case study presentation: Turkey Hospital PPP Project

case study presentation:

Turkey Hospital PPP Project

March 2021

ESCAP Second Thematic Workshop of the Infrastructure Financing and Public-Private Partnership Network of Asia and the Pacific

2

ICBC at a Glance

Turkey Hospital PPP Project

Integrity Leads to Prosperity

Structure and Mechanism

ICBC at a Glance Integrity Leads to Prosperity

ICBC is the largest commercial bank in China, and a leading bank worldwide in terms of total assets. For the eighth consecutive year in 2020, the Bank ranked 1st place in the three authoritative lists of The Banker's Top 1000 World Banks, the Forbes Global 2000 and the Fortune Global 500 Sub-list of Commercial Banks.

Financial Highlights (2020.6.30)

Total Assets $4,681 Bn

Tie 1 Capital $383 BnOverseas Assets $429 Bn

Revenue $63 Bn Net Income $21 Bn

ICBC at a Glance Integrity Leads to Prosperity

1442+ corresponding banks covering 143 countries

425 overseas institutions covering 6

continents and 49 countries

660 million individual clients

We serve for

8.5 million coporate clients500k institutions clients - Including 7000 financial institutions

Important Platform of ICBC to

Implement Going Global strategy

Focus on overseas investment & financing and cross-border transactions.

Provide finance for diversified sectors: transportation and infrastructure, power & energy, manufacturing, leasing, nature resources, international syndication, asset transaction.

Covering more than 70 countries and regions in 6 continents of the globe.

Take the lead in completing a batch of significant projects that are influential in the international market.

ICBC at a Glance

Promoting at Head Office Level and integrating ICBC global Financing resources.

Global Finance Department

Integrity Leads to Prosperity

Hospital PPP Project in Turkey

Good practices in the preparation of PPPs

The Ministry of Finance or central budgetary authority assesses, accounts for, and signs off on the long-term fiscal implications of a project both before launching procurement and signing a contract.There is a system in place to track the fiscal impact of PPPs such as inclusion of PPP projects in the budget, accounting for and

reporting on them.The project is selected, assessed, and prioritized together with all other public investment projects in accordance with national

public investment plans and strategies.The project is adequately justified based on the following types of assessments:The results of the above-mentioned assessments are included in the tender documents.The results of conducted assessments are published online.The tender documents are published online.The procuring authority prepares a draft PPP contract and includes it in the request for proposals and/or tender documents.The procuring authority has developed standardized PPP contracts and/or transaction documents to facilitate the procurement

process and to guarantee consistency.

source: <Benchmarking Public-Private Partnerships Procurement 2020>



1. Overview of the Turkish PPP Healthcare Programme

As a result of rapid increasing demand for healthcare services, Turkey’s Health Transformation Programme(HTP) was introduced by the government in 2003 to enhance the accessibility, efficiency, and quality of healthcare facilities.

The HTP aimed at increasing the administrative and financial autonomy of hospitals.

Facing constraints on public resources and fiscal space, while recognizing the importance of investment in infrastructure to help their economies grow, governments are increasingly turning to the private sector as an alternative additional source of funding to meet the funding gap.

• Creating a new modern and efficient public health infrastructure.• Increasing number of beds.• Upgrading current beds to qualified beds.• Bringing together small hospitals under one campus to consolidate and save on operation expenses.• Increased service quality and efficiency.• Expansion and improvement of medical education and training.



Elazığ Hospital PPP

1,038 beds integrated healthcare campus located in Elazığ. Project cost is EUR 360 mio. Elaz ı ğ Integrated Health Campus is operational as of 1 August

2018.

Bursa Hospital PPP

1,355 beds integrated healthcare campus located in Bursa. Project cost is EUR 487 mio. the hospital is operational as of 16 July 2019.

2. ICBC's paticipation in hospital PPP projects in Turkey


There are 18 hospital projects implemented on PPP basis in Turkey, with more than 27,000 beds. Some of them are ongoing and some of them are already in operation.ICBC paticipated in several hospital PPP projects in Turkey , two Projects in operation are as follows:


3. Structure of the Hospital PPP project in Turkey

MoH

Sponsors LendersProject Company

O&M ContractorEPC Contractor

Direct Agreement

Shareholders’ Agreement

Project Agreement

Loan Facility

Direct Agreement

Direct Agreement

EPC Contract

O&M Contract


The Structure of the Hospital PPP project in Turkey is standared and typical.


3. Structure of the Hospital PPP project in Turkey

3 Years

Average Concession Period: 28 Years

Investment Period

Operation Period

25 Years

The SPV is required to provide at least 20% Equity. Investment period starts with Site Delivery. SPV is responsible for the construction or renovation of the health facilities on a

Build and Lease Basis, and provide the services in health facilities other than medical service.

Market testing protects SPV to level service prices with market conditions.

Highlights of the Project Agreement



4. Payment Mechanism of the Hospital PPP project in Turkey

The Project revenues that are denominated in Turkish lira (“TRY”) will comprise Availability Payments, Service Payments and Commercial Revenues.

Service payments is paid to cover the OPEX of the project. the payments consist of a) Non-Volume Services and b) Volume Services. Volume Services further divided into Medical support services and Service support services. (MoH guarantee certain volumes for volume based services )

Availability Payments is paid mainly for the CAPEX of the project, to cover the debt servie and equity.

Commercial Revenues is related to commercial activities in the project.

Commercial Revenues+




4.1. Availability Payments: Payable in advance by the Administration to the Project Company at the beginning of each quarter in consideration of usage of the health facilities during the relevant period.

