Turkey’s sovereign wealth fund tests investor appetite with $500mn bond deal

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Turkey’s sovereign wealth fund is pressing ahead with plans for a debut international bond deal in a test of investor appetite for the country’s assets after last week’s departure of its market-friendly central bank chief. 

Banks hired by the Turkey Wealth Fund began pitching a US-dollar denominated bond to investors this week and started taking orders on Wednesday, according to documents seen by the Financial Times. The fund is seeking to raise about $500mn.

The TWF’s fundraising plans come after central bank chief Hafize Gaye Erkan stepped down late on Friday just over seven months into her tenure, during which she increased interest rates from 8.5 per cent to 45 per cent. 

Local and foreign analysts have so far largely shrugged off Turkey’s latest central bank upheaval, betting that Erkan’s successor, deputy governor Fatih Karahan, will stick with her policy of using high borrowing costs as the main tool to cool an inflation rate of nearly 65 per cent.

A person with direct knowledge of the TWF deal said Erkan’s resignation had helped to clear uncertainty about the central bank’s leadership, after allegations had swirled in local media for weeks that she had given her father an unofficial role at the bank and that he had sacked an employee. Erkan denied the claims.

The five-year TWF bonds were being pitched with a yield of about 9.125 per cent, according to a term sheet. That compares with about 7.6 per cent for a Turkish sovereign dollar bond maturing in March 2029.

TWF, which was set up in 2016, holds stakes in a broad array of Turkish companies and infrastructure and real estate assets, including flag carrier Turkish Airlines, several major lenders and the country’s stock exchange Borsa Istanbul. The fund also retains full ownership of energy group Botaş, widely seen as one of Turkey’s crown-jewel assets, national postal company PTT and a major port near the western city of Izmir. 

TWF declined to comment on its fundraising plans.

The mooted TWF deal comes as foreign investors, who had largely abandoned Turkey’s local and international assets over the past decade, start to return, encouraged by a broad economic overhaul following President Recep Tayyip Erdoğan’s re-election in May. The central bank’s rate rises, which reversed Erdoğan’s long-held insistence on keeping borrowing costs low at all costs, have been a main pillar of the programme. 

Analysts say they broadly expect Karahan will continue with the tighter monetary policy.

“Unlike previous leadership changes . . . [Erkan’s] resignation appears not to have been triggered by any disagreement between the political leadership of the country and the central bank,” said Goldman Sachs economist Clemens Grafe. That was a reference to previous incidents in which Erdoğan, who previously called high rates the “mother and father of all evil”, sacked governors for raising rates.

“We see no reason to doubt that [Karahan] will pursue a similar path to the one chosen by his predecessor,” added Grafe. JPMorgan economists similarly told clients that Karahan, a former New York Federal Reserve economist, was “likely to keep monetary policy tight for longer”. 

Turkish asset prices have broadly reflected economists’ calm reaction to Karahan’s appointment, helping to bolster bankers’ confidence in going ahead with the TWF deal. 

Turkey’s lira has fallen slightly against the dollar since Erkan’s resignation, while the benchmark Bist 100 stock index has advanced 3 per cent. The cost to protect against a Turkish debt default using five-year credit default swaps, a key measure of the perceived risk in holding Turkish assets, slipped about 10 basis points since last Thursday to 330 bps, according to FactSet data. 

BBVA, JPMorgan and Standard Chartered are joint global co-ordinators and bookrunners on the TWF deal, while Bank of America, Emirates NBD Capital, ICBC, ING, QNB Capital and Société Générale are bookrunners.