this right ▪ The Fundamental Law on Health Services was adopted on 1987 ▪ In 1990, the first National Health Congress was held. The development of a “Master Plan for the Health Sector” was considered to the the beginning of healthcare reform ▪ The Green Card Program was introduced ▪ The “Health Transformation Program” (HTP) regulated by MoH is announced ▪ 3 public insurance systems (GEPF, BagKur and SSK) were consolidated under one umbrella, SSI ▪ Members of the Government Employee Pension Fund and patients covered by the Social Security Organization are now allowed to get service from private hospitals and clinics as well as public healthcare institutions ▪ A cap was put on surcharges (30%) to beneficiaries receiving healthcare from private hospitals ▪ Hospitals of other public institutions, including those of SSI were transferred to MoH jurisdications ▪ Implementation of Universal Health Insurance began ▪ The Green Card Program was brought under the SSI and its coverage was expanded ▪ The legal foundation for Public Private Partnerships is revised ▪ A performance-based contribution payment system was introduced ▪ The Family Medicine Program was established throughout Turkey ▪ SSI allowed therapeutic area based on contracts with private hospitals ▪ The maximum surcharge ratio for private hospitals was raised to 90% ▪ SSI has amended the healthcare service agreements signed with the healthcare providers ▪ New clauses invoke tighter regulation and stronger deterrence not to breach the maximum limits of surcharge ▪ Access to health insurance has been expanded by including stateless persons and refuges within the scope of Universal Health Insurance

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Source: IHC: Integrated Health Campus, CH; City Hospital ERH; Education & Research Center Illustrated project whose tenders are completed and awarded. There are 5 remaining projects who's tenders are still in progress

Turkish Healthcare PPPs: Integrated Health Campuses

▪ New legislation has been enacted for the planning, construction and management of health care facilities all across Turkey ▪ International tenders have been launched for the design, financing, construction and operation of the integrated health campuses (Ankara Etlik Campus pictured below) ▪ 20 hospitals of which 14 tenders are completed and awarded, have been planned in the introduction phase of the PPP model ▪ Projects have been structured as long-term 28 year design, finance,

• perate and transfer model deals with a 36 months construction

period and a 25 year operating period ▪ The Turkish Government aims to utilize the financing capabilities

• f the private section in public health investments
• Pg. 17

In 2007 the Ministry of Health (MoH), through collaboration with the Department of Public Partnership, enacted The Public Private Partnership (PPP) model utilized in the Turkish Healthcare Sector today

Highlights Ankara Etlik Integrated Health campus project Project Locations

# Project Name Sponsor Bed Capacity CAPEX (mm US$) 1 Adana IHC Rӧnesans-Meridiam-Sila-Sam 1,150 481 2 Bilkent IHC IC Ictaş-DIA-Intersun 3,662 1,100 3 Bursa IHC Rӧnesans-Sila-Ş.A.M 1,355 1,327 4 Elaziğ IHC Rӧnesans-Sila-Ş.A.M-TTT 1,038 N/A 5 Etlik IHC Astaldi-Türkerler 3,566 1,121 6 Gaziantep IHC Samsung C&T-Kayi 1,875 467 7 Isparta CH Akfen 755 268 8 Bayrakli IHC Türkerler-GAMA 2,060 765 9 Ikitelli IHC EMSAŞ-PBK-Ascension-A&S 2,682 1,200 10 Kayseri IHC YDA – Inso Systemi 1,587 650 11 Karatay IHC YDA – Inso Systemi 838 253 12 Manisa ERH YDA – Inso Systemi 558 N/A 13 Mersin IHC IC Ictaş - Intersun 1,253 N/A 14 Yozgat ERH Rӧnesans-Sila-Ş.A.M-TTT 475 129

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Source: MoH, TurkStat

Demand Remains Steady for Private Healthcare Facilities

• Pg. 18

Private hospitals in Turkey are concentrated in the western region, with the highest concentration in Istanbul

Number of Private Hospitals in Turkey Percentage of Private Hospitals in Turkey, 2012 Number of Private Hospital Beds in Turkey Regional Distribution of Private Hospitals in Turkey

250 500 750 2002 2009 2010 2011 2012 # of hospitals (thousands)

