Turkey’s Garanti bank, 49.85%-owned by Spanish banking and financial services giant BBVA, has launched a eurobond buyback programme worth up to $350mn, according to a stock exchange filing.

The lender will buy back up to $100mn worth of London Stock Exchange-listed papers due 2021 (6.25% coupon, ISIN: USM8931TAA71 and US900148AA51, outstanding amount: $500mn), up to $150mn worth of London-listed papers due 2022 (5.25% coupon, ISIN: USM8931TAF68 and US900148AD90, outstanding amount: $750mn), and up to $100mn worth of Irish Stock Exchange-listed papers due 2023 (5.875% coupon, ISIN: XS1576037284 and US90014QAB32, outstanding amount: $500mn).

Fitch Ratings rates the Turkish bank, known as Garanti BBVA, at B+/Stable, four notches below investment grade, while Moody’s Investors Service sees the lender at B3/Negative, six notches below investment grade.

“Market participants have dismissed the viability of Turkey extending its swap line arrangements with the US Federal Reserve this week, to enhance the country's access to dollars. They also noted that little has happened to change their bearish outlook on the sovereign,” Global Capital reported on April 20 in a story entitled “Turkish swap line ambitions met with skepticism”.

Also visible in the currency market is the fact that the Turkish government’s efforts to deploy external financing rumours on possible IMF and Fed agreements as a monetary policy tool are not working.

On April 21, “a senior official” told Reuters that Turkey has delayed the activation of its Russian S-400 missiles, acquired despite the indignation of the US Congress and Nato. When it comes to keeping a grip on the sinking Turkish lira (TRY), it seems that any speculation that will assuage the market will do.

“Rockets on, rockets off”

So, with the Turkish policy set hinged (unhinged?) on perennial external financing and “rockets on, rockets off” rumours, the USD/TRY rate on April 21 spent the day testing the 7.00 borderline, with some players convinced blood will start to curdle once the threshold is crossed. At one point, it reached a tantalising 6.9967.

On April 22, sorely tested investors will turn their attention to a central bank rate-setters’ meeting. The markets expect a 50bp cut.

Turkey goes on spending its already perilously low FX reserves amid the “COVID-19 sudden stop” in capital flows to emerging markets. That makes the lira open to speculative trading opportunities.

The cost of buying protection in hedging against swings in the lira for the next three months is now more than 11bp above the currency’s historical volatility, near the widest premium in data spanning over two decades, Bloomberg reported on April 21.

Turkey’s gross FX reserves fell by more than $20bn from February to around $55bn as of April 10, according to lagged official data from the central bank.

State banks on April 15 sold $1-1.5bn and on April 21 around $400mn to help prop up the lira, according to Bloomberg.

State lenders remain active on the USD/TRY market 24 hours a day on all trading days with their traders ready to respond to any lira weakness—it explains movements such as the lira insistently approaching the 7.00 level against the USD, but never quite getting there. Slowly, but surely, however, the interventions will run out of firepower.

Reports citing analysts’ notes suggesting the “TRY is the new ZAR” started circulating last week, inviting currency speculators to step on board.

Vestel shifts debt

On April 17, Standard & Poor’s said that it had upgraded Turkish household appliances maker Vestel Elektronik to CCC-/Negative, default imminent with little prospect for recovery, after downgrading the company to Selective Default earlier in the month.

Vestel has shifted a significant portion of debt maturing in Q2 2020 to Q3, which S&P thinks has slightly improved its debt maturity profile.

The transaction will ease liquidity pressure in Q2, but S&P still foresees insufficient current liquidity to avoid a default in Q3 because of the significant amount of debt maturing and its expectation of cash burn caused by COVID-19 disruptions.

The negative outlook reflects S&P’s view that Vestel could default in the next six months.

Also on April 17, TF Varlik Kiralama said in a stock exchange filing that it has cancelled plans to issue Malaysian ringgit (MYR) 3bn (€629mn) worth of sukuks in Malaysia, without providing any specific reason.

TF is a unit of Islamic lender Turkiye Finans. It in turn is majority-owned by Saudi Arabia’s National Commercial Bank. TF has been a frequent sukuk issuer on the domestic market and has also tapped investors in Malaysia via ringgit-denominated deals.