Turkey plans 10-year dollar bond to push back looming debt maturities

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Turkey has hired banks to sell a new long-term US dollar bond and buy back debt due in the next couple of years, as Ankara seeks to reduce the scale of a looming wave of repayments and to court international investors.

The country appointed banks to sell a new benchmark 10-year dollar bond, Turkey’s finance ministry said on Tuesday.

It will also launch its first so-called switch tender transaction, which will allow investors to sell back short-dated debt and swap their holdings to the new bond. Switch deals are relatively rare, but countries including Ukraine and Greece have utilised them in the past.

Turkey has billions of dollars of foreign currency debt coming due next year, and the switch is designed to push some of that wave of redemptions further into the future, said a person familiar with the transaction.

The deal comes as Ankara pursues a broad economic turnaround programme aimed at quelling a long-running inflation crisis and luring foreign investors back to its markets.

President Recep Tayyip Erdoğan pitched to US executives at a roundtable in New York on Monday as part of a series of business-focused events coinciding with the UN General Assembly.

Erdoğan told executives that his country would provide investment support to 30 industries including chipmaking and green energy. “I invite you to benefit from these supports and grow together with a developing Turkey,” he said.

Turkey’s finance minister and central bank chief are due to address a Goldman Sachs investor conference on Tuesday, while the energy and industry ministers will hold separate meetings.

Turkey is hoping that a pivot towards more conventional economic policies, which began after Erdoğan’s re-election in May last year, will attract back foreign investors who were spooked by previous policies.

The central bank has been at the heart of the reforms, lifting its main interest rate more than 40 percentage points since last summer to 50 per cent in an attempt to slow runaway price growth.

The new programme has already shown some signs of success, with inflation falling from a peak of more than 85 per cent in 2022 to just over 50 per cent this summer.

S&P Global Ratings, Moody’s Ratings and Fitch have all raised their ratings on Turkey’s creditworthiness in recent months, although the country remains deep in junk, or non-investment grade, territory.

The new 10-year bond will be “benchmark” size, according to an announcement sent to investors and seen by the Financial Times, typically meaning the country is seeking to raise at least $500mn.

Turkey has raised $6.9bn on international capital markets so far in 2024. Debt maturing in 2024, 2025 and 2026 are eligible for the switch transaction.

Turkey has $14.4bn of principal payments due in 2025 on its external central government debt, according to projections by the finance ministry.

Still, most analysts say that Turkey runs a tight fiscal ship relative to many of its emerging market peers. Fitch earlier this month forecast Turkey’s general government debt to be about 27 per cent of GDP this year, far lower than the 55 per cent median for countries that are also in the double B rating category.

BBVA, Bank of America, Citigroup and JPMorgan are acting as joint bookrunners on the bond deal, and JPMorgan and BBVA are managing the switch.