Payable quarterly in advance and denominated in TRY. Collected independent of hospital occupancy rates (Fixed Income), and the deduction is caped at 10%. Guaranteed by MoH. Adjusted quarterly by inflation and devaluation (Protection). The correction factor (CF) provides mitigation should currency devaluation be more than inflation such that

the EUR value of the AP cannot be lower in any period than the preceding period.




4.2. Service Payments: are the maximum net amount payable to the Project Company in consideration of the provision of the services by the Project Company excluding VAT and any other taxes and duties that are payable. Service payments shall be made by the Administration to the Project Company on a monthly basis.

Payments will be paid by monthly by the MoH to the SPV in TRY. 19 support services (P1+P2) will be provided by the SPV; 12 non-volume services and 7 volume services. The deduction is caped at 20%. MoH guarantees a minimum 70% of the potential volume based services. Payments will be adjusted by inflation annually; each period at the average of Turkish CPI and Turkish PPI (except

medical support services). Medical support services (which are all volume based) are not adjusted by inflation. The unit price of these services are

increased periodically in line with nationally agreed unit prices for medical services by MoH. Market Test will be conducted for each service every 5 years in order to ensure and maintain the competitiveness of the

price. If market test is lost, MoH guarantees mark-up for overhead costs of SPV. Capital intensive and specialized services such as imaging, lab, etc. will be outsourced (via sub service agreement).




4.2. Service PaymentsServices Category Market Testing

P1 - MANDATORY SERVICESEstate non-volume

Extraordinary Maintenance non-volume ×Utilities non-volume

Other Medical Equipment Support non-volumeFurniture non-volume

Grounds & Garden (Landscaping) non-volumeP2 - OPTIONAL SUPPORT SERVICES

Pest Control non-volumeCar Parking non-volume

Cleaning non-volumeHIMS (IT) non-volume

Security non-volumePatient Guiding/Portering/Reception/HelpDesk non-volume

Linen (Laundry) volume - supportCatering volume - support

Waste Management volume - supportLaboratories volume - medical support

Imaging volume - medical supportSterilization and Disinfection volume - medical support

Rehabilitation volume - medical support



5. Termination Mechanism of the Hospital PPP project in Turkey

No. cause of Termination Compemsation on Termination

1 Project Company Default Equity Expenses + Senior Debt Termination Amount + cost due to early termination

2 Administration Default Equity Expenses + Senior Debt Termination Amount + cost due to early termination + loss of profit calculted according to the Financial Model

3 Force Majeure Equity Expenses + Senior Debt Termination Amount + cost due to early termination + loss of profit calculted according to the Financial Model


The Senior Debt is 100% covered in any scenarios.The Senior Debt Termination Amount will be paid directly to the lenders, without any objection.


Key Attractions of Turkish PPP Program

Payment adjustment against Inflation and FX Capped Variation Orders (1% and up to 20%)

VAT Exemption for CAPEXMarket Testing for Services (every 5 years)

Protection against Change in Law

Lenders sign Direct Agreements with the MoH

No Double Counting for Deductions and Penalties

Capped Deductions (20% of Service, 10% of Availability)

Compensation at Termination for Loan & Equity

Insurance Risk taken by MoH if insurance not available

ICC International Arbitration for Dispute Resolution

6. Key Attractions of Turkish PPP Program



6. Key Attractions of Turkish PPP for lenders

The government will pay the ermination on compensation, and the debt will be fully covered in any circumstances.

Certain PPP projects provide minimum revenue guarantees.

Lenders’ step-in rights allow the lenders to select, with the consent of the procuring authority, a new concessionaire to perform an ongoing PPP project in cases when the initial private partner is at risk of default.

PPP projects in Turkey allow free use of government-owned land and expropriation.



7. PPP Legal Scores of Turkey by World Bank


Turkey got 75 in the score of PPP contract Management, which is above the average of ECA countries and Upper Middle Income countries.


8. The COVID-19 Effect on Hospital PPP project in Turkey


COVID-19 is expected to have an impact on the full spectrum of the Project lifecycles of Hospital PPP Projects in the short-, medium-, and long-term.

Due to pandemic, inpatient occupancy ratio and daily admitted patient number has decreased.

Some of the Hospital PPP Projects are designated as the“pandemic hospital” for the COVID-19 infected citizens in the Cities of Turkey. These hospitals are included in detailed COVID-19 Pandemic Management Plan of Turkey and the plan includes an action table for COVID-19 management in the hospitals, the actions have been defined for all these issues and the relevant actions are being continuously taken.

Disclaimer

This presentation was prepared exclusively for the benefit and internal use of the ICBC client to whom it is directly addressed and delivered (including such client’s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by ICBC. Neither this presentation nor any of its contents may be disclosed or used for any other purpose without the prior written consent of ICBC. The information in this presentation is based upon any management forecasts supplied to us and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. ICBC’s opinions and estimates constitute ICBC’s judgment and should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the Company or any other entity. ICBC makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects. ICBC’s policies prohibit employees from offering, directly or indirectly, a favorable research rating or specific price target, or offering to change a rating or price target, to a subject company as consideration or inducement for the receipt of business or for compensation. ICBC also prohibits its research analysts from being compensated for involvement in investment banking transactions except to the extent that such participation is intended to benefit investors. ICBC is the marketing name for the Industrial and Commercial Bank of China. This presentation does not constitute a commitment by any ICBC entity to underwrite, subscribe for or place any securities or to extend or arrange credit or to provide any other services.

Copyright 2021 ICBC GROUP All rights reserved.

Contact:

Mr. Zhang JianjunTel: (8610)66104638 Email: [email protected] Finance Dept., ICBC Head OfficeBeijing, China

Mr. Ahmet Can YAKARTel: +90 (212) 2762561 Email: [email protected] Finance Dept., ICBC TurkeyIstanbul, Turkey

case study presentation: Turkey Hospital PPP Project

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