Turkish Treasury taps $3bn from domestic paper sales to local banks ahead of eurobond redemption

Turkish Treasury taps $3bn from domestic paper sales to local banks ahead of eurobond redemption
Turkey's looking high and low for FX funding.
By Akin Nazli in Belgrade May 29, 2020

Turkey’s Treasury raised €1.64bn via one-year euro-denominated bonds and lease certificates with a 1.25% semi-annual coupon and $1.35bn from one-year USD-denominated bonds and lease certificates with a 1.75% semi-annual coupon, the country’s finance ministry said on May 27.

In March, the Treasury tapped €1.26bn from local lenders in EUR-denominated paper with a 0.75% semi-annual coupon.

According to the latest available data, the additional FX liquidity of the Turkish banking industry was $16bn ($5.4bn at home and $10.5bn held in foreign bank accounts) as of May 15. The figure stood at $19bn as of May 1 and at more than $20bn in April. The figure declines as the central bank increases the banks’ swap limits and taps lenders via domestic paper.

The lenders actually had $85.3bn of FX liquidity to their names as of May 15 but $54.4bn was already with the central bank and $14.5bn was in government paper.

In addition to the $16bn left at the lenders, the central bank had $49bn worth of gross FX reserves as of May 15, down from $77bn at end-February. The figure rose to $56bn as of May 22 thanks to $10bn-equivalent in Qatari riyal (QAR) provided in an expanded swap line by Gulf ally Qatar. It seems $3bn had evaporated, ceteris paribus. Some $16bn of the $56bn is denominated in QAR and Chinese yuan (CNY).

The central bank also had $37bn of gross gold reserves as of May 22. The national lender has not sold any gold reserves as yet and gold prices are on the rise.

The data on the central bank’s open swap stock is lagged. According to the latest statistics, the figure jumped to $36bn at end-April from $30bn as of end-March. This figure will jump to at least $46-50bn in May.

After the April data was released on May 28, Haluk Burumcekci of Burumcekci Consulting calculated that there was around $11bn worth of inconsistencies on the central bank balance sheet, bringing the total amount to $44bn for January-April and to $77bn from January last year to April 2020. These amounts are thought to have been sold via state lenders to support the embattled Turkish lira (TRY).

More dollar selling took place in May to boost the Turkish currency and offset an outflow of funds, bringing total sales this year to more than $50bn, Reuters quoted unnamed bankers as saying on May 29.

The Treasury is set on June 5 to redeem $2bn worth of eurobonds. They were sold in two parts, in 2005 and 2007, and pay a 7% coupon.

On May 18, the Treasury quietly redeemed €2bn worth of eurobonds, sold in two parts in 2010. They paid a 5.125% coupon.

Together with interest payments, the Treasury repaid $2.74bn in external debt in May. It will repay another $2.42bn in June, according to data from the finance ministry.

From July 2020 to February 2021, the Treasury will repay around $500mn on average per month on external debts. Repayments will total $4.45bn over eight months until March 2021, when $4.5bn will be repaid, including a eurobond redemption.

Away from the Treasury, the only scheduled redemption by a Turkish eurobond seller during the remainder of this year is scheduled for August when Mersin Port will redeem $450mn (already refinanced).

