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Record Company Bond Sales Looming as Costs Drop: Turkey Credit

Turkish companies from Sabiha Gokcen International Airport to Alarko Holding AS are poised to issue a record amount of international bonds next year after costs dropped and the country earned an investment-grade rating.

Non-financial companies sold $3.1 billion of debt on overseas and local markets in 2012, more than 10 times the $270 million in 2011, according to data compiled by Bloomberg. Of the total bond sales, $1.2 billion were conducted by two Turkish non-financial companies in international markets. The average dollar-bond yield dropped to 3.6 percent last week from almost twice that in January, bringing it 100 basis points below the emerging-market average, according to JPMorgan Chase & Co. indexes that include yields on bank bonds.

Foreign issuance by Turkish companies will grow further in 2013 as demand remains robust amid speculation the country may win a second upgrade to investment-grade status, said Derin Altan, a debt finance director at Unlu & Co., an Istanbul-based investment bank. Beermaker Anadolu Efes Biracilik & Malt Sanayii AS sold Turkey’s first non-junk corporate bonds in October, before Fitch Ratings increased the sovereign’s rating one level to BBB- on Nov. 5, citing an easing in economic risk and lower government borrowing.

“More Turkish companies are expected to sell Eurobonds with the anticipation of a second rating upgrade in the first half,” Altan said in an interview on Dec. 27. “About $2 billion to $3 billion of non-bank Turkish Eurobond sales are possible in 2013.”

Airport Bonds

Moody’s Investors Service rates Turkey’s foreign debt one level below investment grade at Ba1, while Standard and Poor’s puts it two steps below at BB.

Sabiha Gokcen International Airport in Istanbul won regulatory approval last month to sell as much as 500 million euros ($664 million) of bonds, according to a statement on the Capital Markets Board’s website. The company is owned by GMR Infrastructure Ltd., Limak Holding AS and Malaysia Airports Holding Bhd.

Alarko Holding, an Istanbul-based company with interests in construction and energy, will be among those looking to sell debt next year, according to Chief Executive Officer Ayhan Yavrucu.

“Rates have fallen so much, many corporates in Turkey will be considering bond sales as a faster and increasingly cheaper alternative of finding finance,” Yavrucu said in an interview in Istanbul Dec. 19. “We should be considering too.”

Tupras Debt

Efes raised $500 million of the total $1.2 billion in dollar bonds sold by Turkish companies this year. The same month, oil refiner Tupras Turkiye Petrol Rafinerileri AS borrowed $700 million in a debut offering of bonds due in May 2018.

The premium investors demand to hold Turkey’s dollar debt over U.S. Treasuries has fallen by 205 basis points, or 2.05 percentage points, this year to 182, according to JPMorgan Chase & Co.’s EMBI Global Index. Turkey’s premium is 89 basis points below the average for emerging markets.

Five-year credit-default swaps on Turkey fell four basis points to 124. That compares with 129 for Russia, 82 for Poland and 141 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.

Declining Yields

Yields on benchmark two-year lira bonds have dropped 483 basis points this year to 6.18 percent at 5 p.m. in Istanbul today, the best performance among 20 major emerging markets, according to data compiled by Bloomberg. The lira strengthened 0.2 percent to 1.7863 per dollar, bringing this year’s gain to 5.9 percent.

Turkey’s susceptibility to risk is high due to the size of the country’s external imbalances, and geo-political tensions remain a concern, “as they could increase international investors’ risk aversion and make it more difficult to finance the current-account deficit,” Moody’s said Nov. 20 in an annual credit report.

“A material deterioration in the government’s public-finance metrics would also result in downward movement in the outlook or, in extremes, in the rating itself,” it said.

Turkey’s $11.2 billion sale of state assets this month, including operational rights for toll roads, bridges, electricity grids and a power plant, will also need financing partly through bonds, according to Altan at Unlu & Co.

Asset Sale

A group comprising Koc Holding AS, Turkey’s biggest group of companies, Istanbul-based private equity firm Gozde Girisim Sermayesi Yatirim Ortakligi AS and Malaysia’s UEM Group Bhd bid $5.7 billion for the rights to operate bridges and roadways in an auction in Ankara Dec. 17.

Celikler Taahhut Insaat & Sanayi AS, an Ankara-based builder and miner, bid $2.25 billion to buy the 600 megawatt Seyitomer power plant and operate the coal mine that feeds it on Dec. 28.

Turkey also sold power grids in Istanbul and Izmir for $3.2 billion. The deals may let the nation meet state-asset sale goals for the first time in four years in 2013, further narrowing the budget gap, Finance Minister Mehmet Simsek said in an interview with CNBC-e television on Dec. 20. Altan estimates the road development may require about $1 billion in financing through bond markets.

“We would expect primary issuance to continue with the corporates in 2013, taking full advantage of pricing for an investment-grade bond,” London-based UBS AG analysts Kathleen Middlemiss and Tatiana Boroditskaya wrote in an e-mailed research note Dec. 12.

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