On August 17, 2016, CEELM reported that Yilport Holding had signed a public-private partnership agreement and acquired the right to operate Puerto Bolivar Harbor in Ecuador for 50 years. We reached out to Legal Director at Yildirim Holding for more details on the deal.
CEELM: Why did Yilport pursue the opportunity in Ecuador?
I.D: Puerto Bolivar will be a crucial port in the Yilport network once it is fully integrated into our global port portfolio. Mostly bananas, shrimp, other seafood, and mineral products will be exported from the port supporting also the exports of Ecuador. This remarkable and commercially feasible investment opportunity further bodes very well also for the global enlargement strategy of Yilport.
CEELM: Why did Yilport select Erdem & Erdem as external counsel on the deal?
I.D: Erdem & Erdem has a strong track record and breadth of experience in infrastructure projects on BOT (Build-Operate-Transfer) models (particularly in airport development, port operations, and power generation), and contributed to the legal aspects of early development of private infrastructure investments in Turkey. The team has represented local and global clients who have taken roles as sponsors, developers, lenders, equity investors, and multilateral agencies in the development and financing of PPP (BOT, BO (Build-Operate), transfer of operation rights) investments.
In the last decade Erdem & Erdem team has been involved in many port privatizations and port management tenders in Turkey and in some of them they represented our Group, such as Derince Port and Kalamis Port. Furthermore, the Erdem & Erdem team has represented Yildirim Group in its investments in CMA-CGM, Malta Port, Gavle Port, Rota Port, Gemlik Port, and the Port of Oslo.
Last year Erdem & Erdem was mandated to represent Yilport Holding in the acquisition of all shares of Mota-Engil Logistica and Tertir Terminais de Portugal, as a result of which Yilport Holding acquired seven container terminals in Portugal, two container terminals in Spain, and one terminal in Peru. The transaction is a landmark transaction, as it is the largest investment made by a Turkish company in Portugal as well as one of the largest port investments in Europe in 2015; hence the significance in terms of investment scale and economic value.
Our working relationship with the Erdem & Erdem team is a long-standing one. The senior team and partners of Erdem & Erdem have extensive legal, corporate, and business experience and were involved in our landmark transactions supporting our business growth. The team has a sound understanding of our business and strategies and integrates extremely well with our in-house legal and management teams, which we think is a crucial feature for an ideal external counsel.
Erdem & Erdem is also unique in terms of the involvement of its partners in transactions. While they also engage junior associates of different ranks and competence to work on various phases of the transactions, they stand out as a firm in having active partner involvement and partner accessibility throughout the projects, which is a policy we have appreciated as a client for many years. Erdem & Erdem has not failed us in this respect so far.
CEELM: What was the organizational structure of the legal team, both internal and external, on the matter? In other words, how was it managed, and how were responsibilities divided?
I.D: The in-house team at Yildirim Holding supports and coordinates all strategic transactions undertaken by group companies in general. In transactions abroad, while we retain local counsel in the host country, we think it is indispensable to rely also on the advice, scrutiny, and review of Turkish counsel.
The in-house team and Erdem & Erdem worked together starting from the tender stage for the privatization of Puerto Bolivar to identify key issues and risks, to form a structure, and to produce legal documentation, including the review of the concession agreement and active participation in the negotiations. Erdem & Erdem, in collaboration with its in-house team, supervised and monitored the transaction from the outset by actively supporting both legal and management teams of the Yildirim Group involved in the transaction.
Erdem & Erdem had a high level partner involvement in the project from the very beginning. They led the negotiations process, and despite the complications and inefficiency they experienced in working with local advisors in Ecuador (particularly due to different time zones and the buffer times required for translation works and he complexity of the project, which was a major privatization of the Ecuadorian government), Erdem & Erdem successfully managed to draft and negotiate the concession agreement and support us extremely well throughout the tender process.
Their broad experience, based on years of similar transactions in PPPs and port projects, facilitated the negotiations in Ecuador with local authorities and their insight into the dynamics of our business made Erdem & Erdem’s contribution even more crucial for our success in this transaction.
CEELM: According to the article on the CEE Legal Matters website, “the term sheet of the public-private partnership project was signed in February, 2016, in the presence of the President of the Turkish Republic, Recep Tayyip Erdogan, and the President of Ecuador, Rafael Correa.” Why were the Presidents of the two countries involved in the ceremony? In other words, what is the political significance of the deal?
I.D: In the last decade, Turkey pursued a more active policy towards Latin America with the aim of strengthening its bilateral relations. Ecuador is among the 14 countries with which a legal framework for bilateral cooperation and political consultations has been concluded, to a large extent. As a result of this policy, the Turkish government encourages all Turkish investors to invest in Latin America.
On the other hand, Yilport Holding, as part of efforts to implement its designated global enlargement strategy, continuously investigates and examines investment opportunities in many different regions of the world. At the time of signing, this particular investment -- along with the ongoing negotiations -- was already in the pipeline for several years, with a view to realize the Holding’s strategy to the best commercial interest of the general Group.
Against this backdrop, H.E. President Erdogan’s state visit is regarded as a propitious occasion by both Ecuadorian and Turkish authorities for polishing this substantial port investment of Yildirim in Ecuador. The project will be the largest investment in the country by an investor of Turkey origin, and once completed, Puerto Bolivar will be the largest container port on the Pacific coast of Latin America.
CEELM: What would you say were the biggest challenges of making the acquisition happen? Where any elements of the process unexpectedly difficult?
I.D: It was one of the most challenging port privatizations we have been involved in at Yilport Holding. Major challenges included the vagueness of the tender process, the language barrier, and more significantly the lack of a local PPP-experienced counsel due to lack of previous privatization transactions in Ecuador.
It should suffice to mention here that despite the best efforts and support of the local counsel in Ecuador, their contribution was inevitably very limited, and it was a herculean task to produce a coherent straw-man draft for the concession agreement identifying the key issues for the negotiations. The market was not developed for privatization and the tendering authority’s understanding was naturally very limited, particularly compared to its Turkish counterpart, which also made the whole process very burdensome for us. The challenge of negotiations was further aggravated by the language barrier and lack of knowledge of English by some local authorities, forcing us to to rely substantially on a translator and as a result we needed to cope with the time constraints as well that resulted from the loss of time we suffered due to the translation work.