Upcoming eurobond redemptions by major Turkish issuers
Issuer ISIN Coupon Volume (mn) Issuance Maturity Refinanced
Akbank XS1111101314 4.000% $500 Jan 23, 2015 Jan 24, 2020 -
Halkbank XS0882347072 3.875% $750 Feb 5, 2013 Feb 5, 2020 -
Vakifbank XS1175854923 6.950% $500 Feb 2, 2015 Feb 5, 2020 Early, 2025
TSKB XS1219733752 5.125% $350 Apr 22, 2015 Apr 22, 2020 January 16, 2020
Koc Holding US49989AAA79 3.500% $750 Apr 24, 2013 Apr 24, 2020 Mar 5, 2019
Isbank XS1121459074 5.000% $750 Oct 30, 2014 Apr 30, 2020 Jan 16, 2020
Yasar Holding XS1132450427 8.875% $172 Nov 6, 2014 May 6, 2020 -
Sisecam US90016AAA88 4.250% $300 May 9, 2013 May 9, 2020 Mar 20, 2019
Treasury XS0503454166 5.125% €2,000 2010 May 18, 2020 -
Treasury US900123AX87 7.000% $2,000 2005-2007 Jun 5, 2020 -
Mersin Port XS0957598070 5.875% $450 Aug 12, 2013 Aug 12, 2020 Nov 7, 2019
Treasury JP579200AHQ2 1.810% JPY60bn Dec 1, 2017 Dec 7, 2020 -
Eximbank XS1345632811 5.375% $500   Feb 8, 2021 -
Halkbank XS1188073081 4.750% $500   Feb 11, 2021 -
Treasury JP579200ABF8 1.870% JPY180bn Mar 11, 2011 Mar 18, 2021 -
Treasury US900123BH29 5.625% $2,000 2010 Mar 30, 2021 -
Garanti USM8931TAA71 6.250% $500   Apr 20, 2021  
Ziraat XS1223394914 4.750% $500 Apr, 2016 Apr 29, 2021 -
Vakifbank XS1403416222 2.375% €500   May 4, 2021 -
TSKB XS1412393172 4.875% $300 May 18, 2016 May 18, 2021 -
Treasury XS1303467077 4.251% $1,000 Jun 1, 2016 Jun 8, 2021 -
Isbank XS1079527211 5.000% $750 Jun 25, 2014 Jun 25, 2021 -
Halkbank XS1439838548 5.000% $500   Jul 13, 2021 -
Arcelik XS1109959467 3.875% €350   Sep 16, 2021 -
Isbank XS1390320981 5.375% $750   Oct 6, 2021 -
Vakifbank XS1508914691 5.500% $500   Oct 27, 2021 -
Kuveyt Turk XS1505149325 5.136% $500   Nov 2, 2021 -
Treasury XS0993155398 4.350% €1,250 Nov 5, 2013 Nov 12, 2021 -
Global Yatirim XS1132825099 8.125% $250   Nov 14, 2021 -
Treasury XS1816199373 5.800% €2,000 Feb 13, 2019 Feb 21, 2022 -
Yapi Kredi Bank XS1571399754 5.750% $600   Feb 24, 2022 -
Treasury JP579200ACF6 1.470% JPY90bn Mar 8, 2012 Mar 15, 2022 -
Treasury US900123BY51 5.125% €1,000 Oct 17, 2011 Mar 25, 2022 -
Isbank XS1508390090 5.500% $600   Apr 21, 2022 -
Ziraat Bank XS1605397394 5.125% $600   May 3, 2022 -
QNB Finansbank XS1613091500 4.875% $750   May 19, 2022 -
Vakifbank XS1622626379 5.625% $500   May 30, 2022 -
Garanti BBVA USM8931TAF68 5.250% $750   Sep 13, 2022 -
Treasury US900123BZ27 6.250% €2,500 Jul 4, 1905 Sep 26, 2022 -
Akbank USM0375YAK49 5.000% $500   Oct 24, 2022 -
Isbank XS0847042024 6.000% $1,000   Oct 24, 2022 -
Vakifbank XS0849728190 6.000% $672   Nov 1, 2022 -
Anadolu Efes XS0848940523 3.375% $500   Nov 1, 2022 -
Yapi Kredi Bank XS0861979440 5.500% $1,000   Dec 6, 2022 -

The Turkish Treasury sold $2bn of 5-year eurobonds with a 4.25% coupon and $2bn of 10-year paper at 5.45% in February.

In what’s left of 2020, the Treasury has Japanese yen (JPY) 60bn of samurai bonds maturing in December. It could at least seek some refinancing options here. Reuters has frequently reported of late that Turkish officials are in talks with the Japanese and that Japan’s troubled PM Shinzo Abe will be providing some financial support to developing countries, some of which, it is implied, could go to Ankara.

In May, North Macedonia (S&P/BB-/Stable and Fitch/BB+/Negative) sold €700mn of 6-year eurobonds with a 3.657% coupon while Romania (Moody’s/Baa3/Negative, S&P/BBB-/Negative and Fitch/BBB-/Negative) sold €1.3bn of 5-year paper at Mid-Swap+305bp and €2bn 10-year ones at MS+375bp.

 

It was January 2019 when the Turkish Treasury last sold euro-denominated eurobonds. Since then, it has sold USD paper before swapping them to euro cost.

