Markets
Erdogan’s Move Comes Too Late to Save 2021 for
Turkish Debt
By Selcuk
Gokoluk
22 December
2021, 09:32 CET
For Turkish
sovereign and corporate debt, Monday’s emergency measures to tackle the lira’s
meltdown have come too late to rescue a painful 2021.
Investors
have lost 7.8% on the country’s dollar-denominated sovereign debt this year,
compared to 2.9% across emerging markets in the worst performance since 2013.
Meanwhile, corporate debt holders have lost 1.7%, the sixth-most globally,
according to Bloomberg indexes.
The lira
rallied more than 30% in three days after the rescue plan promised investors
protection from its wild swings, with the government pledging to pay holders of
lira deposits the difference if drops against hard currencies exceed bank
interest rates. While the currency got a boost, the proposal’s not much help in
reversing debt holders losses and risks piling further pressure on state
finances.
The risk
premium for owning Turkish corporate debt surges amid lira volatility
“I don’t
expect we will see a huge rebound until year-end in Turkish credit, since it
will definitely need almost a U-turn and admission that previous policy was
wrong -- very unlikely in my view,” said Sergey Dergachev, senior portfolio
manager and head of emerging market corporate debt at Union Investment
Privatfonds in Frankfurt. In this illiquid and nervous market “every headline
from Erdogan and his team could lead to stronger volatility,” he said.
How
Erdogan’s Plan to Halt the Lira’s Fall Is Meant to Work
The average
risk premium for holding Turkish corporate debt widened on Monday to the
highest since August 2020. Two local corporate bonds are trading in distressed
territory, where investors demand at least 1,000 basis points over the U.S.
Treasuries: renewable energy company Aydem Yenilenebilir Enerji A.S.’s $750
million bonds maturing February 2027 and $500 million of subordinated debt with
a June 2028 maturity from lender Turkiye Is Bankasi AS.
“We might
see a bounce as the market is incredibly illiquid, but ultimately what’s going
to save them is a return to orthodoxy or the engagement of an external balance
sheet, read the IMF,” said Francesc Balcells, London-based chief investment
officer of emerging-market debt at FIM Partners.
Lira’s Wild
Ride Eclipses Rates as No. 1 Threat to Turkish Firms
“It’s just
a reshuffling of the liabilities from foreign currency to local currency, but
at the end of the day, what people need and want is hard currency,” said
Balcells.
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