As part of its 2019 external borrowing programme, Turkey’s Ministry of Treasury and Finance has mandated BNP Paribas, Citigroup and HSBC in order to issue US dollar-denominated eurobonds due 2024, the ministry said on July 2 in a written statement.

Turkey has also launched on July 2 bookbuilding to sell the papers, with the initial price guidance set at 6.65%, unnamed bankers told Reuters on July 2.

The bookbuilding was expected to be completed on the same day, they added.

“Turkey 10Y in dollars is up 8 price points since mid May, rallying 120bps in yield, to just over 7%. And given the limited FX reserve buffer, Turkey could do with some additional FX liquidity. Hearing lots of unsubstantiated rumours of potential management changes at the CBRT - or names being touted to replace incumbent governor Cetinkaya. Some of the names being mentioned seem to be wishful thinking/pie in the sky. One such name was Ceyla Pazarbasioglu, the ex-IMF official, and former BRSA official. This would be totally brilliant if true, and could be worth another 100bps+ off Turkey's borrowing costs,” Tim Ash of Bluebay Asset Management said on July 2 in an emailed note to investors.

The Turkish Treasury last sold $1bn worth of 10-year US dollar-denominated eurobonds at a coupon rate of 7.625% back in March (see table below) before the Erdogan government shut down the lira swap market in London with the aim of defending the local currency prior to the March 31 local polls.

Consequently, the Turkish Treasury and corporates have lost their access to the eurobonds market for a while.

The initial signal of the revival of foreign borrowing channels for Turkish issuers came on June 24 from a Global Capital report suggesting that President Recep Tayyip Erdogan’s Istanbul revote defeat could open a bond issuance window for Turkish borrowers.

On June 25, Turkish state-run lender Vakifbank announced it had completed the issuance of $150mn worth of five-year eurobonds via private placement to qualified institutional investors abroad.

Although the latest meeting held between Erdogan and his US counterpart Donald Trump in Osaka has triggered a rally in Turkish assets, Bloomberg reported on July 1 that the Turkish government has stockpiled crucial spare parts for the Turkish army’s US-made weapons in case Congress imposes sanctions over the purchase of S-400 missiles from Russia.

Meanwhile, on July 1 Moody’s Investor Services kept its negative tone on Turkey with a report suggesting that the outlook for Turkey's banking system remains negative, reflecting banks' funding vulnerabilities and difficult operating conditions that will put downward pressure on their financial strength over the next 12 to 18 months.

Moody’s expects Turkey's weakening economy will cause banks' profitability to deteriorate, driven by higher loan-loss provisions and slower loan growth.

The downside risk of more extreme policy measures in a stressed scenario, such as restricted access to foreign currency for depositors, has increased, the rating agency also said, adding: “The banks' funding is vulnerable, as it depends on short-term wholesale funding in foreign currency, with $64bn maturing in 12 months. Deposits in foreign currencies have risen to 54% of total deposits ($209bn), driven by local currency depreciation. Government policy has been unpredictable and the downside risk of more extreme policy measures in a stressed scenario, such as restricted access to foreign currency for depositors, has increased. Liquid assets ($100bn) and central bank foreign currency reserves ($27bn) are insufficient to withstand severe funding stress.”

Moody's expects financial difficulties at some large corporate borrowers and problems in the construction and energy sectors in the current recessionary environment. This will lead to a deterioration of the banks' asset quality, driven by higher loan-loss provisions and slower loan growth.

Banks are the key driver of economic growth in Turkey, but the capacity of the government to provide support in a crisis is limited, as indicated by the B1 sovereign debt rating, which has a negative outlook, the rating agency also noted.

Eurobond issues
Issuer	ISIN	Coupon	Volume (USD mn)	End of placement	Maturity date
Treasury				07/02/2019	2024
Vakifbank			150	06/25/2019	2024
Vakifbank	XS1970705528	8.125%	600	03/21/2019	03/28/2024
Sisecam	XS1961010987	6.95%	700	03/20/2019	03/14/2026
Treasury	US900123CT57	7.625%	1000	03/26/2019	04/26/2029
Yapi Kredi Bank	XS1958649854	8.25%	500	03/07/2019	10/15/2024
Koc Holding	XS1961766596	6.50%	750	03/05/2019	03/11/2025
QNB Finansbank	XS1959391019	6.875%	500	02/28/2019	09/07/2024
Yapi Kredi Bank	XS1957348441	FRN	321.6	02/25/2019	11/25/2027
Turk Telekom	XS1955059420	6.875%	500	02/21/2019	02/28/2025
Treasury (sukuk)	XS1816199373	5.80%	2000	02/21/2019	02/21/2022
Treasury		4.63%	EUR1.25bn	01/31/2019	03/31/2025
Eximbank	XS1917720911	8.25%	500	01/24/2019	01/24/2024
Treasury		7.625%	2000	01/16/2019	04/26/2029
source: cbonds, intellinews

Turkish Treasury's Eurobond Issues in 2019
Issue Date	Currency	Size	Maturity	CouponRate (%)	Price (%)	Yield to Investor (%)	Yield to Investor (Spread)	Euro Cost (%)
02.07.2019	USD		2024			6.65
26.03.2019	USD	1bn	26.04.2029	7.625	103.3	7.15	UST + 454 bps	4.859
21.02.2019	USD (Sukuk)	2bn	21.02.2022	5.8	100	5.80	MS + 318 bps
31.01.2019	EUR	1.25bn	31.03.2025	4.625	99.36	4.75	MS + 446 bps
16.01.2019	USD	2bn	26.04.2029	7.625	99.555	7.68	UST + 497bp	4.965
Turkish Treasury's Eurobond Issues in 2018
14.11.2018	EUR	1.5bn	16.02.2026	5.2	99.73	5.25	MS + 456.4 bp
23.10.2018	USD	2bn	23.12.2023	7.25	98.917	7.50	UST + 447.5 bp
24.04.2018	USD	2bn	24.10.2028	6.125	99.427	6.20	UST + 336.8 bp
17.01.2018	USD	2bn	17.02.2028	5.125	99.411	5.20	UST + 266.7 bp
Turkish Treasury's Eurobond Issues in 2017
13.09.2017	USD	1.75bn	11.05.2047	5.75	101	5.70	UST + 300.5 bp
14.06.2017	EUR	1bn	14.06.2025	3.25	99	3.377	MS + 285 bp
11.05.2017	USD	1.75bn	11.05.2047	5.75	98	5.875	UST + 286.7 bp
06.04.2017	USD (Sukuk)	1.25bn	06.04.2023	5	100	5	MS + 285 bp
23.02.2017	USD	1.25bn	25.03.2027	6	103	5.65	UST + 320.5 bp
23.01.2017	USD	2bn	25.03.2027	6	99	6.15	UST + 375.7 bp
source: treasury