The worst start to a year for the Turkish loan market since 2009 is starting to ease as one of the nation’s largest syndicated deals signals confidence in an economy at risk from a graft probe embroiling the government.
State Oil Company of Azerbaijan, known as Socar, plans to borrow $3.5 billion with an 18-year loan to build a refinery, Kenan Yavuz, chief executive officer for the company’s Turkish unit, said in an April 22 interview. That’s the biggest deal in Turkey since a $4.75 billion facility for Ojer Telekomunikasyon AS, which owns 55 percent at the country’s largest telephone operator Turk Telekomunikasyon AS (TTKOM), in May 2013 to refinance existing debt.
A recovering loan market may provide a cushion for the economy after corruption allegations against the government weakened the lira and pushed up bond yields. The currency has rallied 12 percent since falling to a record 2.39 per dollar in January, even as it remains 16 percent lower over the past 12 months. The 10-year yield was 9.91 percent today, down 145 basis points from a more than four-year high on March 24.
“Turkey has enjoyed continuous access to the syndicated loan market even in the most difficult year of 2009,” Simon Quijano-Evans, head of emerging-market research at Commerzbank AG in London, said by e-mail from London yesterday. “Any deals of this sort just underline the importance of Turkey as a long-term investment story, which is what lenders are looking for.”
Companies in Turkey have taken $4.9 billion in loans this year, a 32 percent decline from the same period in 2013 and the least since the $2.2 billion raised in 2009, according to data compiled by Bloomberg.
Socar will pay a blended cost of 150 basis points to 300 basis points more than benchmarks for the loan, according to three people familiar with the transaction, who asked not to be identified because the information is private. Blended cost refers to the range of borrowing costs across different tranches of the loan.
That compares with a 285 to 310 basis-point margin paid by Tupras Turkiye Petrol Rafinerileri AS (TUPRS), Turkey’s sole refiner, for a $2.1 billion loan facility in 2011 to upgrade a refinery. Socar got a loan of $625 million with a nine-year maturity in 2008 at a 400 basis-point spread, according to data compiled by Bloomberg.
Most of the package, for which Unicredit Bank Austria AG is acting as financial adviser, will be provided by 15 international lenders with guarantees from export credit agencies, or ECAs, of six countries, Yavuz said.
“This is the largest financing with the longest maturity to be provided for a private industrial investment in Turkey,” Yavuz said. “Interest on the ECA package is very favorable and attractive for us.”
Socar will also borrow $500 million from Denizbank AS (DENIZ), an Istanbul-based lender owned by Russia’s OAO Sberbank (SBER), for the commercial portion of the loan package, Suleyman Qasimov, a Socar vice president for economic affairs, told reporters in Baku April 23. The agreement will be signed May 5, he said.
“The financing of this particular project must also be based on the expectations that Turkey has the strongest population and growth dynamics in Europe,” Commerzbank’s Quijano-Evans said.
Turkish economic growth will accelerate to 3.7 percent next year and 4.3 percent in 2016, according to median economist estimates in Bloomberg surveys. That compares with 1.8 percent and 1.7 percent, respectively, for Europe as a whole. Turkey’s population is almost 82 million, one million more than Germany, according to the Central Intelligence Agency’s World Fact Book.
Six-month implied volatility on the lira was 12 percent today, the fourth highest among 23 emerging-market currencies tracked by Bloomberg and the most in Europe, according to data compiled by Bloomberg. The lira rose 0.2 percent to 2.1323 per dollar at 5:31 p.m. in Istanbul, trimming its loss this week to 0.1 percent.
“Depreciation of the Turkish lira and Turkish lira volatility last year scared off many Turkish companies from international markets, cutting their appetite for borrowing,” Muhammed Demir, a vice president at London-based Maxis Investments Ltd., said by e-mail yesterday. “Given that we have a presidential election coming up in August, this trend by corporates may continue for a little longer.”
Socar is building the $5.5 billion Star refinery on the Aegean coast as it seeks to expand its naphtha output. The refinery, Turkey’s fifth, will process 10 million metric tons of crude a year from 2017, producing 1.3 million tons of naphtha, as well as diesel, jet fuel, liquefied petroleum gas and petro-coke.
The loan “shows confidence in investment in Turkey,” Yarkin Cebeci, an economist at JPMorgan Chase & Co. in Istanbul, said by e-mail yesterday. “Both banks and corporates have no problem in finding finances recently.”