Istanbul Pushes Ahead With IPO Plan for $10 Billion Gas Grid

Istanbul authorities are reviving a plan to privatize the city’s gas grid in what could be one of Turkey’s biggest ever initial public offerings.

An IPO of the Igdas gas grid is moving forward، according to Neslihan Vural، head of financial services at the Istanbul Metropolitan Municipality. She estimated the company could be valued as high as $10 billion once increased gas tariffs are approved. The municipality aims to gradually reduce its stake to less than 20% from more than 90% now، she added.

“I am pro-privatization،” Vural said. “The municipality should eventually return to pure municipal works.”

Jewel of Istanbul's privatization list

Igdas has long been the crown jewel of Istanbul’s privatization list، though earlier attempts at an initial public offering failed. Now that Turkey’s opposition party has a majority on the Istanbul council، local officials see an opportunity to push ahead with fundraising plans to build infrastructure and strengthen their grip on the city.

While a city council directive permitting the IPO still stands، there’s legal work to be done and the company’s charter must be adjusted before authorities can hire investment banks، Vural said. The company had revenue of 35.8 billion liras ($1.1 billion) in 2022.

This will be the third time officials try to offer Igdas to local and international investors. After considering an IPO or a block sale in 2010، the authorities opted for the latter، run by Citigroup Inc. and two local brokerages — but the deal came to nothing. In 2016، Citigroup and JPMorgan Chase & Co. competed for the right to organize an IPO، though the process stumbled before a bank was selected.

Should an sale materialize this time round، it could be the nation’s largest — exceeding initial public offerings of about $1.9 billion each for Turkcell، Halk Bank and Turk Telekomunikasyon in the 2000s.

Among other potential listings are car-park operator Ispark، water bottler Hamidiye، bread maker Halk Ekmek and others، according to Vural. Ispark could come after Igdas، she said.

Istanbul has a raft of projects that need funding. They include building a second waste-to-energy power plant، improving subway lines and buying 10،000 taxis to boost the current fleet by 50%، Vural said.

Election Flashpoint

Financing for Turkey’s big cities was a flashpoint in the March local elections. Ozgur Ozel، the head of the opposition Republican People’s Party، or CHP، accused President Recep Tayyip Erdogan of withholding state cash as punishment for urban voters’ perceived disloyalty. The government denies the allegation.

Now، Treasury and Finance Minister Mehmet Simsek is seeking to restore confidence in the Turkish economy، holding international investor meetings to tout the nation’s return to more orthodox policies. Simsek signed off on Istanbul’s $715 million sale of unsecured green bonds in November and is expected to approve financing for four metro projects including a $925 million new line، Vural said.

The municipality plans to raise €1 billion ($1.1 billion) this year by tapping capital markets and international financial institutions like the European Bank for Reconstruction and Development and commercial banks، Vural said.

As well as planning ESG-friendly bond sales، Istanbul aims to raise $225 million via an international debt offering. Under the deal، a special purpose vehicle set up by Bank of America Corp and London-based BancTrust Investment Bank Ltd. will provide a loan after selling bonds in foreign markets، Vural said.