Turkish corporate debt costs at lowest level in 4.5 years after lira rally

The cost of borrowing for Turkish companies in dollars has dropped to the lowest level since July 2016 after the lira led a rally in emerging market currencies this year.

Turkish firms are now on track to roll over $6.7 billion of foreign bonds this year, Bloomberg reported on Thursday. At the front of the queue have been four of the country’s banks, including state-run lenders Vakıfbank and Ziraat Bank, who raised $2.2 billion since October.

Bloomberg said yields demanded by investors in the $170 billion market have declined to less than half of last year’s costs.

The lira has gained by about 20 percent against the dollar since November, when Turkish President Recep Tayyip Erdoğan sacked and replaced the governor of the central bank and appointed a new treasury and finance minister. In the first nine months of last year, issuance of corporate debt dropped by half and forced the country’s sovereign wealth fund to abandon a sale of bonds.

Governor Naci Ağbal has raised the central bank’s benchmark interest rate to 17 percent from 10.25 percent since early November, increasing demand for Turkish assets among foreign investors.

“The positive Turkish economic developments have increased demand for Turkish bonds and stocks,” said Fatma Nur Çetinel, head of investor relations at Ziraat Bank, according to Bloomberg. “Our policy is to take advantage of favourable conditions for borrowing in international markets.”

Turkish firms have also benefitted from an increase in investor appetite for riskier emerging market assets as the roll out of vaccinations for COVID-19 improved the global economic outlook. 

Bloomberg said the new economic landscape may allow Turkish firms to switch away from building cash in their balance sheets to ensure they can meet debt obligations, a trend observed since a currency crisis in the summer of 2018.

“Turkey’s policy framework has become more mainstream and that is highly welcome,” said Merno Stroemer, head of corporate bonds at Fisch Asset Management in Zurich, Switzerland. “Turkey can be very unpredictable, but the current direction is a good one.”