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Turkey raises $1.5bn with five-year dollar bond

Money, Person, Human REUTERS/Agustin Marcarian
Foreign investor exposure to Turkey has dwindled in recent years as it adopted an unorthodox monetary policy of cutting interest rates

Turkey raised $1.5 billion in its latest dollar-denominated international bond sale that offers investors a 10 percent yield for a five-year bond, defying a difficult backdrop for lower-rated issuers.

The latest bond issue which is set to mature in 2028 attracted some $5 billion of bids and brings Ankara’s fund raising on international capital markets to $9 billion out of the target of $11 billion for 2022.

Foreign investor exposure to Turkey has dwindled in recent years as the country’s unorthodox monetary policy of cutting interest rates despite soaring inflation and a tumbling lira has rattled markets.

“The new issue came cheap to the existing bonds,” said Viktor Szabo at asset management firm abrdn.

“Turkey had to offer a decent concession to come to the market despite issuing a relatively short maturity bond.”

Turkey’s international bonds are yielding below the 10 percent mark across the curve.

The geographical breakdown in the statement by the finance ministry on Tuesday showed one third of the new bond was sold to US investors, another 27 percent to Turkey-based ones while those in the UK and elsewhere in Europe snapped up 22 percent and 10 percent, respectively.

While Turkey, unlike many of its single-B rated peers, did manage to tap international capital markets, analysts were still sceptical on the outlook.

“The biggest challenge is that they have a significant amount of repayments next year,” said Kaan Nazli at asset managers Neuberger Berman, adding Turkey faced repayments next year of $18.8 billion and 3.8 billion euros in hard-currency loans and bonds, including domestic hard-currency issues.

“No matter what the global backdrop is, it will be a very challenging year for them.”

The treasury and finance ministry said on Monday it mandated Bank of America Merrill Lynch, Goldman Sachs and JPMorgan for the eurobond issue as part of its 2022 foreign financing programme.

The treasury borrowed $10 billion from international capital markets last year.