The Republic of Turkey last week priced €600 million of five-year benchmark notes but didn't give an underwriting slot to Citigroup, a move which has surprised market observers given the firm escorted top Turkish finance officials to meetings with potential investors just a few weeks ago. ABN AMRO and J.P. Morgan Securities were selected to underwrite the sale.
The roadshow saw Citi chaperone finance officials through meetings in London, Frankfurt and Amsterdam. Investors said it is unusual for a dealer so involved in the roadshow not to have a role in a transaction, particularly one announced so soon after the meetings. However, an official at Citigroup said the visits had been part of a so-called non-deal roadshow, which he maintained was separate from any intention Turkey might have had at the time to issue bonds. He stressed Citigroup has historically had and continues to have a strong relationship with the Turkish government. He declined further comment.
Cavit Dagdas, deputy undersecretary of the Turkish Treasury, and Tekin Cotuk, deputy head, did not return calls.
The snub comes shortly after the U.K. Financial Services Authority announced it is probing Citi's rapid trading of some European sovereign debt. The FSA inquiry is causing at least one other treasury, the Belgian Debt Agency, to re-examine its relationship with the firm (BW, 8/23). It could not be determined if Turkey's decision to leave Citi out of the deal is in any way related to the FSA matter.
As for the deal, Turkey has a funding requirement of approximately €2 billion remaining for this year and emerging market spreads are near all-time lows, making this appear to be an ideal time to issue. The J.P. Morgan Emerging Market Bond Index plus Turkey sovereign spread has tightened to 320 basis points over 10-year Treasuries, from 550bps in March. And this is down from about 1,000bps in March of 2003, supported by improving macro-fundamentals and Turkey's anticipated entry into the European Union, which observers say has introduced more discipline to the country's economic policies.
