11726 - TT & TIM Iletisim Hizmetleri A.¿.

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Summary of Proposed Investment

Project Number

11726

Company Name

AVEA ILETISIM HIZMETLERI ANONIM SIRKETI

Date SPI Disclosed

Oct 21, 2004

Country

Turkiye

Industry

Telecommunications and Technology

Projected Board Date

Dec 16, 2004

Status

Completed

Sector

Mobile Telephony

Date Revised SPI Disclosed

Nov 11, 2004

Department

Gbl Infrastructure & Natural Resources

Environmental Category

B - Limited

Previous Events

Approved : Dec 16, 2004
Signed : Mar 10, 2006
Invested : Mar 30, 2006

Project Description

In February 2004, Aria, the third largest mobile telephony operator in Turkey, owned by Telecom Italia Mobile (through TIM Intl. N.V.) and the Is Bankasi Group, merged with Aycell, the fourth mobile telephony operator, owned by Turk Telecom. The resulting entity, Avea, is a company with a nation wide GSM network, covering over 80% of the Turkish population, with a market share of about 15% at end of September 2004. The company had about 4.7 million subscribers as of June 2004 and about 1,000 employees.

The project financing will include the restructuring of Avea’s existing debt and the funding of the following:

- working capital requirements and
- the integration, expansion and maintenance of the combined GSM network.

Total project cost is estimated at $2.1 billion, inclusive of approximately $1.1 billion of refinancing of existing debt .

Sponsor / Cost / Location

The resulting ownership stakes after the merger are 40% for Telecom Italia Mobile (TIM), 40% for Turk Telecom (TT) and 20% for Turkiye Is-Bankasi Group (ISBANK)

- Telecom Italia Mobile:

TIM is a publicly traded company, partially-owned and controlled by Telecom Italia (TI), Italy''s main telecom operator. For the first half of 2004, TIM’s EBITDA margin was 47,4% on consolidated revenues of $7.5 billion. As of October 13th, 2004, TIM had a market capitalization of approximately $47,4 billion. TIM is a part of Telecom Italia Group, one of the largest European telecom operator, reporting revenues of $37,8 billion for the 2003 financial year. The TI Group’s creditworthiness is mainly supported by very strong domestic business positions, above industry average operating performance (TI Group EBITDA margin in 1H’04 was 46,6%), and net free cash flow generation (around $4,3 billion per year forecasted in ‘04-’06 Group plan). As of the June 2004, TIM had approximately 50 million mobile subscribers (48% of which were from international operations). Outside of Italy, TIM has operations through direct subsidiaries in Greece, Turkey, Brazil, Peru and Venezuela and indirectly in Czech Republic, while it runs the mobile business of TI affiliates in Argentina, Chile, Bolivia and Cuba.

- Turk Telekom:

As of the 30th of September, TT, the state-owned monopoly fixed-line operator, has 19 million lines in service, generating about $4.8 billion in net sales for 2003 and approximately $1.8 billion equivalent EBITDA. In addition to its prior 100% ownership of Aycell, TT also has interests and has invested in other telecommunication projects such as satellite, cable TV, data, transmission infrastructure, wireless (NMT and Paging) and the Internet. TT’s fixed-line market monopoly ended at the end of 2003, and the Government announced that it intends to privatize at least 55% of TT.

- Turkiye Is-Bankasi Group:

ISBANK was established in 1924 to assist in the rebuilding and development of the Turkish economy and has pioneered many new areas of business through equity investments and participations in the industrial and finance sectors in Turkey. ISBANK , headquartered in Istanbul, had total assets of $23.1 billion equivalent and shareholders equity of $4.1 billion equivalent as of June 30, 2004. The main holding company, Is-Bankasi , is listed on the Istanbul and London Stock Exchanges. The bank is owned about 43 % by the Turkiye Is-Bankasi Pension Fund (ISBANK ''s own private pension fund), and about 28% by the Republican People''s Party ("CHP"). As of June 30, 2004, the bank had equity participations in 56 companies in various industries. As of September 2004, ISBANK had a market capitalization of approximately $5.9 billion equivalent .

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	120.0
Equity

Development Impact

This is a Category B project according to IFC’s environmental and social review procedure. Issues assessed during project appraisal include: Avea’s commitment to environmental and health and safety (EHS) policies and procedures that meet international best practice; measures to identify and mitigate the environmental and social impacts from expanding their network; waste management; employee health and safety including training and reporting; emergency response planning with particularly emphasis on fires and earthquakes; and social and community issues. The required policies, procedures and programs were developed or are in the process of being developed, and where applicable, are being implemented based on the extensive successful experiences of Aria, Aycell and Telecom Italia Mobile.
Location of environmental documents In locally affected community
Environmental documentation will be made available at the following locations:

Avea’s office in Istanbul;
Abdi Ipekci Caddesi No:75
80200 Macka,
Istanbul. Turkey

Avea’s office in Ankara:
Ahlatlibel 06095
Ankara, Turkey

and at the company’s websites;
http://www.avea.com.tr and
http://www.tt-tim.com.tr

Although the Turkish wireless penetration rate has surpassed fixed line penetration, the wireless sector in Turkey has suffered form a lack of effective competition. The existing cellular providers have, until recently, focused their marketing efforts for the most part on the wealthier demographics for both individual customers and business clients. The emergence of a strong third operator, which this project seeks to support, should promote greater competition and make cellular communications more affordable and available to larger segments of the population. In addition, one of Avea’s main shareholders, TIM, is an industry leader in cellular innovation. The project should result in significant technology transfer with respect to increasing use of new value added services for mobile telephony. Finally, given the strong reservations that investors have towards Turkey due to its history of economic crisis and perceptions of tenuous political stability, a project of this dimension should serve as a way of enhancing investor confidence in foreign direct investment and working with stronger Turkish companies.

Significantly weakened market appetite for telecom projects as well as the unavailability of long-term capital in Turkey make critical the strong participation of a multilateral institution such as IFC in a large scale project financing such as this. Recognizing this, Avea has appointed IFC (together with ABN AMRO) as a joint global coordinator for the financing.

IFC will play a key role in the following aspects:

- providing long term capital;
- attracting international banks under the IFC B Loan program;
- coordinating financing from various sources including local banks and export credit agencies;
- assisting Avea in structuring a complex financing package.

Contacts

For Inquiries About the Project, Contact

Fabrizio Mambrini, CFO, and Eren Gura, Finance & Accounting Manager
C/o
Abdi Ipekci Caddesi
No:75 80200 Macka,
Istanbul. Turkey

This Summary of Project Information (SPI) is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC's activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC's Disclosure of Information Policy that went into effect September 1998.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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