Turkey raises $3.5bn in record international bond sale

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Turkey has raised $3.5bn in its biggest-ever international bond sale, supported by a buyback of outstanding debt, as Ankara seeks to bolster investor sentiment with a sweeping economic turnaround programme.

The country sold a 10-year dollar bond at a yield of 6.75 per cent, Turkey’s finance ministry said on Thursday.

Turkey raised $4bn in a multi-tranche deal in 2020 but this was the first time it has raised so much in a single bond, according to finance ministry records stretching to 2013.

The country’s fourth international bond sale of 2024 came as President Recep Tayyip Erdoğan and top officials sought this week to woo executives and fund managers on the sidelines of the UN General Assembly in New York.

Ankara is seeking to persuade international investors that it is serious about pursuing a new economic policy path, after years of unorthodox measures championed by Erdoğan ignited a string of crises.

Finance minister Mehmet Şimşek, a former City of London bond strategist, and central bank chief Fatih Karahan addressed a Goldman Sachs conference at an event this week, according to a banker who was in attendance.

The policy overhaul, which has included huge interest rate and tax rises, has begun to cool runaway consumer demand and push inflation from a recent high of more than 85 per cent in 2022 to just above 50 per cent.

The central bank’s foreign currency reserves have also been replenished since the programme began following Erdoğan’s re-election in May 2023, while the three major credit rating agencies have upgraded Turkey’s ratings.

The “big new [bond sale] is . . . a demonstration of investor faith” in the new economic turnaround programme, said Paul McNamara, an investment director at GAM Investments.

This was the first time Turkey had used a so-called switch tender. As part of the deal, investors swapped $1.9bn of debt maturing through 2025 to the new paper, meaning Turkey raised about $1.6bn in fresh funds.

It will help reduce the amount of foreign debt Turkey will need to repay in the near future. It was seen as an important move since the country has a large wall of principal payments due in 2025, according to a banker with direct knowledge of the deal.

Prior to this week’s switch operation, Turkey had about $14.4bn in external principal payments due in 2025.

Investors agreed to the lowest risk premium in six years on the new bond, with the debt pricing at 2.98 percentage points above the equivalent US Treasury note.

“All these transactions once again demonstrated the trust of international investors placed in our programme,” Şimşek said on Thursday.

Still, McNamara cautioned that investors had been burnt as recently as 2021 when central bank chief Naci Ağbal was dismissed for raising rates, clashing with Erdoğan’s powerful objection to high borrowing costs.

“This thing can turn very quickly,” McNamara said.