(Updates with results from sale from first paragraph.)
Oct. 17 (Bloomberg) -- Turkey raised $1 billion in its first international debt offering since March, taking advantage of a rebound in emerging markets on optimism Europe will resolve its debt crisis.
The government sold 10-year bonds in dollars, according to a banker with knowledge of the deal, who asked not be identified before the details are published. The bonds were priced to yield 310 basis points, or 3.1 percentage points, more than equivalent U.S. Treasuries, compared with a spread of 169 basis points on similarly rated 2021 bonds from the Philippines, according to data compiled by Bloomberg.
The sale is the first by an emerging-market government this month and follows a nine-day, 13 percent surge for the MSCI Emerging Markets Index of stocks, according to data compiled by Bloomberg. Developing-nation bond yields fell to the lowest relative to U.S. debt since Sept. 20, JPMorgan Chase & Co.’s EMBI Global Index shows.
“The deal is fairly priced, unless you believe the general tone of the equity and risk markets is going to retrace some of the recent recovery,” Jeremy Brewin, who helps manage $3.5 billion in emerging-market debt at Aviva Investors Ltd. in London, said by e-mail.
Turkey is borrowing to help finance a budget deficit the government expects to cut to 1.5 percent of gross domestic product next year from 1.7 percent this year.
The extra yield investors demand to own Turkish bonds over U.S. Treasuries rose two basis points to 310 today, JPMorgan indexes show. The spread has surged from 177 at the beginning of the year and 232 at the beginning of August. The gap has averaged 377 during the past 10 years.
“Spreads may have widened, but let’s face it, they’re issuing at fairly low absolute yields,” Edwin Gutierrez, who helps manage about $7 billion in emerging-market securities at Aberdeen Asset Management in London, said by e-mail. The bonds didn’t offer “enough of a concession,” for Aberdeen to buy, he said.
Turkey last sold debt on international market on March 11, when it raised $2.3 billion in yen-denominated 10-year bonds. It sold $1 billion of 30-year bonds on Jan. 5 and raised 500 million euros ($689 million) in November 2010 that it said was pre-financing for this year.
The lira was the second-worst performer among emerging- market currencies today, weakening 1.8 percent and bringing its depreciation this year to 17 percent. The ISE National 100 Index of stocks fell 1.5 percent in Istanbul, after a spokesman for German Chancellor Angela Merkel said a solution to Europe’s debt crisis will not be quick.
Serbia was the last developing nation to raise money on international capital markets, issuing $1 billion of Eurobonds last month.
Turkey’s foreign-currency debt is rated two levels below investment grade by Moody’s Investors Service, on a par with Jordan and the Philippines. Fitch Ratings ranks Turkey one step below with a positive outlook. Standard & Poor’s lifted Turkey’s local-currency debt to investment grade on Sept. 20 while keeping the foreign-currency rating two levels below.
The Treasury in Ankara hired Bank of America Merrill Lynch and HSBC Holdings Plc to arrange the sale, according to a statement on its website earlier today.
Turkey plans to raise a total of about 12.5 billion liras ($6.8 billion) in foreign borrowing this year, including payments from international lenders such as the World Bank.
The government announced on Oct. 13 economic plans aiming for a tighter budget than the program published last year, with debt-to-GDP declining from 39.8 percent at the end of this year to 35 percent in 2013 and 32 percent in 2014. The previous plan, which covered the three years to 2013, forecast debt ratio of 36.8 percent at the end of the period.
--With assistance from Jason Webb in London. Editors: Gavin Serkin, Linda Shen
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