Middle East

Confidence in Turkish assets hit fresh lows this week as investors struggled to digest a fresh wave of volatility after its central bank governor was sacked following an interest rate hike. With government and bank funding needs to be met in the international market, the Central Bank of the Republic of Turkey has a big job on its hands in regaining investor confidence — though some say the damage has already been done.

The Saudi-headquartered Islamic Development Bank is set to sell a dollar bond on Wednesday, having launched the deal on Tuesday. The sustainability sukuk is one of two FIG deals from the Gulf region this week, as Kuwait’s Boubyan Bank also entered the market for a dollar sukuk.

As emerging market IPOs continue to draw investors into countries many have never invested before, Turkey remains an obvious absentee. The country could be an EM equity giant but political decisions by its government continue to hinder Turkish businesses.

The shock sacking of Turkey’s third central bank governor in two years confirms to investors that the country lives in a world of its own — one in which central bank independence and fiscal prudence come second to the ideologies of the leader.

A handful of bond mandates from the CEEMEA region this week suggests that issuer confidence may be on the rise across emerging markets after a particularly turbulent period of sell-offs in US Treasury bonds.

The Islamic Development Bank mandated banks on Monday to arrange a sustainability sukuk, having forayed into the market last year with a Covid-focused deal. Fellow Gulf-based issuer Boubyan Bank has also mandated banks for a dollar sukuk.

An imminent bond issue from Turkey is looking unlikely, investors say, after the abrupt sacking on Saturday of Naci Ağbal, governor of the central bank, just a day after he had raised interest rates by 200bp. Both hard and local currency bonds have sold off and market participants fear a balance of payments crisis.

A wave of central bank rate hikes across emerging markets over the last week, particularly in CEEMEA, has stimulated investor confidence amid a volatile period in global markets. The recent rise in US Treasury yields had threatened to pull money away from EM, with a further risk of weakening local currencies.

The Central Bank of the Republic of Turkey has brought relief to emerging market investors by exceeding market participants’ expectations and delivering a 200bp rate hike.

Despite the disruption that the coronavirus pandemic and, more recently, volatility in global markets have brought to emerging market debt, issuers in the CEEMEA region are not backing away from their pivot towards ESG financing. Though concerns about greenwashing are holding the market back, new sustainability-linked and transition structures are tempting issuers.

CEEMEA bond market participants were keeping an eye on the US Federal Reserve this week, after weeks of volatility in the US Treasury market. Whatever the Fed announces after this week's Federal Open Market Committee meeting will dictate whether CEEMEA bond supply resumes next week.

Volatility in global and commodity markets coupled with regulatory challenges are putting pressure on issuers and investors involved in the Sharia-compliant financing market.