Fitch Ratings rates Turkey at BB-/Stable, three notches below investment grade. Moody’s Rating Services rates Turkey at B1/Negative, four notches below investment grade, while Standard & Poor’s has Turkey at B+/Stable, also four notches below investment grade.

Fitch’s second rating review release for Turkey is expected on August 21. Moody’s reviews are scheduled for June 5 and December 4, while S&P is set to release its last scheduled review for this year on July 24.

“Have EM flows improved in the last few weeks? YES. Has EM issuance helped? CERTAINLY. Are we past the worst? PROBABLY. Are we back to before the #COVID19 shock? NO. EM flows do NOT show mean reversion atm, we are seeing structural breaks in the series,” senior economist Jonathan Fortun of the Institute of International Finance (IIF) wrote on May 14.

“Following record outflows in Q1, there is a capital inflow to the EMs but this time is different from 2009. The capital acts selectively and there is no full-blown return,” Sant Manukyan of Is Invest told local business daily Dunya on May 29.

“Turkey should show that it is able to repay its maturing debt,” Fatih Ozatay, an economy professor, told the daily.

According to the latest data, Turkey was obliged to refinance a total of $151bn in external debt, excluding obligations to foreign branches and affiliates, in the 12 months ahead as of end-March.

“We are not among the first-picked countries… There is some motion in the last few days but we don’t know as yet whether this is static money or hit-and-runners such as hedge funds,” Serhat Gurleyen of IS Invest also told the newspaper.

“Markets have also been closely following politics in the recent period. The snap polls possibility is the most important thing on the political agenda in the market,” Reuters’ Turkish service reported on May 29 in its morning market wrap-up.

During the Turkish afternoon of the same day, Reuters’ English service reported that President Recep Tayyip Erdogan was planning to push through measures with his ultra-nationalist allies that could hamper two new opposition parties set up by former allies when it comes to taking part in any announced early elections.

On May 27, Yapi Kredi Bank said that it has raised an additional $90mn via the accordion feature of a syndicated loan facility, bringing the total amount to $870mn.

 

Major external financing obtained by Turkish borrowers
    Total Renewal Maturity Tranche Cost Tranche Cost
    (mn) Rate (days) 1 1 2 2
May-20 Yayla €25 EBRD          
May-20 Isbank $800 78% 367 $208 Libor+2.25% €539 Euribor+2.00%
May-20 Garanti $699 89% 367 EBRD Libor+2.25% IFC Euribor+2.00%
May-20 Central bank $10,000 Qatar swap        
May-20 Yapi Kredi $100 EBRD 367        
May-20 Yapi Kredi $870 87% 367 $284 Libor+2.25% €535 Euribor+2.00%
May-20 Eximbank $85            
May-20 Eximbank $723 134% 367   Libor+2.50%   Euribor+2.25%
May-20 QNB Finansbank $255   367 $45   €193  
May-20 QNB Finansbank $100 EBRD 2-year        
May-20 QNB Finansbank €25 France 7-year Proparco      
May-20 Izmir Municipality €25 Societe Generale        
May-20 Enerjisa Enerji $125 EBRD     TLREF TRY-denominated  
May-20 Eximbank $100 IsDB          
May-20 Ulker €75 EBRD          
May-20 Denizbank $175 EBRD          
May-20 Netlog €25 EBRD          
Apr-20 Vakifbank $950 86% 367 $312 Libor+2.25% €590 Euribor+2.00%
Apr-20 Health Ministry $100 World Bank 10.5-year   5-year grace    
Apr-20 Ziraat $1,100 77% 367 $415 Libor+2.25% €597 Euribor+2.00%
Apr-20 Vakifbank $325 130% 3-year China ICBC    
Apr-20 Akbank $605 86% 367 $256 Libor+2.25% €316 Euribor+2.00%
Apr-20 Ulker $455 121% 3-year $110   €244 €75

On May 29, Turk Eximbank said that it had increased its syndicated loan facility to $723mn from a previous $678mn via an accordion feature, while it had also signed some other financing contracts, resulting in a total amount of $808mn.

“[From October 2019 to April 2020], approximately 80 percent of maturing syndicated loans was renewed. As for costs, despite the rise in risk premium, there was a Libor-driven decline in total borrowing costs,” the central bank said on May 29 in its latest financial stability report.

 

 

 

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