Page 12 - TURKRptDec19

2.7​ ​INSIGHT: EBRD encourages investors ‘in’ with eurobond buy while market anomalies say stay ‘out’
The European Bank of Reconstruction and Development (EBRD) has bought $90mn worth of 5-year eurobonds in a $600mn auction held by Turkey’s Mersin International Port (MIP) with the objective of “helping to attract a host of investors, despite a challenging market environment in Turkey”, the development bank said on November 15.
It’s a world of opinions of course, but there’s a solid case to be made that anyone attracting investors into the country right now should actually be warning that behind-the-official-shop-window potential economic, political and social collapses are under way and more than fingers may eventually be burnt.
Less-than-logical reactions have been seen on the Turkish eurobond and credit default swap (CDS) markets to ‘Erdoganomics’. Since September, Turkey’s CDS rates have fallen by 100 bp while its eurobonds have gained across the curve along with falling official inflation and a Turkish lira that has been strengthening with ‘He that shall be obeyed’ directing monetary policy to sharply cut interest rates and fuel the supply of lira via government banks. Even the Syria offensive eventuated in just a temporary effect on the CDS rates and the spread over US Treasury paper fell sharply to 407 bp in the Turkish Treasury’s 5-year eurobond auction held on November 14 from the 470 bp seen at the previous sale held in July.
On November 16, Kerim Rota, a former Turkish banker, clearly just trying to be helpful given some pro-regime rumbling lately set off by indiscretions, explained in his column for Para Analiz possible methods for manipulating the CDS market.
“The continued financing of existing investments is crucial for [MIP’s] ability to run operations smoothly and pursue further growth,” the EBRD noted in its press release. As well it might.
European impertinence​. The EBRD has invested a total of €11.5bn in Turkey since 2009, while strongman president Recep Tayyip Erdogan has built his regime apace, throwing angry rhetoric at European impertinence in questioning his democratic and human rights credentials (and, of late, his market economy credentials) all the while.
Islamic State eurobond way to go? ​Given that Trump’s “favourite dictator”, namely Egyptian coup leader Abdel Fattah el-Sisi, recognised as the president of his country by the “civilised” world with hardly a pause for reflection, sold $2bn worth of paper, “investors [who] are not throwing cash at everything” might perhaps demur should Islamic State’s new leader decide a eurobond is the way to go.
Meanwhile, Robin Brooks of the Institute of International Finance (IIF) was in one of his “favorite places on the planet—Turkey”​. He talked about growth momentum, the latest credit expansion and what all this means for Turkish Lira and his $/TRY fair value of 5.50.
Brooks often gets the nod of approval from the Turkish government and the Erdogan media thanks to his Teflon-fair-value for the USD/TRY rate but his advices are headed straight for the trash can, of that you can be sure—Dilek Gungor, the latest top gunswinger in Erdogan’s Pelican gang, warned on November 16 in her column for daily Sabah, which happens to be directed by finance minister and Erdogan son-in-law Berat Albayrak’s brother, that private lenders were stalling on the government’s “advice” (and officials expect the dutiful to know that this is trash-can-proof “advice”) to boost lending.
12​ TURKEY Country Report​ December 2019 ​ ​www.intellinews.com