WOOD Flash – Tupras: acquires Entek, through a capital raising and share swap

Tupras has announced that it is to become the majority owner in Entek Electric, a power generation business owned by fellow Koc Group company Aygaz and Koc Holding. In order to make the transaction, Tupras is to issue 24.8m new shares (equivalent to 9.9% of the existing shares), which will be given to Koc Holding and to Aygaz’ shareholders in exchange for Entek. Ernst & Young has valued Tupras at TRY 55.7bn and Entek at TRY 5.5bn, which dictates the exchange ratio. We view this transaction as potentially a little expensive for Tupras, with a number of mitigations. Building or acquiring assets elsewhere would take time and may be even more expensive. Power prices in 2020 and 2021 do not reflect the current market, and prices are likely to remain high for the foreseeable future. Tupras acquires a knowledgeable team, reducing the risks of further expansion. The wind farm is a recent acquisition and did not fully contribute in 2021. We see the deal as logical, taking Tupras towards its long-term decarbonisation goals and supporting its hydrogen strategy. We also agree with Koc Holding that the potential synergies for Tupras are significantly better than for Aygaz. As no cash is being used in the transaction, Tupras has a budget for further investments and a possible return to dividend payments in 2023E. For Aygaz, it simplifies the company’s structure and generates instant value for its shareholders from an ignored asset. The deal depends on the acquiescence of the Capital Markets Board.