By Sujata Rao and Nevzat Devranoglu
ISTANBUL Oct 13 Turkey, yet to complete its
2011 external financing plan, may be gearing up to sell debt as
the global markets gloom lifts, and robust performance by its
existing bonds during the recent turmoil indicates a new issue
would be well received.
International bond markets have been in lockdown for months
amid fears of a Greek default, a European bank meltdown and a
global recession. That means many expected bond issues from
emerging issuers, both sovereign and corporate, have not
materialised, leaving investors with cash in hand.
But improved investor confidence this week saw Mexican state
oil company Pemex tap its 2041 bond to the tune of $1.2 billion.
Many investors reckon Turkey will follow as soon as this week if
risk appetite holds up.
Ankara had an external issuance target of up to $6 billion
for this year and has so far raised the equivalent of $4 billion
including pre-financing that was done late last year.
It also has a $1.6 billion bond maturing in January 2012.
"The Turks should be getting ready to tap this window," fund
manager Jeremy Brewin at Aviva Investors in London said on
A new Turkish issue would likely see good demand because of
the way its existing corporate and sovereign debt weathered the
crisis, Brewin said, adding he had used recent falls to buy more
of the benchmark 2036 bond.
"Turkey has been far more resilient than most other emerging
credits -- from Latin America, Russia or even the Gulf. It's
been half as volatile as other benchmark bonds," he added.
The yield premium investors demand to hold Turkish debt over
U.S. Treasuries has fallen 100 bps in recent days to around 300
bps. But the spread widened only 80 bps during September
compared with a 150 bps jump for another big emerging European
The existing debt curve meanwhile is trading strongly, with
bond prices on average more than 6 points higher than lows hit
last month and up almost 1 point on Thursday.
Most players expect Turkey to tap its 10-year 2021 bond for
$1 billion though some say a $500 million issue -- with an
option to add $250 million -- would achieve a good price.
A new issue premium of around 10 bps to existing Turkish
bonds would be appropriate for a 10-year issue, analysts say,
noting the 2021 issue is yielding in the 5.02-5.10 percent area,
35 bps tighter on the month.
One bond trader in London noted that Pemex had paid 315 bps
over Treasuries on its 2041 bond, a premium of 20 bps to the
If Turkey, a pure sovereign, decided to re-open the 2041 it
would need to pay a smaller new issue premium, possibly around
15 bps, he added.
That's especially so as strong demand is anticipated from
local banks who are enjoying an improved liquidity position
thanks to the recent relaxation in reserve ratio rules.
Turkish buyers typically take least half of any new sovereign
"Locals are already ready to bid as they have generally done
in the past. They will probably bid for more then 50 percent (of
the issue) given FX liquidity in the sector is more than $15
billion now," said one bond trader in Istanbul.
(Reporting by Sujata Rao and Nevzat Devranoglu; editing by Ron