Lira Debt Goes Global With German, Russian Sales: Turkey Credit

OAO Sberbank (SBER), Russia’s largest lender, and Germany’s Rentenbank are vying to become the second foreign issuer of lira-denominated debt after the Turkish currency’s volatility fell to the lowest in more than 25 years.

The three-month measure of price swings tumbled to 4.42 percent on Jan. 15, the lowest since 1987, helped by Turkish central bank Governor Erdem Basci’s use of interest rates to control capital flows and defend the lira. Volatility was at 4.7 percent today, down from more than 14 percent at the beginning of 2012. The yield on benchmark two-year lira debt tumbled 52 basis points this year, the third-biggest slide among 18 major emerging markets tracked by Bloomberg.

Sberbank and Landwirtschaftliche Rentenbank’s bond-sale plans come as Basci resists government pressure to sacrifice his inflation goal by lowering interest rates to help Turkey become one of the world’s 10 biggest economies within a decade. The central bank left its benchmark rate unchanged on Feb. 19 and in an accompanying statement focused on the need to slow lending, stem capital inflows and preserve financial stability.

“Issuing lira debt was something inconceivable a few years ago,” Ugursel Onder, an Istanbul-based fixed-income analyst at Is Investment Securities, Turkey’s largest broker by trading volume, said yesterday by phone. “This trend shows how investor confidence in the currency has gone up.”

Russian Lenders

VTB Group, Russia’s second-largest bank, sold its second lira bond this month, issuing 300 million liras ($167.6 million) of two-year debt. Sberbank is meeting investors in London this week to sell bonds in the currency, a person with knowledge of the plans, who asked not to be identified because details are private, said Feb. 19. Rentenbank sold 125 million liras of five-year local-currency bonds at a yield of 5.73 percent, according to a person with knowledge of the deal.

“Emergence of local-currency corporate-debt markets is increasing,” Sergey Dergachev, a senior portfolio manager at Union Investment Privatfonds in Frankfurt, said by e-mail yesterday. “Banks like Sberbank may want to diversify their currency funding mix further, especially if they expect the lira to be stable this year.”.

The Turkish lira will end the year little changed at 1.78 to the dollar, according to the median estimate of 22 economists in a Bloomberg survey. The currency traded down 0.6 percent at 1.7934 at 4:40 p.m. today in Istanbul, losing 0.5 percent so far this year.

Lira Assets

Sberbank, controlled by the Russian government, bought Istanbul-based Denizbank AS from Belgium’s Dexia SA (DEXB) last year for $3.53 billion. It will be cheaper for Sberbank, with its higher credit rating, to get funding and pass it to Denizbank for general corporate purposes, according to Dergachev.

“Sberbank may also be doing this sale because it wants to fund the lira-denominated assets of its Turkish unit Denizbank,” Alexander Sklemin, deputy head of credit research at Raiffeisen Bank International AG in Vienna, said in a phone interview yesterday.

The Russian lender is rated Baa1 by Moody’s Investors Service, two steps above Denizbank. It’s ranked BBB by Fitch Ratings, one step higher than Denizbank.

Foreign Investors

Akbank TAS (AKBNK), the Turkish lender part-owned by Citigroup Inc. (C), sold 1 billion liras of five-year lira debt on Jan. 30 at 7.5 percent to investors in the U.S., Europe and Asia, with demand three times the amount offered, it said in an e-mailed statement. The bond traded at 7.2 percent today, yielding 111 basis points more than Turkish debt maturing in March 2017.

“Sberbank seems to be following the successful placement of Akbank’s lira bonds,” Dergachev said.

Turkey’s five-year credit-default swaps climbed three basis points to 138 today, compared with 147 for Russia and 170 for South Africa. The contracts pay the buyer face value in exchange for the underlying securities or cash if a borrower fails to adhere to its debt agreements.

The extra yield investors demand to own Turkish debt rather than U.S. Treasuries rose nine basis points, or 0.09 percentage point, to 203 today, compared with the emerging-market average of 275, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index.

Sberbank’s bond sales may encourage other Turkish banks with better-rated foreign parents to sell lira debt, including ING Turkey or Turkiye Garanti Bankasi AS (GARAN), part-owned by Spain’s Banco Bilbao Vizcaya Argenta SA (BBVA), according to Is Investment’s Onder.

“This could well mark the start of a new trend” of companies in one emerging market selling debt denominated in the currency of another, Dergachev said. “It offers good diversification.”

To contact the reporter on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net; Claudia Maedler at cmaedler@bloomberg.net

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