The Republic of Turkey’s highly successful $3bn sukuk last week was a welcome reminder that not all of the country’s financial management is being handled in as unorthodox a fashion as as its monetary policy.
Indeed, the country's debt management office deserves to be heaped with praise, not just for the execution of the sukuk last week but also for the series of decisions that led up to it. Bringing the country to the point where it could print such a transaction in the midst of a currency and inflation crisis is an impressive achievement.
The sukuk was widely regarded as a savvy move. By harnessing Islamic demand in an undersupplied market, Turkey managed to grab $3bn of its $11bn 2022 funding target in one swoop, at a price 15bp inside its conventional curve.
To raise $3bn — Turkey's biggest ever print in either sukuk or conventional format — the DMO needed to loosen the purse strings a little, pricing the instrument more generously than might have been expected based on an assessment of where its existing sukuk would trade if they were more liquid.
But the decision not to quibble over basis points was a sound one.
By crossing off so much of its funding shopping list in a single outing, Turkey has helped to relieve pressure across its curve. Not only did the sovereign show that it could access the bond markets at a reasonable price, but it diffused investor anxiety over how much the country needs to print this year.
In the wake of the trade, the new sukuk is performing well. Having been sold at par on Wednesday, it was trading at 100.75 at the beginning of this week, making it one of the only CEEMEA deals of recent months not to sink almost immediately after pricing.
Investors may well look back fondly on that performance in the coming months, which would certainly do no harm to Turkey's plans to raise another $8bn before the end of the year.
Ilyas Tufan, director general at the Turkey debt office, and Zeynep Boga, his deputy, deserve credit for the solid decision making last week.
But in fact, the Turkish DMO has made consistently good decisions in recent years, diversifying its investor bases and maintaining communication and relationships. It was the accumulation of all that sensible management that brought Turkey to the point last week where it could seemingly effortlessly sell a sukuk of such a size.
Boga has worked in the treasury since 2012, but Tufan has only been in position since the end of last year. Previous DMO staff such as Cagatay Imirgi (now at the EBRD), who first had the foresight to court the Islamic market, should be given their share of the kudos.
Turkey's bonds have been under pressure since September, when president Recep Tayyip Erdogan insisted that the central bank cut rates, despite soaring inflation.
He believes — unlike most economists — that higher rates cause, rather than curb, inflation. But the 500bp cut to the one week repo rate since last Autumn has only piled more pressure on the lira, which was trading on Monday morning in London at TL13.63 to the dollar.
This situation has resulted in headlines and analyst reports painting Turkey as a basket case run by a man with increasingly nutty economic ideas and principles.
That may well be the case, but the treasury last week showed that some pockets of sense remain in the Turkish establishment. This will go some way to keeping the country's bonds afloat.