Erdogan Taps Samurai in Record Borrowing: Turkey Credit
Turkey's Prime Minister Recep Tayyip Erdogan
Michele Tantussi/Bloomberg
Turkey's Prime Minister Recep Tayyip Erdogan.
Turkey's Prime Minister Recep Tayyip Erdogan. Photographer: Michele Tantussi/Bloomberg
(Corrects yield on previous yen bond in second paragraph in story dated yesterday.)
Having borrowed a record $2.5 billion in U.S. currency, Turkey is now aiming to raise funds in yen as Prime Minister Recep Tayyip Erdogan’s government takes advantage of resurgent demand for its debt.
The Treasury plans to sell $1 billion of so-called Samurai bonds as soon as March 8, said a person with knowledge of the issue who declined to be identified. It last tapped Japan’s market in March 2011, selling 180 billion yen ($2.3 billion) of 10-year bonds at a yield 187 basis points, or 1.87 percentage point, which was equivalent to 48 basis points more than the benchmark yen swap rate. Since then, the spread has climbed to a peak of 263 basis points in January before dropping to 235 basis points, or 2.35 percentage points, today, according to data compiled by Bloomberg for the privately placed securities.
“We’ve been waiting for Turkey’s offering,” Toshiaki Takahashi, who manages 350 billion yen at Meiji Yasuda Life Insurance, said in a phone interview from Tokyo on Feb. 21. While the credit crisis in Europe means Turkey will need to pay more because 42 percent of its exports go to the European Union, the sale will be “positive,” he said.
Turkey’s international bonds are rallying this year on confidence the world’s second-fastest growing major economy behind China last year will keep expanding after cuts in interest rates reversed a policy of monetary tightening. Rate increases in the third quarter had led Goldman Sachs Group Inc. (GS) and Bank of America Merrill Lynch to warn of a possible recession as Turkish bonds and the lira tumbled.
Yields Slide
The yield on Turkey’s (JPSYGTR) bonds denominated in dollars fell by an average 77 basis points since Jan. 9 to 5.41 percent on Feb. 21, the biggest decline since November 2010, JPMorgan Chase & Co.’s EMBI Global index shows. Emerging-market yields fell 47 basis points in the same period as improved U.S. economic indicators and loans from the European Central Bank to prevent bank failures in the euro region boosted investor demand for higher yielding, riskier assets.
Central bank Governor Erdem Basci, 45, who adopted a discretionary policy in October of using more than one rate in an attempt to control inflation without slowing the economy, helped restore investor confidence by resuming lending at the lower rate of 5.75 percent Jan. 6 and cutting the maximum level to 11.5 percent from 12.5 percent Feb. 21.
Goldman Sachs boosted its forecast for 2012 economic growth to 2.5 percent from 0.8 percent on Feb. 10, citing an improving world economy and unlimited three-year loans to banks by the European Central Bank.
Second to China
Erdogan, 57, is forecasting Turkey’s economy, the eighth biggest in Europe at $735 billion, will grow at least 4 percent this year. Gross domestic product expanded by 9.6 percent in the first nine months of 2011, second only to China among the Group of 20 nations.
“Risk appetite is on the rise, Asia is recovering and investors are on a buying spree,” Suha Yaygin, deputy chief of emerging markets trading at Toronto-Dominion Bank in London, said in e-mailed comments. “The Japanese are looking for emerging-market assets.”
The cost of protecting Turkish bonds against default using five-year credit-default swaps was little changed at 247 basis points yesterday, compared with a spread of 203 for Russia, which is rated three levels higher by Standard & Poor’s, and 210 for Poland, rated five levels higher, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately-negotiated market.
Turkish contracts cost 27 basis points less than the average for countries in central and eastern Europe, the Middle East and Africa included in the Markit iTraxx SovX CEEMEA Index. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Bond Returns
Moody’s Investors Service rates Turkey Ba2, two steps below investment grade, with a “positive” outlook. S&P also rates Turkey at two levels below investment grade at BB.
Turkey’s local currency government bonds have returned 13 percent in dollar terms so far this year, more than any other emerging-market debt, according to the JPMorgan’s GBI-EM Index. Yields on two-year benchmark bonds in liras rose five basis points, or 0.05 percentage point, to 9.05 today, closing at the highest level since Feb. 20. The lira declined 0.2 percent to 1.7625 per dollar, depreciating for a third day.
Daiwa, Nomura
Turkey’s existing Samurai bonds are 95 percent guaranteed by the Japan Bank for International Cooperation. The JBIC will also guarantee Turkey’s next samurai issue, the Treasury said in a statement on its website Feb. 20. The government said Feb. 20 it hired Daiwa Securities Capital Markets Co. Ltd., Nomura Securities Co. (NCLJ) Ltd. and SMBC Nikko Securities Inc. to prepare the sale. The bonds may be priced March 8, said a person with knowledge of the matter who declined to be identified because the information is private.
The sales are part of a foreign borrowing program to raise 9.5 billion liras ($5.4 billion) this year to help finance a budget deficit equal to 1.5 percent of GDP and a current-account deficit that hit $77 billion in 2011, the highest in the 34- nation Organization for Economic Cooperation and Development after the U.S. and Italy.
Turkey needs to repay $3.4 billion in capital and interest on external debt in the first quarter out of a total $10.5 billion for the whole year, according the Treasury’s debt- management report published last month.
The government sold $1 billion of dollar bonds due 2022 at a yield of 5.75 percent on Feb. 8, three weeks after issuing $1.5 billion of the same debt at 6.35 percent, data compiled by Bloomberg show. The yield has since fallen to 5.3 percent.
Other Clients
Turkey plans to issue Islamic bonds, or sukuk, this year after completing the necessary legislation, Deputy Prime Minister Ali Babacan said at a capital markets conference in Istanbul Jan. 31.
The government is “exploring another pocket of clients, a pocket of demand,” said Luis Costa, an emerging-markets strategist at Citigroup Inc. in London. “The message they got from the market for this last dollar deal was not super rosy.”
Turkey, whose next yen-denominated issue matures in 2021, will probably swap the yen it borrows into dollars, Citigroup’s Costa said by phone on Feb. 20.
While the yield on the existing Samurai bond has tripled to about 3.18 percent from a low of 1.1 percent on Sept. 5, the rate is lower than the 4.97 percent for Turkey’s dollar bonds due the same year and 5.36 percent for euro debt maturing in 2020, data compiled by Bloomberg show.
“It is definitely cheaper for them to issue in yen given the European uncertainties and lesser appetite of investors for emerging-market local bonds,” Guillaume Tresca, emerging market strategist at Credit Agricole in Paris, said in e-mailed comments.
To contact the reporter on this story: Jason Webb in London at jwebb25@bloomberg.net; Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net.
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net
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