Beermaker’s Bonds Signal Erdogan Uncompromising: Turkey Credit

Bondholders in Turkey’s biggest brewer are signaling that protesters who’ve taken over Istanbul’s Taksim Square face disappointment as Prime Minister Recep Tayyip Erdogan indicated he won’t cede to their demands.

The November 2022 dollar-denominated bonds of Anadolu Efes Biracilik Malt Sanayii AS slid to a record 87.5 cents today, with the yield rising above 5 percent from 3.5 percent a month ago, as investors waited for Turkey’s president to approve or veto a law restricting alcohol sales. The yield was more than 200 basis points higher than similarly-rated securities from Denver, Colorado-based Molson Coors Brewing Co.

Erdogan accused the demonstrators at a press conference in Tunis yesterday of violating laws and damaging state property, while the protesters list his increasingly autocratic style and disdain for a secular lifestyle among their concerns. The alcohol law passed by parliament last month includes a ban on the promotion of liquor. President Abdullah Gul has until June 12 to rule on the measures.

The draft legislation on alcohol “has prompted a drastic back-up in Efes bond yields,” Julian Rimmer, a trader at CF Global Trading UK Ltd. in London, who covers Turkey and Russia, said by e-mail yesterday. “Suggestions that Gul may veto or modify the bill arrested the fall in price, but as opposing ideologies clash and opinions polarize, there seems little prospect for an improvement” for Efes bondholders, he said.

Ottoman Barracks

Yields on Turkey’s two-year benchmark notes rose 46 basis points yesterday before paring increases with a 17 basis-point decline to 6.61 percent at 1:05 p.m. in Istanbul today. The lira gained 0.3 percent to 1.8869 per dollar.

Hundreds of thousands of Turks have poured onto the streets since police initiated a crackdown on protesters occupying Gezi Park, an Istanbul green space, to protest its conversion into an Ottoman Barracks and possibly a shopping mall under a government redevelopment project. The protests have so far led to three deaths and wounded about 4,000 people nationwide, the Taksim Platform, a group representing the protesters, said yesterday.

Gul has asked advisers to examine the “social perception” of the alcohol measures as well as legal and constitutional aspects, Radikal newspaper reported yesterday. Gul has adopted a more conciliatory tone than the prime minister, who said at the press conference that “the state can’t be managed through bargaining.”

Bus Barricades

Taksim has been turned into a police-free zone, blocked off by a series of barricades that include city buses and official vehicles overturned and burned by the protesters. Occupants of the park shared beers and chanted for Erdogan’s resignation. Walls have been newly coated with graffiti reading “Serefe Tayyip,” or “Cheers, Tayyip.”

“The patience of the people has run out following a series of restrictions by the government from the sale of alcohol to the celebration of national days that are part of the secular tradition’s identity,” Mustafa Hilmi Oral, a medical worker, said at a rally near Taksim Square on the night of June 1. “Opposition to the government has brought these people here.”

The yield on Anadolu Efes’s bonds has increased 168 basis points since May 9, compared with a 122 basis-point increase in Turkish electronics producer Arcelik AS’s 2023 bonds and a 130 basis-point climb in lender Turkiye Garanti Bankasi AS’s 2022 bonds.

‘Combative Tone’

Erdogan’s “combative tone” and refusal to compromise may undermine lira-denominated assets further, Inan Demir, chief economist for Finansbank AS in Istanbul, said by e-mail yesterday.

The alcohol law passed by Parliament bans the promotion of liquor, restricts drinking scenes on television, outlaws sales near houses of worship or schools and ends retail sales at night, among other measures.

The lira is down 0.6 percent this week, the Istanbul stock market has dropped 10 percent and benchmark two-year government bond yields are up 54 basis points, or 0.54 percentage point.

The cost to protect against losses in Turkish debt using credit-default swaps rose 40 basis points this week to 172, heading for the biggest increase since September 2011 and climbing 15 basis points above Brazil’s. The swaps pay off should a government renege on its debt obligations, with a higher value representing greater perceived risk of default.

“I am not sensing from the administration much willingness to pull the new legislation, as it seems to have strong backing” from deputies of Erdogan’s Justice and Development Party, or AKP, Tim Ash, chief emerging-markets economist for Standard Bank Group Ltd. in London, said by e-mail yesterday. “Even if Gul vetoes the bill, it is likely to be re-submitted.”