Turkey has sold €835mn worth of lease certificates due February 2021, the finance ministry said on February 6. The Turkish finance ministry previewed the move in a February 5 written statement saying it would issue a 728-day EUR-denominated domestic sukuk via direct sales to lenders.
The ministry was to collect offers until 14:00 local time on February 6 and it was important that buyers sent the payments to the accounts by 13:30 local time on February 8 at the latest, the ministry said in its call for bond investors.
The securities offer a 6-month lease rate of 1.45%.
Turkey zeroed its FX-denominated domestic debt from 2012 to late 2018 as part of a risk management programme launched after consideration of the country’s 2001 economic crisis. Finance Minister Berat Albayrak, a son-in-law of Turkish President Recep Tayyip Erdogan who was appointed last July after the snap elections, has been betting on FX-denominated bond sales despite expensive costs, disregarding some strong warnings.
Albayrak has lately rebutted claims from analysts that it is inevitable that Turkey, given its economic turmoil, will experience a recession.
The country’s private sector is also relying on FX borrowings to benefit from the lower rates on offer compared to the cost of lira borrowings. The private sector’s FX debt load has been Turkey’s main economic woe since the currency crisis that hit its nadir last August.
Turkey has tapped international markets to sell a total of $4bn and €2.75bn worth of eurobonds since October. The spread over market rates sharply declined to 446bp over the mid-swaps (MP) in the latest eurobond sale, held in January. However, that was still a fairly high level compared to the 336.8bp seen at the previous auction, held in April last year before the Turkish lira experienced its nosedive.
Turkey has raised $3.4bn from the international capital markets in 2019.
The Erdogan administration plans to raise the equivalent of $8bn of external funding in 2019 through bond issues on global capital markets. It raised $7.7bn in financing from such markets in 2018, as opposed to its $6.5bn annual target. Turkey raised $9.1bn from international markets in 2017 versus the planned $6bn.
The depreciation in emerging market currencies last year alone raises the burden on governments who have borrowed in foreign currencies, James McCormack of Fitch Ratings said last month, stating: “The countries that have borrowed in dollars are the countries that are most exposed.”
Fitch rates Turkey at BB/Negative together with Guatemala and Vietnam. Moody’s Rating Services rates Turkey at Ba3/Negative together with Bangladesh, Bolivia and Vietnam while Standard & Poor’s rates Turkey at B+/Stable together with Kenya and Greece. S&P’s next rating review release date for Turkey is February 15 while Fitch has pencilled in May 3 for its release.
Turkey’s 5-year credit default swap (CDS) fell 9% w/w and 18% m/m to 288 on February 5. However, it was still up 76% y/y. The Turkish CDS rose to as high as 566 on September 4 from as low as 152 on January 5, 2018.
Turkey is planning to raise less cash through local-currency debt sales than it redeems in 2019 for the first time since 2016, according to the Treasury’s 2019 borrowing strategy. The country plans to borrow TRY153.9bn from the domestic market and redeem TRY164.6bn. That would take the debt rollover ratio to 93.5%, down from 107% in 2018, and 126% in 2017.
Source BNE Intellinews