Turkey’s new $1.5bn 31 year deal was trading at trading at 99.25/99.65 after being priced at 99.026 on Wednesday. On a yield basis the bond has moved from 6.7% at pricing to 6.65%, and as it is still 10bp back of the issuer’s dollar curve it has room to tighten further, said one EM analyst. Turkey’s bond clearly offers value relative other CEEMEA sovereigns, he added.
“It’s a triple BBB- rated country that was trading as wide as BB rated bonds Croatia or Serbia,” the analyst said. “The outlooks for those two countries are far more concerning, and I don’t see any performance potential there.”
But although the new Turkish deal has performed well, lead managers' claims that the deal had pulled other regional credits 5bp tighter was hard to justify, said bankers away from the deal.
“It’s very difficult to strip out what has traded tighter because of Turkey versus what has simply moved tighter as part of the overall CEEMEA recovery,” said one emerging market DCM banker. “A 5bp move in CEEMEA really isn’t that significant, but the deal is undoubtedly positive for other sovereigns and other Turkish credits.”
Turkish spreads have not responded immediately to the new sovereign issue. Garanti Bank’s 2022 bonds, for example, were still trading in a 89-91 cash point range, said the DCM banker. But despite the different investor base for sovereign and financial paper, the clear appetite for Turkish credit risk is prompting Turkish banks to start considering their own issuance plans. Borrower’s like Ziraat Bank that made plans for Eurobonds last year would definitely move to take advantage of their sovereign’s success, although some could wait until after the seasonal round of Turkish loan syndications has ended, the banker added.
Given that Turkey has been regularly picked out as exemplifying the weakness symptomatic in EM countries, the demand it garnered bodes well for other similarly maligned sovereigns. One such credit is Indonesia, which on Friday announced it is planning a benchmark euro bond in the first half of this year.
“The basis swap has between euros and dollars has lessened and so there isn’t much clear advantage for a name like Indonesia in issuing in one currency over the other,” said an emerging market DCM banker of the announcement. “It’s more a diversification play, but is a sign of the EM recovery that they are announcing a deal.”
Although Indonesia sold a stand out $4bn bond earlier this year, it suffered in the recent selloff and, like Turkey, is regularly feature among lists of fragile EM sovereigns. The day before Turkey sold its bonds Société Générale published a report ranking emerging market countries by risk using private debt, financial system strength, property overvaluation, monetary conditions and governance issues. Turkey scored 11 out of a possible 15. Indonesia scored 12. But debt bankers argue that this week has changed the playing field for EM debt.
“A $7bn book for Turkey tells that you that people are still buying even the difficult credits,” said one. “It’s a complete reversal of the EM asset sell off, and now we’re seeing names like Indonesia start to move.”