The amount of 3.5 billion dollars was raised by Turkey, proceeding to the largest international issue it has ever carried out, according to a report by the Financial Times. The country used the switch tender tool to raise new capital and repay a bond issue due in 2025, while Ankara tries to boost investor confidence with a sweeping economic recovery program.
The country issued a 10-year dollar bond with a yield of 6.75%, Turkey’s finance ministry announced on Thursday.
The country had raised $4 billion through multiple issues in 2020, but this was the first time it raised that much through a single issue, according to Treasury records dating back to 2013.
Το switch tender
This was the first time that Turkey used the switch tender tool. It involves the issuance of new bonds to a successful bidder in exchange for the early repayment of an equivalent face value of a predetermined bond issue by the same bidder. As part of the deal, investors swapped $1.9 billion of debt maturing in 2025 for the new bond, meaning Turkey raised about $1.6 billion in new capital.
In addition to the new funds that will strengthen public finances, the country gains the reduction of its external debt. According to sources cited by the FT, Turkey will be called upon in 2025 to pay bonds that belong to the category of external borrowing amounting to 14.4 billion dollars. Now with the switch tender this burden will be reduced by 1.9 billion dollars.
Another success of this issue, which can be seen as a vote of confidence in the new economic policy, is that investors agreed to the lowest risk premium in the last six years for the new bond, as the yield stood at 2.98% above the yield of the ten-year US bond.
The return to economic orthodoxy
The country’s fourth international bond sale in 2024 came as President Recep Tayyip Erdogan and top officials this week sought to woo executives and fund managers on the sidelines of the UN General Assembly in New York.
Ankara is trying to convince international investors that it is leaving behind the era of unorthodox measures championed by Erdogan and is now walking the path of economic orthodoxy.
Finance Minister Mehmet Şimşek, a former City of London bond strategist, and central bank chief Fatih Karahan spoke at a Goldman Sachs conference at an event this week, according to a banker who attended.
The policy overhaul, which foresees massive interest and tax hikes, has begun to slow rampant consumer demand and push inflation from its recent high of over 85% in 2022 to just over 50%.
The central bank’s foreign reserves have also been replenished since the program began after Erdogan’s re-election in May 2023, while the three major rating agencies have upgraded Turkey’s ratings.
Bubbles to success
The “big news [πώληση ομολόγων] it’s … a demonstration of investor faith” in the new economic recovery programme, Paul McNamara, chief investment officer at GAM Investments, told the FT.
“All these transactions once again demonstrated the trust of international investors in our program,” emphasized Şimşek.
Still, McNamara warned that investors were only burned in 2021, when central bank chief Naci Ağbal was sacked for raising interest rates, clashing with Erdogan’s strong objection to high borrowing costs.
“This thing can turn around very quickly,” McNamara said.
SOURCE: ot.gr
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