By Sarka Halas
Banks in Turkey are spearheading bond issuance in the
international markets this week, with a trio of banks testing the
waters ahead of the first-ever Turkish investment-grade corporate
bond, spurred on by expectations that the government's rating may
be upgraded to investment grade before the end of the year.
Turkish issuance in the international bond markets is at its
highest level so far this year at $10 billion for 2012, more than
three times the $3.3 billion issued in 2011, according to data
provider Dealogic. Turkey makes up 8% of all debt issued from the
countries in Central and Eastern Europe, the Middle East and
Africa, and total international bond issuance from companies in
this region is at a record $126.8 billion so far in 2012, a rise of
53% from last year.
In part, Turkey is riding on this broader wave of positive
sentiment towards the region's emerging markets as a whole.
"The volumes of debt issuance by emerging markets is on course
to break all records this year," said Stefan Weiler, head of debt
capital markets for Central & Eastern Europe and Africa at JP
Morgan Chase and Co.
"For the first time in Europe, there is more bond than loan
issuance. Bonds have increased in popularity - issuers can get a
longer tenor while diversifying their funding sources at the same
time," Mr. Weiler said.
But Turkey is set to break new ground, with a flurry of new bank
bonds this week acting as a litmus test for what's set to be the
country's first ever investment-grade corporate bond.
Investment-grade-rated Turkish lender Akbank T.A.S. (AKBNK.IS)
Wednesday sold $1 billion of debt, in a deal that saw the order
book reach more than $9 billion.
Turkiye Is Bankasi AS (ISCTR.IS), the country's largest bank by
assets, launched a dollar benchmark 10-year bond this week. Turkiye
Is Bankasi is rated just one notch above junk status, but it still
managed to use higher yields to lure investors into so-called
Tier-2 debt, which leaves investors taking the pain of any default
ahead of other types of bondholders.
The trio of bank bond issuers is rounded off by Turkiye Vakiflar
Bankasi (VAKBN.IS), which is also looking to sell subordinated
debt. This deal will be the real test of investor appetite--the
bank is rated Ba2 by Moody's Investors Service and BB by Standard
and Poor's Corp.--a couple of notches below investment grade.
Vakiflar Bankasi's investor meetings start Oct. 18.
These banks are in the bond market ahead of the first
investment-grade Turkish corporate issuer in the international
markets. Brewer Anadolu Efes Biracilik Ve Malt Sanayii AS
(AEFES.IS) is preparing to launch its inaugural bond next week--the
company is holding investor meetings in Europe and the U.S this
week.
Talk of a possible upgrade by the end of the year to Turkey's
sovereign rating to investment grade by credit rating companies is
driving investors' appetite for Turkish corporate bonds, analysts
say.
Turkey is one notch below investment grade, with Standard and
Poor's rating it at BB, Moody's at Ba1 and Fitch at BB+. But this
month, Fitch said it would review its rating before the end of the
year, having said in August it might upgrade Turkey to BBB
minus--its lowest investment-grade rating--if inflation moves
closer to the central bank's target and the current account deficit
narrows to a more sustainable level.
Turkey's current account deficit shrank to its narrowest point
in almost three years in August, showing investors that economic
growth isn't just based on runaway spending. The current account
deficit, which measures Turkey's short-term external financing
needs, declined to $1.18 billion in August from $4.03 billion a
year earlier, reducing the 12-month figure to $59 billion, or about
7.5% of gross domestic product, the central bank said earlier this
month.
The ballooning deficit had triggered a run on the lira last
year, and forcing the central bank to more than double interest
rates to as high as 12%. And Fitch and S&P both said they were
concerned the size of the deficit left the economy vulnerable to
sudden withdrawals of foreign investment, which could reduce
lending and business activity.
"The wind is blowing behind Turkey and there is good momentum,
investors will get a better yield and a safe place to park their
money for the short to medium term," said Hakan Aksoy, an emerging
markets debt portfolio manager at Pioneer Investments.
Mr. Aksoy said there is always the chance that Turkey may not be
upgraded, but he is 'cautiously optimistic.'
(Jessica Mead and Carol Dean in London, Yeliz Candemir and Emre
Peker in Istanbul contributed to this article)
Write to Sarka Halas at sarka.halasova@dowjones.com