Turkey ‘cuts yield at 3-year USD sukuk auction to 5.9%’ on $3.5bn demand

Turkey ‘cuts yield at 3-year USD sukuk auction to 5.9%’ on $3.5bn demand
While selling 3-year sukuk bonds on global markets, Turkish finance minister Berat Albayrak was on February 12 also busy retailing vegetables after launching state stalls to combat high prices. Here he is seen (second left) at a mobile stall in Uskudar, Istanbul.
By Akin Nazli in Belgrade February 13, 2019

The initial price guidance at an international auction to sell Turkish USD-denominated sukuk bonds (Islamic bonds) due February 2020 fell to 5.9% from 6.125% as demand soared to more than $3.5bn, Reuters reported on February 13, citing unnamed banking sources.

On February 12, Turkey’s Ministry of Treasury and Finance—headed by Berat Albayrak who has one eye on issuing debt but another on how the Erdogan administration’s growing network of cheap veg stalls is doing in combatting surging food inflation and retailers and speculators whom officials accuse of subjecting citizens to price-gouging food “terror”—said that it had mandated Citigroup, Kuwait Finance House and Standard Chartered to re-tap international markets with a USD-denominated lease certificate issuance on the global capital markets.

Also on February 12, the ministry said in a statement that it had sold 2-year domestic sukuk worth TRY1.48bn, a figure lower than the previously planned TRY2bn.

The ministry did not specify the cost of the sukuk but it previously set the 6-month lease rate for the issuance at 8.8% in its domestic borrowing plan for the month.

On February 6, the ministry said that it had sold €835mn worth of EUR-denominated lease certificates due February 2021 on the domestic market at a 6-month lease rate of 1.45%.

On January 25, the Treasury said it had raised €1.25bn from a EUR-denominated eurobond due March 2025 with a coupon rate of 4.625% and a yield to the investor of 4.75%. Initial price guidance on Turkey’s new euro-denominated bond yield was set at about 5%, unnamed banking sources told Reuters on January 24.

Eurobond sales of $4bn and €2.75bn
Turkey has tapped international markets to sell a total of $4bn and €2.75bn worth of eurobonds since October. The spread over market rates sharply declined to 446bp over the mid-swaps (MP) in the latest eurobond sale, held in January. However, that was still a fairly high level compared to the 336.8bp seen at the previous auction, held in April last year before the Turkish lira experienced its nosedive.

Turkey has raised $3.4bn from the international capital markets in 2019 to date.

The Erdogan administration 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 international markets in 2017 versus the planned $6bn.

Fitch rates Turkey at BB/Negative together with Guatemala and Vietnam. Moody’s Rating Services rates Turkey at Ba3/Negative together with Bangladesh, Bolivia and Vietnam while Standard & Poor’s rates Turkey at B+/Stable together with Kenya and Greece.

S&P’s next rating review release date for Turkey is February 15 while Fitch has pencilled in May 3 for its release.

Turkey’s 5-year credit default swap (CDS) rose 5% w/w but fell 16% m/m to 303 on February 12. It was up 76% y/y. The Turkish CDS rose to as high as 566 last September 4 from as low as 152 on January 5, 2018.

Further announcements on the international financial markets have shown the government’s attempts to encourage public and private lenders to tap the markets with asset-backed bonds as bearing more fruit.

Also on February 13, state-owned lender Vakifbank said in a bourse filing that it sold an additional TRY1.12bn worth of 8-year mortgage covered bonds abroad.

The public lender said on January 22 in a bourse filing that it had issued TRY396mn worth of 8-year mortgage covered bonds abroad, adding that total international funds obtained simultaneously reached TRY550mn together with the swaps under Treasury transactions.

Vakifbank did not provide any details as to who bought the paper or at what cost.

Turkish Treasury's Eurobond Issues in 2019
Issue Date Currency Size Maturity CouponRate (%) Price
Yield to Investor
Yield to Investor (Spread) Euro Cost (%)
31.01.2019 EUR 1.25bn 31.03.2025 4.625 99.36 4.75 MS + 446 bps  
16.01.2019 USD 2bn 26.04.2029 7.625 99.555 7.68 UST + 497bp 4.965
Turkish Treasury's Eurobond Issues in 2018
17.01.2018 USD 2bn 17.02.2028 5.125 99.411 5.20 UST + 266.7 bp  
24.04.2018 USD 2bn 24.10.2028 6.125 99.427 6.20 UST + 336.8 bp  
23.10.2018 USD 2bn 23.12.2023 7.25 98.917 7.50 UST + 447.5 bp  
14.11.2018 EUR 1.5bn 16.02.2026 5.2 99.73 5.25 MS + 456.4 bp  
Turkish Treasury's Eurobond Issues in 2017
23.01.2017 USD 2bn 25.03.2027 6 99 6.15 UST + 375.7 bp  
23.02.2017 USD 1.25bn 25.03.2027 6 103 5.65 UST + 320.5 bp  
11.05.2017 USD 1.75bn 11.05.2047 5.75 98 5.875 UST + 286.7 bp  
14.06.2017 EUR 1bn 14.06.2025 3.25 99 3.377 MS + 285 bp  
13.09.2017 USD 1.75bn 11.05.2047 5.75 101 5.70 UST + 300.5 bp  
Turkish Treasury's Lease Certificate Issues in International Markets in 2017
06.04.2017 USD 1.25bn 06.04.2023 5 100 5 MS + 285 bp  
Source: Treasury