Turkey’s Koc conglomerate sells $750mn of eurobonds at 6.625%

Turkey’s Koc conglomerate sells $750mn of eurobonds at 6.625%
By Akin Nazli in Belgrade March 6, 2019

Largest Turkish conglomerate Koc Holding has sold $750mn worth of eurobonds due March 2025 at a yield to maturity of 6.625%, its holding company said on March 6 in a stock market filing.

The bonds have a reoffer price of 99.389% and a fixed coupon rate of 6.50% per annum.

Koc Holding’s outstanding eurobond volume rose to $2.25bn from $1.5bn. Koc’s last eurobond issuance took place in March 2016 for the sale of $750mn worth of 7-year bonds due 2023. They bear a coupon rate of 5.25% and a yield to the investor of 5.40%. In April 2013, the conglomerate sold $750mn worth of 7-year eurobonds with a coupon rate of 3.5%.

On February 28, Koc Holding said in a bourse filing that it had mandated BofA Merrill Lynch, Citigroup Global Markets and JP Morgan Securities to arrange a series of investor meetings in Europe and the US, to start from March 1, for a eurobond issue worth up to $1bn.

Koc was seeking to sell 5- or 7-year dollar RegS/144A benchmarks, Global Capital reported on February 28. An unnamed EM investor told the publication that given recent Turkey volatility, he would want to see a much larger premium over the Turkey curve for the longer of those two options.

On March 5, Reuters reported that Koc had launched the bookbuilding and the initial price guidance was at 6.875%-7%.

While market participants told Global Capital on March 5 that the initial price thoughts looked generous, they expected the spread to be tightened aggressively before pricing.

On March 1, Reuters reported Turkish private lender QNB Finansbank had sold $500mn worth of 5.5-year USD eurobonds at a final yield of 6.95%.

Government’s mortgage-backed securities move rolling on
Meanwhile, the Turkish government’s mortgage-backed securities move is rolling on. The Turkish Development Bank’s (TKB’s) second wealth management fund, namely Turkiye Kalkinma ve Yatirim Bankasi A.S. Ikinci Varlik Finansmani Fonu, was targeting local and foreign qualified investors to sell TRY1bn worth of asset-backed paper based on mortgage-backed securities to be issued by Isbank, Akbank and Koc’s subsidiary Yapi Kredi Bank, according to a bourse filing made on March 5 by JCR Eurasia Rating.

In December, the Turkish finance ministry permitted private pension companies to allocate up to 30% of state-contribution funds to investments in asset-backed securities, but only those approved and graded by the Capital Markets Board of Turkey (SPK),

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.

Norway’s Government Pension Fund Global had $48mn worth of Vakifbank securitised bonds in its portfolio as of end-2018, Norges Bank said on February 27.

In December, Turkiye Kalkinma Bankasi completed the issuance of TRY3.15bn (€521mn) worth of asset-backed paper based on mortgage-backed securities to be issued by Ziraat Bankasi, Halkbank and Vakifbank and Garanti Bankasi.

Akbank has received regulatory approval from the Capital Markets Board of Turkey (SPK) to issue up to TRY1.5bn (€247mn) worth of mortgage-backed securities abroad, according to an SPK bulletin released on December 

Koc shares down on day
Koc Holding shares were down 0.32% d/d to TRY18.56 as of 14:30 local time on March 6 while the benchmark BIST-100 was down 0.50% at 104,254. The annual rise on the BIST-100 stood at 14% versus the 8% y/y gain on Koc shares.

Seker Invest’s target price for Koc stands at TRY17.89 in the Istanbul-based brokerage house’s equity strategy for March.

The BIST-100 was floating in the 87,000s on January 3 but rallied into the 104,000s by January 29 on the back of bank shares. Koc was trading in the TRY13s on January 3.

Koc Holding increased its net profit by 13% y/y to TRY5.5bn in 2018 and its revenues by 45% y/y to TRY143bn, the holding company said on February 15 in a bourse filing.

Koc is the only Turkish company that made it on to the Fortune 500 list based on 2017 data while its combined revenues amounted to 7% of Turkey’s GDP, according to an investor presentation on the company’s website.

Koc Holding has the sixth largest weighting, of 6.23%, in the iShares MSCI Turkey ETF.

Moody’s Investors Service has affirmed Koc Holding at Ba2/Negative while Standard & Poor’s has affirmed it at BB-/Stable, the conglomerate said on March 1 in a bourse filingBoth ratings are one notch above Turkey’s sovereign rating.

Meeting in New York
The Financial Times reported on January 20 that 30 investors, including portfolio managers and analysts from Goldman Sachs, Macquarie, and AllianceBernstein, met with executives of Turkey’s Akbank, Koc Holding and Mavi Jeans in New York to discuss the prospect of a Turkish turnaround.

On March 5, Koc’s LPG distribution unit Aygaz said in a stock market filing that it was establishing a 50-50 JV with Bangladesh-based United LPG Ltd.

Aygaz shares were up 2.02% d/d to TRY11.61 as of 15:00 on March 6 while the annual share price loss stood at 13%.

According to a research note on the Turkish energy industry published on February 20, VTB lowered its 12-month target price for Aygaz (Hold) to TRY12.3.

Aygaz’s net profit declined by 60% y/y to TRY228mn in 2018 despite revenue growth of 13% y/y to TRY9.55bn, according to its annual report.

Aygaz has a 0.38% weighting in the iShares MSCI Turkey ETF.

Norway’s Government Pension Fund Global had a 0.99% stake in Aygaz as of end-2018, Norges Bank said on February 27.

On January 15, lender Yapi Kredi said in a bourse filing that its shareholders Koc Holding and UniCredit had each bought $200mn worth of its subordinated bonds.

Yapi Kredi’s bonds pay a 13.875% yield to investors across the first five years. They will be subject to value reduction if the core capital adequacy ratio falls below 5.125%, the statement added.

On January 30, Turkey’s leading appliance maker Arcelik, owned by Koc Holding, said in a bourse filing that its net income rose by 1% y/y to TRY856mn versus revenue growth of 29% y/y to TRY27bn.