The Turkish Treasury has sold 24.3 tonnes of gold-linked lease certificates and 1.88 tonnes of gold-linked bonds to institutional investors with a 6-month coupon rate of 1%, Turkey’s Treasury and Finance Ministry said on February 25.

The 26.2 tonnes of gold was worth TRY5.24bn ($988mn) at current prices, Fercan Yalinkilic of Bloomberg said on Twitter.

On February 20, the ministry said that it would sell the 2-year gold-linked paper to pension and investment funds.

In December last year, the Treasury revived FX-denominated domestic borrowing instruments targeting both individual investors and legal persons. However, extended book-buildings were not as fruitful as expected.

Since October last year, pension funds and the unemployment fund in Turkey have also been employed to buy borrowing instruments from the Treasury and public lenders.

Ankara has also lately cut its lira borrowings with the aim of supressing interest rates on the domestic market amid the substantial liquidity and credit crunch that has followed last summer’s currency crisis, while the Treasury, public lenders and the country’s wealth fund have been pushing for FX borrowings despite expensive costs.

As this year’s early profit transfers from the central bank and other public enterprises were spent as early as January, there is concern over the domestic borrowing costs the Treasury will face in the remainder of the year if favourable global liquidity conditions reverse.

Growing warnings over FX debt rush
bneIntelliNews has been sounding warnings about the Treasury’s rush into FX debt since last October, when Turkey sold 5-year USD-denominated eurobonds at a yield to the investor of 7.5% in its first international debt auction since the currency crash reached its worst stage in August. That ongoing move into FX debt is now beginning to catch the attention of global media outlets.

The government’s strategy of heavy borrowing abroad this early in the year risks triggering a spike in lira bond yields after the municipal elections at the end of March, Faik Oztrak of main opposition Republican People’s Party (CHP) told Bloomberg on February 25.

“The government is pressuring exchange rates and yields as it borrows heavily in foreign currencies. This will create serious troubles after the vote, when they will have to resort to heavy domestic borrowing. That would send yields higher,” Oztrak added.

Turkey has raised $5.4bn from the international capital markets in 2019 to date. The Erdogan administration plans to raise the equivalent of $8bn of external funding in 2019 through bond issues on global capital markets. It raised $7.7bn in financing from such markets in 2018, as opposed to its $6.5bn annual target. Turkey raised $9.1bn from international markets in 2017 versus the planned $6bn.

Fitch Ratings rates Turkey at BB/Negative, two notches below investment grade, together with Guatemala and Vietnam. Moody’s Rating Services rates Turkey at Ba3/Negative, three notches below investment grade, together with Bangladesh, Bolivia and Vietnam, while Standard & Poor’s rates Turkey at B+/Stable, four notches below investment grade, together with Kenya and Greece.

Government debt stock up 23% y/y
Turkey’s central government debt stock rose by 3% m/m and 23% y/y to TRY1.1tn at the end of January. That included TRY598bn worth of domestic debt stock and TRY500bn worth of external debt stock, the Treasury and Finance Ministry said on February 21.

Turkey’s eurobonds stock grew by 5% m/m and 47% y/y to TRY384bn at end-January. The stock jumped by 31% m/m to a record high of TRY429bn at end-August from TRY327bn at end-July due to the currency woes.

Since December last year, Turkey’s domestic debt stock has also carried FX risk.

Meanwhile, unnamed bankers told Reuters on February 25 that the Turkish Treasury launched investor meetings in Tokyo to evaluate conditions for a possible Samurai bond issue. Investor meetings will last through this week.

Turkey mandated Mizuho, Mitsubishi UFJ Morgan Stanley and Nomura to hold a series of investor meetings in the Japanese capital, starting from February 25, the news agency reported earlier this month.

Treasury and Finance Minister Berat Albayrak said last month that Turkey has launched talks to issue Yen-denominated Samurai bonds.

At the last Yen auction, held in December 2017, the Treasury sold $545mn (JPY60bn) worth of Samurai bonds with a coupon of 1.81%, 170 basis points over the three-year yen swap rate.

The Treasury issued bonds on the Japanese Yen market in 2011, 2012, and 2014, under the guarantee of the Japan Bank for International Cooperation (JBIC).