CAGR 14.8%

10 20 30 40 2002 2009 2010 2011 2012 # of beds (thousands)

CAGR 23.6%

37% 56% 4%3% Private MoH University Other

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Turkish Demographics Drive Healthcare Demand Growth

• Pg. 19

Demand Drivers

Favorable Demographic Profile Improvements in Healthcare Regulations Improved Healthcare Awareness Increasing Lifestyle Diseases

▪ Rising Population ▪ Aging Demographic ▪ Introduction of mandatory health insurance ▪ Creation of independent healthcare regulators ▪ Reforms to weed out low quality medical providers to protect patients

▪ Rising literacy rates ▪ Government initiatives to increase awareness on general healthcare issues ▪ Urbanization and rising per capita income ▪ Higher incidence of lifestyle diseases

Healthcare Demand Drivers

Top Opportunities Top Challenges ▪ Increased participation of the private sector in Turkey’s healthcare industry ▪ Rising patient expectations for medical services with higher quality and accessibility ▪ Rapid increase in the number of hospitals and clinics

• pening in the country

▪ Declining prevalence rate of communicable diseases; increased prevalence of chronic diseases ▪ Increasing popularity of medical tourism in the GCC region ▪ Low insurance penetration despite increasing healthcare expenditure per capita ▪ Steady increase in coronary heart diseases, cancers, accidents and mental-ill health ▪ Heavy reliance on non-Turkish health professionals to support the expanding health system ▪ Improving healthcare services systems in the GCC countries ▪ Growing outbound medical tourism as neighboring countries are more attractive destinations for treatment ▪ Substantial government investments to expand & regulate the healthcare industry ▪ Introduction of compulsory medical insurance for all expatriates in Turkey

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Source: Source: OECD, WHO

Healthcare Sector is Poised for Continued Growth

• Pg. 20

As economic welfare in Turkey is increasing, the healthcare sector still has room for growth as it catches up with high income countries

Healthcare Spending per Capita and GDP per Capita in Turkey Density of Healthcare Resources Healthcare Spending as a % of GDP

186 235 307 374 436 545 620 567 668 701 707 734 751 796 847 912

2 4 6 8 10 12 14 200 400 600 800 1000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f

($ Thousands) Spending ($)

Healthcare Spending per Capita GDP per Capita

1.7 1.7 2.5 3.2 8.7 4.8

5 10 Physicians Nurses Hospital Beds Turkey

6.7 9.3 17.7

4 8 12 16 20 Estonia Mexico Luxembo… Turkey Poand Czech Rep Slovenia Finland Greece Norway OECD Denmark Canada Germany Netherla… United …

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Financing Climate

▪ Club deals continue to dominate the market ▪ Maximum ticket size: $400 - $500mm ( generally supplied by local leading bank) ▪ Local banks will continue to dominate the market ▪ Lenders: local banks, IFIs, ECA, foreign banks ▪ Hospital PPPs are receiving the most international investor interest/demand ▪ Maturities are generally 12-13 years  15 years for Hospital PPPs ▪ Equity: 20-35% for infrastructure projects

• Pg. 21

The Turkish healthcare market has undergone major reforms that will require substantial new investments. These reforms have occurred as a result of liberalizing the healthcare market and the fast pace of healthcare market growth

Financing Conditions Going Forward Challenges and Solutions - Infrastructure Turkish banks are capable of raising $2 to $3bn in funding for a single project 1 IPOs and Project Bonds will bring additional liquidity to the market place 2 TL financing – serves as an alternative to hard currencies 3 Hospital PPPs – Covered IFI Tranches – 18 year maturities 4

Bankability Issues ▪ Risk sharing ▪ Large financing need ▪ Long tenors

Legislative Framework

▪ Different comfort levels provided to Financiers in different PPP models Mitigations ▪ Government support: Step-in, termination payments ▪ Strong track record of authority ▪ Turkish Bank’s increased capacity to lend in 15 year maturities

Mitigations

▪ Improved government support in TOR type PPPs

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Co-Investment Process

• Pg. 22

The following is a brief co-investment structure for illustrative purpose. Various investment structures can be considered, reflecting the specific requirements of the investors

