July 19, 2016, 20:38 / Finance

Several Turkish banks refused to issue Eurobonds due to the coup attempt

Investors will sell $3.2 billion in sovereign bonds if the country loses its rating Tatyana Bochkareva

Yapi Kredi canceled the placement of seven-year Eurobonds worth $550 million / Murad Sezer / Reuters

Yapi Kredi Bank (4th by assets in Turkey; one of the owners is UniCredit) canceled the placement of seven-year Eurobonds worth $550 million, the order book for which was closed on July 12, WSJ reports. Sekerbank (9th by assets; one of the owners is the sovereign fund of Kazakhstan) was preparing to place $300 million bonds, but postponed meetings with investors, which were supposed to begin on Sunday in Asia, Europe and the Middle East.

“In light of recent events in Turkey, Yapi Kredi has decided to abandon the transaction in order to return to the market later when conditions improve,” the bank told investors. GAM Holding manager Paul McNamara told the WSJ that Yapi Kredi could return to flotation soon, but would offer a higher yield than the 4.625% per annum that was initially expected.

“Clearly, a coup attempt in Turkey will make investors more wary of buying Turkish bonds, at least until there is clarity and the situation stabilizes,” National Bank of Abu Dhabi strategist Chavan Bhogaita told Bloomberg. .

On Monday, Moody's warned it could downgrade Turkey's sovereign rating. The agency is dissatisfied with the slow pace of economic reforms in the country and the slowdown in economic growth. "Although the coup failed, its very existence will exacerbate difficulties in these sectors," Moody's said. Turkey currently has the lowest investment rating by Moody's and Fitch and a "junk" rating by S&P.

If Moody's strips Turkey of its investment rating, this will lead to the sale of $3.2 billion of its sovereign bonds, Barclays analysts calculated. The downgrade will likely not affect Turkish corporate Eurobonds as much as sovereign bonds, but "there will still be a significant impact on some bond issues, such as Garanti Bank and Halkbank," Barclays said.

On Tuesday, the yield on Turkish government bonds in dollars increased by 0.27 percentage points to 4.486%, in lira - by 1.05 percentage points to 9.58% per annum.

The Turkish central bank on Tuesday reduced the overnight rate from 9 to 8.75%. At three previous meetings, he reduced it by 0.5 percentage points. “We expected that there would be no reduction, and perhaps even there would be measures to support the lira, but we were mistaken,” Nordea Bank analyst Anders Svendsen told WSJ, “the central bank’s decision shows about his intention to reduce rates, but at the same time about his desire to support the lira.” Yesterday at 20:00 Moscow time, the Turkish currency exchange rate decreased by 1.86% to 3.0327 lira per dollar.

The Istanbul Stock Exchange Borsa Instambul 100 index fell 1% to 76,177.81 points, having lost 7.1% on Monday. Yesterday, shares of Turkish Airlines fell by 1.73%, Garanti Bank - by 2.34%, Akbank - by 3%.

“There are still black swans around as the government is still dealing with what happened over the weekend and the cleanup continues,” Bloomberg quoted Societe Generale strategist Roxana Iulea as saying, “so we are trading on that uncertainty.”

But this does not change the global environment of low rates, due to which investors will avoid Turkish assets for a short time. True, the risk premium will increase and the tourism sector will continue to suffer, but demand for Turkish assets will recover, UBS analysts believe. According to HSBC analysts, the lira will remain under pressure, but investors will not completely abandon transactions with it.