Turkish companies have a record 307 billion liras ($174 billion) of debt maturing this year just as their domestic borrowing costs rise to the highest in almost three years and HSBC Holdings Plc predicts foreign bank loans will shrink.
Companies from Citigroup Inc.’s Akbank TAS to Yapi & Kredi Bankasi AS must repay an average 56 percent more local and international obligations than in 2011, according to 386 earnings statements on Bloomberg. Lira loan rates climbed to an average 15.7 percent on Feb. 3 from 8.2 percent a year ago after the currency fell the most in emerging markets last year, central bank data show. The cost of overseas loans to Turkish companies jumped to 125 basis points above the London Interbank Offered Rate yesterday from 115 on Sept. 30. The rate for Russian companies is 251 basis points, the data show.
“The cost of borrowing -- for those who can borrow -- has increased in both lira and dollar terms,” Okan Akin, a strategist at Royal Bank of Scotland Group Plc, said in a phone interview from London. Foreign-currency borrowers “will only be able to refinance about 85 percent of debt coming due, meaning there will be a shortfall that will need to be repaid or refinanced in the domestic market at higher rates,” he said.
While central bank Governor Erdem Basci said last month that Turkey is a “sound country” where banks will want to keep providing funding, officials at Fitch Ratings and Moody’s Investors Service said businesses may be vulnerable should policy makers start lifting rates again, particularly smaller companies. Basci decided to provide funding at 5.75 percent in one-week repurchase auctions for banks on Jan. 10, reducing lending rates he varied each day from as high as 12.5 percent.
“The situation is a little bit critical for small and medium-sized companies in 2012,” Cigdem Cerit, an analyst at Fitch Ratings in Istanbul, said in a telephone interview yesterday. “They may still get loans from Turkish banks but the rates are somewhat higher and some companies may need to dip into their own cash.”
Economists including Mert Yildiz at Renaissance Capital in London estimate the unemployment rate, which climbed to 9.1 percent in October from 8.8 percent the previous month, will rise further in 2012 as companies scale back amid higher costs and lower economic growth. The January manufacturing HSBC purchase managers’ index, a snap-shot of business conditions for manufacturers, declined for the third-straight month to 51.7 in December, Markit Economics said on Feb. 1. A reading below 50 indicates a contraction.
Akbank, based in Istanbul, Coca-Cola Icecek AS and Turk Telekomunikasyon AS, the country’s biggest phone company, helped push corporate borrowing to a record last year as the economy grew 9.6 percent in the first nine months, second only to China among the Group of 20 economies.
Now, the International Monetary Fund is predicting the expansion will slow to 0.4 percent this year. Government yields climbed more than in any emerging market in Europe, the Middle East and Africa in the past year, while the lira sank 18 percent against the dollar in 2011, the most among 25 developing-nation currencies tracked by Bloomberg.
Akbank, Turkey’s biggest lender by market value, is in talks with Charlotte, North Carolina-based Bank of America Corp. to refinance a $1.3 billion loan at an annual rate of 145 basis points over interbank rates, a jump from 110 basis points, or 1.1 percentage points, on its current debt, said a person with knowledge of the plan who declined to be named because the terms are private. An official for Akbank declined to comment because the talks are confidential.
Chief Executive Officer Hakan Binbasgil told reporters on Feb. 8 that Akbank, in which Turkey’s Haci Omer Sabanci Holding AS owns a majority and Citigroup a 20 percent stake, plans to increase foreign borrowing this year from $10 billion in 2011.
Yapi & Kredi Bankasi, an Istanbul bank owned by Milan-based UniCredit SpA and Koc Holding AS, Turkey’s biggest group of companies, needs to repay a $1 billion loan by May that has an interest margin at 110 basis points above Libor including fees, data compiled by Bloomberg show. The yield on Yapi & Kredi’s $750 million of 5.1875 percent bonds due in 2015 has risen 273 basis points over U.S. Treasuries to 572 in the past year, according to Bloomberg Bond Trader. Yapi Kredi’s investor relations department didn’t return phone calls and an e-mail requesting comment via its public relations firm Arti Iletisim.
Ankara-based Turk Telekom, the country’s third-biggest listed company by market value after Akbank and Turkiye Garanti Bankasi AS, is due to repay $608 million on a loan charging 375 basis points over Libor in December, according to data compiled by Bloomberg. Turk Telekom is in talks with banks for a $600 million loan to refinance existing debt, a person with direct knowledge of the deal told Bloomberg on condition of anonymity last month because the talks are private. Abdullah Kaya, head of investor relations, declined to comment on the company’s borrowing plans.
Basci said borrowers will have no problems getting funding as confidence in Turkey’s economy is increasing.
“Even if there is a serious problem with European banks, other banks will still extend credit to Turkey because there’s still plenty of cheap financing at about zero percent interest rate in the world,” Basci told executives in the western city of Bursa on Jan. 6. “They’ll come to a sound country, and Turkey is a sound country so there are no issues.''
Yields on two-year government bonds fell 220 basis points this year, more than any other major emerging-market debt tracked by Bloomberg. Yields on bonds tracked by Royal Bank of Scotland Group Plc rose 6 basis points today to 9.28 percent.
The lira, which rose 6.9 percent against the dollar this year, weakened 0.3 percent to 1.7691 per dollar at 6:25 p.m.
The extra yield that investors demand to hold Turkey’s dollar-denominated debt rather than U.S. Treasuries retreated 11 basis points to 355.1 yesterday, according to JPMorgan Chase & Co.’s EMBI Global index.
The cost to protect Turkish debt against non-payment for five years using credit default swaps increased one basis point today to 266, paring their decline this year to 11 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The contracts pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.
Borrowing costs in Turkey surged last year after Basci, who was appointed governor of the Central Bank of the Republic of Turkey on April 15, almost doubled average interest rates to help stem the currency’s tumble and slow inflation. Consumer price increases accelerated to 10.5 percent in January, more than twice the central bank’s medium term goal.
Basci, 45, also raised banks’ reserve requirements to as high as 16 percent of deposits from 8 percent to crimp lending growth by banks to Turkish companies that he said was feeding the record current-account deficit. The gap surged to more than 10 percent of gross domestic product last year as businesses and consumers borrowed to fund purchases of imported goods and machinery. ING Groep NV expects the deficit to fall to $72 billion this year as Turkey’s economic growth eases to 2.5 percent, the bank’s London-based economist Simon Quijano-Evans said in an e-mail.
Domestic corporate loan rates are the highest on average since April 2009, rising a weekly 170 basis points to 15.7 percent on an annual basis in the week to Feb. 3, the latest central bank figures show. They increased to as much as 23.4 percent a year in December 2008, after the collapse of Lehman Brothers Holdings Inc. froze global credit markets.
“European banks will incline toward lowering their exposure more and more, so Turkish banks will have difficulties renewing their syndicated loans that are coming due,” Ahmet Erelcin, managing director for HSBC Holding’s Turkish unit, said at a conference in Istanbul on Feb. 7. “Appetite and availability of loans will be less and less.”
Turkish companies have 70 percent of their debt falling due in two years or less, according to Martin Kohlhase, an analyst at Moody’s Investors Service in Dubai. Annual interest on lira loans may increase to between 17 percent and 20 percent by the end of 2012 as the central bank is expected to lift rates again, he said.
“Many Turkish corporates have a short-term funding profile that leaves them vulnerable should the source of funding disappear,” Kohlhase said.
-- With reporting by Louise Meeson and Patricia Kuo in London and Ercan Ersoy in Istanbul. Editors: Gavin Serkin, Laura Zelenko