Co-Investment Process (Illustrative)

Operating Partners Potential Investors Project Sponsor Valyrian Project SPC End User EPC O&M

EPC Contract O&M Contract Investment Off-take Contract

Operating partners & potential investors can form Consortium for the Project Potential investors can benefit from operating partners’ EPC Expertise & Financial Capabilities Potential Investors can benefit from operating partners’ local expertise on Turkey Role Division on EPC or O&M sector among operating partners and potential investors are negotiable Valyrian can make its investment either in the equity side, debt side, or both

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Healthcare PPP Structure and Regulatory Framework

• Pg. 23

Contractual Structure Revenue Structure & Provided Services Legal Framework

Joint Venture Equity Investor Ministry of Health SPV (Borrower) EPC JV (EPC Contractor)EPC JV (EPC Contractor) O&M Companies Subcontractors Ministry of Health

O&M Agreement EPC Contract Shareholder’s Agreement Project Finance Agreements Project Agreement Subcontract Agreement Direct Agreement

Service Payments Availability Payments

• Rev. From

Commercial Activities

Non Volume Service Payments Volume Service Payments

• Vol. Clinical

Support Payments

• Vol. Clinical

Service Payments

Revenues

3 1 2

Obligatory

Building & Land Services Extraordinary Maintenance Furnishing Services Other Clinical Support etc.

1

Operational Non-Vol

Pest Control, Car Parking, Cleaning, Security etc.

2

Optional Volume

Laboratory & Imaging Sterilization & Disinfection Rehabilitation Laundry & Catering etc.

3

1 2 3 1 2 3

Authority

▪ PPP Program is regulated by the Turkish Ministry of Health (MoH) – Department of Public Private Partnership (the “Administrator”

Revenues

▪ Project revenues are based off of availability payments, services payments and revenues from commercial activities ▪ Availability payments are paid to sponsors by the Administration for the availability of the Campus facilities during the relevant operating period ▪ Service payments are also made by the government for services such as laboratory and imaging, laundry, catering and cleaning ▪ Project Company will collect revenues from the commercial areas at its own cost, risk and responsibility (i.e. medical equipment stores, shopping malls, restaurants, hotels etc.

Indexation

▪ Annual adjustment mechanism is introduced in order to compensate the Project Company for risks arising from inflation and FX rate fluctuations

Security

▪ Payments will be made by the Administration, monthly and quarterly, through central government budget, hence carry sovereign risk

Bankability

▪ Administration can terminate the contract on certain events and termination compensations payable by the Administration to the Project Company will differ depending on the Termination Event ▪ Lenders are provided with certain step in rights to protect them in the event of default ▪ Minimum 20% of equity required from sponsors ▪ Share transfers in the Project Company are subject to approval of the Administration

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Turkish Healthcare PPP Guarantee Mechanics

▪ Rehabilitation of approximately 50,000 bed capacity ▪ State hospitals – staffed by MoH (Ministry of Health) ▪ Build to Lease – Transfer Model ▪ 25 year operation period ▪ Essential part of revenue production:

 Availability Payments from MoH

₋ Account for ≈ 90% of EBITDA ₋ Collected separate from hospital occupancy rates ₋ Guaranteed by MoH ₋ Payable quarterly in advance by the MoH (denominated in Turkish Lira) ₋ Adjusted quarterly by inflation / devaluation ₋ Protection against:

• Inflation – 100% coverage
• Devaluation – 87.5% coverage

 Service Payments

₋ Paid monthly by the MoH ₋ Adjusted for inflation annually ₋ Volume Based Services: the MoH guarantees certain for certain volumes ₋ Non-volume services independent of volume, occupancy, consumption

 Commercial Revenues

₋ Less than 2% of total turnover, where 3rd Party risk is taken

▪ MoH is the lessee ▪ Facility management, capital intensive and clinical support services to be provided by SPV (outsourced)

• Pg. 24

The total estimated financing needed for Hospital PPPs in Turkey is approximately $15bn

Turkish Hospital PPP Scheme Structure of the Project MoH Payments

O&M

Service Subcontractor Service Subcontractor

EPC SPV Sponsors Lenders MoH

Direct Agreement Monthly Service Payments & Quarterly Lease Payments Services & Facilities Availability O&M Fee Payments O&M Agreement EPC Contract Construction Price Payments Loan Agreement Shareholders Agreement EPC Subcontractor EPC Subcontractor

