Oil Proves Unlikely Boon to Turkish Banks That Wrote Off 2016

  • Lenders' bond sales went from zero to $1.75b in market bounce
  • Neuberger says Fed, ECB policy to help support bond sales

When one of Turkey’s biggest banks predicted in January the country’s lenders may not sell a single Eurobond in 2016, few could have foreseen that an oil rally would help drive a surge in issuance.

Benchmark-sized international bond sales by Turkish banks have climbed to $1.75 billion since Garanti Bankasi AS Chief Executive Officer Fuat Erbil made the prediction on Jan. 21. Brent crude sank to a 12-year low a day before he spoke, triggering an indiscriminate selloff that hammered Turkish assets even though the nation imports more than 90 percent of its fuel.

Oil’s almost 40 percent rebound since then contributed to a recovery in risk appetite that swept up Turkish markets, paving the way for lenders including Garanti’s competitor Isbank to tap global debt markets. The bank, formally known as Turkiye Is Bankasi AS, received bids amounting to about four times the $750 million it raised last week. Total corporate issuance of $2.5 billion from the country already matches last year’s total.

"Turkish banks are seeing a decent window to come to the Eurobond market following a return to improved risk appetite for emerging markets following a sustained selloff last year, in concert with the rise in oil since mid-February," said John Bates, the head of emerging-market corporate research at PineBridge Investments Europe Ltd. in London, which has $84.5 billion in assets under management. More lenders are likely to follow in the coming months, he said.

Foreign Inflows

While the price on Garanti’s Eurobonds due in September 2022 has risen about 4.2 cents on the dollar since its January low, Erbil said on Friday there was "no change" in his plan to stay out of the bond market this year "unless we see a dramatic change in conditions." In January, he said a limited pipeline of infrastructure projects this year would curb the need to raise cash from bond sales.

Turkey’s 10-year sovereign yields are still up the most in the developing world in the past 12 months after domestic political turmoil and a worsening security situation sent investors fleeing. Net outflows from the nation’s assets exceeded $6 billion in 2015, according to Bloomberg calculations from central bank data.

A broad bounce in emerging markets this year has shifted attitudes toward the country, with foreigners buying a net $2.7 billion of Turkish assets in the first quarter, the largest inflow for any start of the year since 2011, the data show.

‘Opportunistic’ Sales

Isbank seized on the supportive market conditions after a volatile year in Turkish politics, where two elections "made it difficult for Turkish banks to go out to market," Deputy CEO Yilmaz Erturk said in response to e-mailed questions.

Favorable conditions for issuance will probably continue due to the expansion of European Central Bank stimulus, the Federal Reserve’s more dovish stance and easing concerns for a hard landing in China, according to Nish Popat, a money manager for Neuberger Berman Group LLC in the Hague.

Even locally, policy makers reduced one of Turkey’s key interest rates last month for the first time in more than a year. Yields on Isbank’s $400 million bond due in December 2023 fell 17 basis points in March to 7.42 percent and was 7.42 percent by 3:48 p.m. in Istanbul.

"Turkish banks have always been opportunistic in coming to the market when there is strong momentum," Popat said.

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