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Southeast Europe
March 1, 2019 www.intellinews.com I Page 16
Trouble down the road? Warnings grow as Turkey sells more FX debt
Akin Nazli in Belgrade
The Turkish Treasury has sold 24.3 tonnes of gold-linked lease certificates and 1.88 tonnes of gold-linked bonds to institutional investors with a 6-month coupon rate of 1%, Turkey’s Treasury and Finance Ministry said on February 25.
The 26.2 tonnes of gold was worth TRY5.24bn ($988mn) at current prices, Fercan Yalinkilic of Bloomberg said on Twitter.
On February 20, the ministry said that it would sell the 2-year gold-linked paper to pension and investment funds.
In December last year, the Treasury revived FX- denominated domestic borrowing instruments targeting both individual investors and legal persons. However, extended book-buildings were not as fruitful as expected.
Since October last year, pension funds and the unemployment fund in Turkey have also been employed to buy borrowing instruments from the Treasury and public lenders.
Ankara has also lately cut its lira borrowings with the aim of supressing interest rates on the domes- tic market amid the substantial liquidity and credit crunch that has followed last summer’s currency crisis, while the Treasury, public lenders and the country’s wealth fund have been pushing for FX borrowings despite expensive costs.
As this year’s early profit transfers from the central bank and other public enterprises were spent as early as January, there is concern over the domestic borrowing costs the Treasury will face in the remainder of the year if favourable global liquidity conditions reverse.
bne IntelliNews has been sounding warnings about the Treasury’s rush into FX debt since last Octo- ber, when Turkey sold 5-year USD-denominated eurobonds at a yield to the investor of 7.5% in its first international debt auction since the currency crash reached its worst stage in August. That on- going move into FX debt is now beginning to catch the attention of global media outlets.
The government’s strategy of heavy borrowing abroad this early in the year risks triggering
a spike in lira bond yields after the municipal elections at the end of March, Faik Oztrak of main opposition Republican People’s Party (CHP) told Bloomberg on February 25.
“The government is pressuring exchange
rates and yields as it borrows heavily in foreign currencies. This will create serious troubles after the vote, when they will have to resort to heavy domestic borrowing. That would send yields higher,” Oztrak added.
Turkey has raised $5.4bn from the international capital markets in 2019 to date. The Erdogan ad- ministration plans to raise the equivalent of $8bn of external funding in 2019 through bond issues on global capital markets. It raised $7.7bn in financing from such markets in 2018, as opposed to its $6.5bn annual target. Turkey raised $9.1bn from interna- tional markets in 2017 versus the planned $6bn.
Fitch Ratings rates Turkey at BB/Negative, two notches below investment grade, together with Guatemala and Vietnam. Moody’s Rating Services rates Turkey at Ba3/Negative, three notches below investment grade, together with Bangladesh, Bo- livia and Vietnam, while Standard & Poor’s rates Turkey at B+/Stable, four notches below invest- ment grade, together with Kenya and Greece.