Turkish project company MMK Atakas closed a long-term financing to the value of US$1.7bn for the construction of its flat steel-making complex in October last year.

The deal represents the most substantial debt facility extended to a merchant steel making project in the last couple of years, and is of crucial importance to the Turkish steel-making industry and related sectors.

MMK Atakas, jointly owned by project sponsors MMK (one of the world’s largest steel producers) and the Atakas Group (Turkey’s biggest coal importing group), was established in July 2007 to develop, engineer, construct, commission and operate an integrated flat steel-making complex at two sites in Iskenderun (southern Turkey) and Kocaeli (western Turkey).

Facing a growing supply deficit, the Turkish flat steel sector is in need of greenfield facilities. Designed for an annual capacity of 2.3 million tonnes of flat steel production, the MMK Atakas project will have a competitive advantage in the global flat steel market due to its ability to directly meet the growing Turkish and Middle East market demands and reach the Russian and Southeast European markets for continuous scrap supply.

The project, which kicked off in October 2007, is expected to be completed in December 2010.

The project financing – which successfully combined international and local bank debt – was arranged and fully underwritten by BNP Paribas, Garanti Bank, Isbank and RBS.

The total project size is worth approximately US$1.7bn, and is financed under a debt to equity ratio of 63:37, and comprises a €384mn Sace-backed export credit facility, arranged by BNP Paribas and RBS, and insured by Sace; a US$450mn commercial facility arranged by Garanti Bank and Isbank; a US$60mn working capital facility arranged by Garanti Bank and Isbank; and the balance through sponsors’ equity (approximately US$464mn) and excess cashflow.

The tenor of the loan is 10 years door-to-door, which includes a 19-month availability period. Repayment is to be made in 17 equal semi-annual installations, with the first repayment date being July 15, 2011 and the final discharge date scheduled for July 15, 2019.

George Grozavu, vice-president, structured export finance at BNP Paribas, comments on the structure of the deal: “Considering the greenfield nature of the project, the amounts and the tenors, the MLAs and Sace carried out – with the help of their consultants – a due diligence of the market, technical, legal and financial risks, which resulted in a hybrid financing structure, namely a cashflow-based project finance type structure with full recourse to the corporate sponsors.”

The MLAs were originally mandated in February 2008, but as the market conditions worsened, the arrangers were forced to renegotiate several issues, which caused delays. However, even during the volatile and difficult times, arrangers’ confidence in the project did not change and their strong support prevailed.

“The project has proven the bankability of large steel structured finance transaction in Turkey. The successful closing demonstrates that there is an important appetite for quality Turkish assets in spite of current conditions in the financial and commodities markets,” says Marco d’Alessandro, BNP Paribas’ managing director, corporate and sovereign/export finance transaction group.
Deal information

Borrower: MMK Atakas

Amount: US$1.7bn
Mandated lead arrangers: BNP Paribas, RBS, Garanti Bank, Isbank
ECA: Sace
Law firms: Clifford Chance; Pekin & Pekin; Norton Rose; Hergunner Bilgen Ozeke
Tenor: 10 years amortising
Date signed: October 28, 2009