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8 | May 2010 | ifr special report SOVEREIGN DCM Turkey on target

The Turkish sovereign has had a productive 2010. It has nearly met its yearly funding target while reestablishing itself with the international market through a serious of well timed and executed transactions. It even became one of the few countries in recent times to experience a rating upgrade. Nick Lordreports.

While the sovereign has been buoyed up by the strength of the country’s underlying economy and its banking system, it can be argued the credit of the Republic is actually stronger than that of the underlying Turkish economy.


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urkey underlined its intent to use 2010 as a year to build credibility in the international markets, by becoming the first emerging market bond issuer of

the year. The Republic of Turkey (Ba2/BB–/BB+) issued a blockbuster US$2bn, 30-year deal in the first week of January that was very well received by all in the market. The deal was led by HSBC, JPMorgan and UBS who generated demand of US$7.3bn from 260 accounts, covering the book within hours of the deal being announced.

As a result of this demand, the Republic was able to price this deal with a 6.75% coupon and a 98.655 reoffer price to yield 6.85%. This equated to a spread of 224.7bps over 30-year US treasuries.

The deal was a record-equaling size which perfectly tapped into investor demand for liquid emerging market credits that offered a yield pick-up over developed market debt. But more importantly the deal allowed the Republic to regain some of the credibility that its past few years funding activities had damaged.

Greece and Turkey relative CDS performance (rebased)

Greece Turkey

Bankers report that in 2008 and 2009, the Republic missed opportunities to tap the market and as a result ended up with smaller proceeds from international Eurobond issuance than it would have liked. At heart, this issue revolves around the Republic’s stated goal of raising US$5.5bn a year from these markets (a target that was decreased in 2009 to US$3.5bn due to economic contraction of 6.5%). During these years, there was the feeling was that the Republic had left itself a hostage to fortune by not hitting those targets aggressively enough and early enough.

By not completing its funding target as quickly as possible, the Republic in effect gave investors a free option to ask for higher pricing as they knew the Republic had time-pressure to complete deals. So in 2010 the strategy has changed and the Republic has proactively gone into the market to meet its goals rather than reactively wait for the market to come to it. In April the Republic returned to the market again with a €1.5bn ten-year deal in a transaction that saw it nearly complete its issuance target. The deal was lead by Commerzbank, Credit Suisse, Deutsche Bank and DZ Bank and was priced at mid-swaps plus 190bps, 10bps inside guidance. The deal was sold largely within Turkey with Turkish accounts taking 40% of the deal by geography and banks taking 64% of the deal by investor type. Even so, the deal brought Turkey’s fundraising this year up to US$5bn, just shy of the US$5.5bn target. “The republic of Turkey has done very well this year, taking advantage of the opportunity to come to the market early this year,” said Chris Tuffey, co-head of credit capital markets, EMEA at Credit Suisse in London. “At the start of the year, volumes were high and [Turkey was] partic- ularly fast in coming to market. “

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