Large firms to lead Turkish bond market

LONDON

Political conditions deter investors from putting money in local banks. REUTERS photo

Turkey’s new international bond issuance for the rest of this year will be dominated by corporates with strong credit profiles.

After ports operator Mersin re-opened the market in early August following months of social unrest and global market instability, blue-chip issuers Coca Cola Icecek and Turk Telekom are the two big mandates in the country’s international deal pipeline, which is otherwise expected to be thin compared to the first half of the year.

Financial institutions are likely to be less active than usual, said market participants, although Akbank, Yapı Kredi and Ziraat Bank are known to have hired banks for potential deals.

“Investors will remain less inclined to put money to work in the Turkish banks as long as the unrest continues, while corporates with solid credit metrics and international revenue streams are likely to be the first to attract buyers into their bonds,” said John Bates, emerging markets corporate analyst at PineBridge Investments.

Turkey’s tepid economic growth outlook, combined with efforts by the country’s central bank to cool down credit growth by hiking reserve requirements, means that banks are unlikely to grow their assets too quickly, resulting in modest financing needs.

Indeed, Vakıfbank and Garanti Bank have raised funds through private placements in recent weeks at a time when public issuance has proven too difficult given the political backdrop and general market uncertainty.

Emerging market trend

Outside of the big corporates and financial institutions, real estate developer Ağaoğlu said it is considering issuing a debut international sukuk over the coming months.

Increased political uncertainty in Turkey following widespread social unrest and the prospect of rising rates globally have caused international Turkish bonds to underperform since mid-May, bringing primary market activity in the country to a virtual halt. Even the stronger credits sold off by 10 to 15 percent from their highs, compared with a roughly 6 percent slide in JP Morgan’s corporate emerging markets bonds index.

Mersin became the first Turkish issuer to print a transaction of near-benchmark size since the sell-off, by bringing to market a $450 million, 5.875 percent seven-year eurobond, priced at a yield of 5.95 percent.