Elazig Integrated Health Campus PPP
Context
- The USD 244M1 Elazig hospital Public-Private Partnership (PPP) project is part of the 'Health PPP' program developed by the Turkish Ministry of Health (MoH), to extend and modernize the country's healthcare
- PPPs under the program are structured as design, build, finance and maintain (DBFM) 25 year project agreements
Problem
- Investors perceived Turkey to have high Emerging Market risk despite having an investment-grade rating at the time
- This made it difficult for PPPs to raise capital from the capital markets and specifically, from institutional investors
Innovation
- Credit enhancements2 by the European Bank for Reconstruction and Development (EBRD) and political risk insurance3 by the Multilateral Insurance Guarantee Agency (MIGA) allowed the project to be financed hrough “green and social” bonds—the first in Turkish greenfield project history
Stakeholders Involved
- Turkish Ministry of Health (MoH) — Project owner responsible for the provision of healthcare in the country
- ELZ Saglik Yatirim — SVP4 created to deliver the project
- EBRD and MIGA — Provision of joint credit enhancement scheme
Results/Impact
- The credit enhancements contributed to Moody's rating the project bond Baa2, which is two notches higher than Turkey’s sovereign debt rating
- The bond issuance has been certified as a “green and social bond” by Vigeo EIRIS, a leading international environmental, social and governance
research agency - The bond was placed exclusively with global investors including the FMO, IFC, Industrial and Commercial Bank of China (ICBC), Intesa Sanpaolo, MUFG, Siemens Financial Services, and Proparco
Key lessons learnt
- Projects that adopt risk-management levers such as credit enhancement mechanisms covering political risk can widen the pool of prospective investors and mobilize new sources of funding
- Political risk insurance and other credit enhancements are particularly important in achieving high investment-grade ratings when the country’s own rating is several notches lower
- Project fundamentals remain critical to project success; to attract investors, PPP programs need to be well structured, with clearly defined revenue payment mechanisms, careful risk allocation and a contract period long enough to ensure adequate returns
Attachments & Related Links
MIGA press release
