Turkey’s largest publicly traded state bank is seeking to lock in record-low costs in its first dollar bond sale after Moody’s Investors Service upgraded lenders’ foreign-currency debt to investment grade last week.
Turkiye Halk Bankasi AS (HALKB), known as Halkbank, is meeting with investors abroad this week after hiring Citigroup Inc. (C:US), Deutsche Bank AG and Bank of America (BAC:US) Merrill Lynch to underwrite the sale, the Ankara-based lender said July 6. Yields on Istanbul- based Akbank TAS (AKBNK)’s 2015 dollar bonds tumbled 240 basis points from this year’s peak on Jan. 18 to 4.06 percent, narrowing the yield premium with similarly-maturity sovereign debt to 99 basis points yesterday, within three basis points of a record low.
Halkbank’s sale may open the door for more investment level offerings as Turkey’s banks look abroad to fund growth in the $770 billion economy and speculation increases that the sovereign is heading for an upgrade. Moody’s joined Fitch Ratings by putting Turkey one level below investment grade on June 20, citing improved public finances and resilience.
“We were waiting for a more favorable interest environment and attractive pricing, so if we see this opportunity we will move forward with it,” Mehmet Hakan Atilla, deputy general manager at Halkbank, said in a phone interview from New York yesterday. “We’re getting feedback from fixed- income investors and it’s in line with our expectations, it’s great,” he said.
Pricing guidance will be clear by the end of the week, which will determine whether or not Halkbank will move forward with the sale, Atilla said. “If it’s not in line, we can wait,” he said.
Moody’s assigned Halkbank a provisional Baa2 rating, the second-lowest investment-grade status, on July 5 after upgrading foreign-currency debt for five Turkish lenders including Akbank last week. The upgrades put the banks two steps above Alfa Bank OJSC, Russia’s biggest privately owned lender, whose debt is rated Ba1 at Moody’s, and two levels below state-run OAO Sberbank (SBER) based in Moscow, whose debt is rated A3.
Turkey’s sovereign debt was raised one step to Ba1, the highest non-investment grade, by Moody’s after the nation’s current-account narrowed for a six month in April and inflation slowed to 8.3 percent in May from a three-year high 11.1 percent a month earlier.
The sovereign upgrade is “spurring hopes for a rating increase by Moody’s in 2013” as well as speculation that Fitch may “jump the gun” and upgrade Turkey after its review of the country in November, according to a report from Sidar Global Advisors in Washington on July 9.
“Turkey’s macroeconomic performance and the rating decision may further increase interest in Turkish banks,” Erdal Aral, deputy chief executive officer of Turkiye Is Bankasi (ISATR) AS, or Isbank, said in an e-mail July 9 from Istanbul. “Following the sovereign’s upgrade, the spread between the top banks and the sovereign tightened and we believe this will let Turkish banks issue in the international markets with lower costs.”
Yields on 2017 dollar bonds from state-run Turkiye Vakiflar Bankasi TAO (VAKBN), known as Vakifbank, have fallen 96 basis points in the past two months, narrowing the yield premium with government debt to 129 basis points, a record low since the debt was sold in April. Yields on $500 million of 2016 bonds by Isbank, Turkey’s largest listed bank by assets, have declined 57 basis points since Moody’s upgraded the bank’s foreign debt to investment grade, dropping to a record low of 4.13 percent yesterday.
“The yields should go lower, that is the whole point about being investment grade,” Haluk Akdogan, a London-based analyst at ING Groep NV, said by e-mail yesterday. Halkbank’s debt sale is likely to receive favorable pricing, he said.
While Claudia Calich, who helps manage $1.7 billion of developing-nation debt at Invesco Advisers Inc., said Invesco would consider the Halkbank offer, she cited the narrowing spread against the sovereign as a reason that may make the deal less attractive.
“We look where the banks are trading vis a vis the Turkish sovereign and at a certain spread you take profits and go back to the sovereign, and if they widen again we’d go back to the banks,” Calich said in an interview in London on July 9. “We’re not keen on the valuations themselves but as a sector we like it quite a bit.”
Halkbank’s 2012 lira bond due July 20 yielded 9.05 percent on June 28, down from 9.65 percent on June 26, according to Istanbul Stock Exchange prices. Yields on Turkey’s two-year benchmark sovereign lira debt fell 10 basis points yesterday to 7.92 percent, extending this year’s decline to 309 basis points, the biggest drop among 19 major emerging markets globally.
The lira appreciated for the first time in five days, climbing 0.1 percent stronger to 1.8188 per dollar at 6 p.m. in Istanbul. The currency has strengthened 4 percent this year, the best performance among nine countries in eastern Europe and Africa tracked by Bloomberg.
Credit-default swaps on Turkey, rated BB, the second- highest non-investment grade status at Standard & Poor’s, fell four basis points, or 0.04 percentage point, to 233, according to data compiled by Bloomberg. This compares with 217 for Russia, 206 for Poland and 155 for South Africa.
The extra yield investors demand to hold Turkey’s dollar- denominated sovereign bonds rather than U.S. Treasuries dropped two basis points to 301, JPMorgan’s EMBI Global index shows.
Turkish banks have issued $1.1 billion in dollar bonds this year, compared with $2.3 billion by this time last year, according to data compiled by Bloomberg. The decreased supply may help spur appetite and drive down prices, Sergey Dergachev, who helps manage $8.5 billion in emerging market funds at Union Investment Privatfonds in Frankfurt, said by e-mail yesterday.
“The deal should run well,” Dergachev said. “It’s a solid state-owned bank, a completely new name on the market and currently the supply pipeline from Turkish banks is very muted.”
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