Revenues

Service Payments Availability Payments Commercial Revenues Volume Based Services Non-Volume Services Medical Support Support

PRIVATE AND CONFIDENTIAL

V

ALYRIAN CAPITAL

Infrastructure Project Finance Market Update

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Note: capital structure percentage calculations based on typical 70/30 debt/equity project funding mix and breakdown of total $2.947 trillion projects finance debt issuance over 2003-2014 between loans (91%) and bonds (9%), with loan components segmented as follows; 80% commercial bank loans, 17% sovereign agency loans and 3% supranational agency loans.

Typical Project Finance Capital Structure

• Pg. 26

Supranational Agency Loans

• 1-2% average cost of debt
• World Bank average yield on loans = 1.43 in FY2014
• Asian Development Bank average on loans = 1.23% in 2013
• Multilateral development banks (World Bank, Asian Development Bank and

European

2%

Sovereign Agency Loans

• 2-3% average cost of debt
• Export Development Canada average yield on loans = 2.43% in 2013
• Government owned financial institutions (Export Development Canada, KfW Group,

Japan Bank for International Cooperation, Korea Finance Corporation, IDBI Bank and Stank Bank of India

11%

Commercial Bank Loans

• 3-4% average cost of debt
• L+250 – 350 bp
• European banks (BNL Paribas, Royal Bank of Scotland, Credit Agricole, Banco

Santander and Societe Generale)

• Japanese banks (Mitsubishi UFJ Financial, Sumitomo Mitsui Financial and Mizuho

Financial)

52%

Bonds

• 4-6% average cost of debt
• T + 200 – 300 bp
• Investment grade bonds (traditional and 144A private placements)
• Insurance companies (AIG, Allstate, John Hancock, MetLife, New York Life,

Northwestern Mutual and Prudential)

5%

Equity

• 8-15% targeted IRR
• Governments (United Kingdom and corporate sponsors (BHP Billiton, EDF, Chevron,

Exxon Mobil, Lyondell Basell)

• PF infrastructure funds (Alinda Capital Partners, Brookfield Asset Management and

Global Infrastructure Partners and Morgan Stanley Infrastructure

30%

% Capital

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Source: Dealogic; McKinsey Global Institute

Project Finance Debt Market Snapshot

100 200 300 400 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Bonds Loans

• Pg. 27

Global Project Finance Debt by Type ($ in billions)

100 200 300 400 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Other Africa and Middle East Asia North America Europe

Global Project Finance Debt by Region ($ in billions) Global Project Finance Debt by Sector ($ in billions)

25 50 75 100 1993-2010 2013-2030

Telecommunications Water Power Shipping and Transportation

Global Infrastructure Spending (2010 constant $ in trillions)

100 200 300 400 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Energy and Power Renewables Shipping and Transportation Social Infrastructure Other $36.1 trillion $57.3 trillion

V

ALYRIAN CAPITAL PRIVATE AND CONFIDENTIAL

Source: infrastructure Journal

Historic Turkish Infrastructure Sources of Financing

• Pg. 28

Turkey Infrastructure Market by Source of Funding 2007 – 2013 to October Top Lenders Breakdown by Type 2007 – 2013 to September

2 4 6 8 10 12 14 16 18 20 1,100 2,200 3,300 4,400 5,500 6,600 7,700 8,800 9,900 11,000 2007 2008 2009 2010 2011 2012 2013 Deal Count US$ (mm) IFI Government Support Equity Bonds Loans 10 20 30 40 50 60 650 1,300 1,950 2,600 3,250 3,900 4,550 5,200 5,850 6,500

Garanti Bank BNP Paribas Fortis Isbank Akbank Citi Group Yapi Kredi Deutsche Bank UniCredit ABN AMRO Bank VakifBank IFC EBRD EIB SACE KEXIM EKN FMO EDC Proparco ESTDB KfW Euler Hemes

Deal Count US$ (mm) Value Invested Deal Count

Government/ECA/DFI Commercial Banks