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People and MarketsCommentGC View

Turkish buy-backs will be small but important

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Amid the chaos in Turkey, bankers are pitching bond buy-back opportunities to the country's beleaguered banks. Many argue that those in a position to take them up should be looked upon favourably by investors. The problem is, those investors might not even notice.

Several banks have told GlobalCapital that they are pitching buy-backs to the Turkish banks. 

As growth in the country stalls and cash prices on bank bonds have plummeted, international houses reckon that it could be a good time for the Turks to take some of their dollar debt out of circulation, at bargain basement levels. 

Some banks have already started this — Vakifbank bought back $10m of its own bonds a couple of weeks ago.

The theory goes that those banks that are buying back bonds are confident about their future. Of course, no bank funder is going to hand a few million back to investors in the middle of a financial crisis — even if the price looks cheap — unless they are assured that they absolutely will not need that money in the short to medium term. 

If an issuer agrees to a buy-back, it could be because their balance sheet is strong, which investors should already know, or because they have secured funding through some other means, something that investors may not be aware of. 

Whatever the reason, having ample cash sloshing around is poetry to investors’ ears, especially in times of crisis, and could do a lot to shore up confidence in a particular institution, or at least set investor minds to wondering if a particular bank has a bright future. If nothing else, a buy-back shows that issuer in question is taking active measures to manage its position in the unfolding crisis.

But investors may not notice these buy-backs taking place at all.

Some investors see only worse to come and are happy to take a little pick up and get shot of the paper. Others are stinging from the mark-to-market losses of the last few weeks and months, and want to avoid crystallising those, at what could be the bottom of the market. 

Because of that split, any buy-backs are likely to be small and executed in increments, rather than with the fanfare of one large deal.

A buy-back of $10m or so, such as Vakifbank’s, may not be enough to move the dial on investor confidence, but a few of them together might just do the trick. It is a shame that investors looking at Turkey could easily miss this positive trend if it happens piecemeal.

Small buy-backs may not make big headlines but they’re worth paying attention to, and Turkish issuers ought to shout them from the rooftops.