Middle East

Political unrest against the backdrop of a broader emerging market sell-off could yet prove a toxic combination for Turkey if the government fails to address key economic imbalances, says Lucy Fitzgeorge-Parker.

Turkey’s banks have taken advantage of global liquidity to explore a slew of new funding options. The trend looks set to survive the mid-summer emerging market sell-off. Lucy Fitzgeorge-Parker reports.

Bahrain began a roadshow this week to gauge demand for a conventional dollar deal. Analysts expect its borrowing needs to rise sharply in order to stem a growing fiscal deficit, but this worrying trend could also turn some investors away.

Denizbank launched the first tranche of its SME-backed covered bond on Thursday, and placed the bonds with three supranational agencies.

Turkey’s Denizbank is expected to price its SME covered bond within the month and there are hopes other issuers will follow. While the SME product is unlikely to be seen as anything other than niche, there are strong expectations that at least four borrowers will launch euro denominated mortgage backed deals in benchmark size.

Denizbank is a step closer to making its covered bond debut after receiving a A3 rating from Moody’s this week.

Turkey’s Akbank could pip Garanti Bank to the post and issue the first euro denominated Turkish covered bond backed by residential mortgage assets. The issuer has been on the road pre-marketing a benchmark sized deal. With a higher rating than many Western European deals, and a market starved of supply, the deal should attract good interest, despite its emerging market label.

Turkey’s covered bond market is set to break away from SME-only issuance into mortgage transactions. Garanti Bank is planning a mortgage backed covered bond and several other issuers are keen to use the asset class to fund mortgage lending, said bankers.

Denizbank is the latest Turkish issuer to turn to covered bonds. It has applied for permission to raise up to €300m in SME-backed bonds, which it intends to sell early next year.

The evolution of mortgage funding in the UK market has led to some convergence of RMBS and covered bonds as both markets compete in the three year floating rate space. With investors expected to favour secured instruments and issuers seeking innovative ways to address funding and rating challenges, the UK experience might prove to be a foretaste of things to come in Europe as a whole, The Cover argues.

Turkey’s Sekerbank confirmed that it has sold another tranche of its SME backed covered bond to UniCredit off the same shelf that was inaugurated last year. The placement follows the sale of two tranches to the European Reconstruction and Development Bank and European Investment Bank in December 2011, and comes ahead of an expected sale to another supra-national agency in the near future. The programme’s success has prompted at least three other Turkish banks to mandate UniCredit and set up similar programmes.

Commonwealth Bank of Australia looks set to become the first bank in the country to issue a covered bond in the home currency. The deal is also set to become the largest FIG bond ever sold in Australia.