Turkey Country Report Jun19 - June, 2019

June 5, 2019

Istanbul revote will be held on June 23.

Whatever result the Istanbul revote delivers, there have to be expectations that a snap general election can be expected not too far ahead.

Imamoglu, this is a politician who seems determined to win again.

“Election—like the one in March & the one in 2018—sets the stage for another credit boom to boost growth at the cost of the BoP & Lira”.

Turkey’s public lenders are to provide a Turkish lira (TRY) 30bn ($4.9bn) financing package.

Turkish government officials and local banks are working on an Energy Venture Capital Fund as a method of refinancing problem loans in the energy sector worth up to $2bn.

A bailout of Turkey’s construction sector is also under way.

Turkey needs to stick to free market rules, Isbank chief executive Adnan Bali said on May 22, warning that imposing controls would harm economic welfare.

Brussels raises “deeper concerns over functioning” of Turkey’s market economy. A range of policy actions the Turkish authorities took only negatively affected the functioning of the markets by interfering with price formation and introducing constraints on the free use of foreign exchange.

Talk of a Turkey default grows.

The government is overcoming the lack of appetite to provide for its domestic borrowing needs via “encouraging” local lenders and pension funds to buy government bonds and it is overcoming its foreign borrowing shortage via “encouraging” local lenders to park their offshore FX deposits at the central bank to comply with rising reserve requirement ratios.

Turkey’s 5-year credit default swaps (CDS) hit 520 bp but the fate and control of the lira are supposedly subject to finance minister Albayrak’s “iron fist”.

BIST-100 entered bear market. According to official demands, private pension funds will increase their investments in the government’s lira bonds and they will buy equities at Borsa Istanbul. So, the USD-denominated benchmark BIST-100’s problematic testing of the 2009 dips will be “solved”.

Turkey’s net FX reserves excluding swaps hit minus. A quite amazing Ponzi scheme keeps expanding here as locals turn their lira deposits into FX. Public lenders are currently selling local banks’ required reserves held at the central bank, along with amounts raised through FX swaps—put more frankly, FX deposits at local lenders—to curb the renewed depreciation of the Turkish lira.

Turkey technically exits recession but analysts fear double-dip's ahead.

Reuters shows signs of waking up to how, through the official lens, Turkey’s inflation rate is puzzlingly slowing in an import-dependent environment where the TRY has lost around 13% of its value against the USD so far this year.

Turkey’s BB/Negative rating could be downgraded if “existing weaknesses are aggravated, especially given the volatility in the Turkish economy and currency,” Edward Parker of Fitch Ratings told Reuters on May 7.

The IMF that the Turkish economy will contract by 2.5% this year. The EBRD sees its economy contract by 1%.

Consumer sentiment index nosedived 14% m/m in May. Vehicle sales sank 56% y/y in April. White goods market contracted 12% y/y.

The first-quarter net income of 300 Turkish companies listed on the Istanbul stock exchange declined by 21% y/y. Turkcell’s profit jumped to TRY1.22bn in the quarter from TRY501mn. Higher aviation fuel prices and other costs caused Turkish Airlines’ Q1 loss to more than double to Turkish lira (TRY) 1.25bn ($206mn).

The US Congress is determined to prevent Erdogan’s S-400 missile systems from Russia and threat of sanctions is hanging over the head of Turkish economy. However, Turkey stopped importing Iranian oil. Then there is the intimacy between Erdogan’s son-in-law and Trump’s son-in-law Jared Kushner, who is expected to announce the Deal of the Century. The Erdogan administration is, meanwhile, holding talks with the Syrian Kurds via Trump’s Syria envoy James Jeffrey. Erdogan’s only real misbehaviour is his insistence with a purchase and deployment of Russia’s S-400s, due to arrive in July if not sooner. Then there is his stubbornness in not giving up on loose monetary and fiscal policies, which so rattle the markets. But Trump is not big on Nato, so might find a convenient arrangement with his Turkish counterpart when it comes to the Russian missiles, and, as for the global markets establishment fretting over Erdogan refusing to fall in line with orthodox neoliberal economics, Trump will go his own way, he won’t be at their beck and call telling the Turkey’s strongman to get his house in order.

Lira firms around 1% after Turkish defence minister says Russian missiles may not arrive in June.

Turkey mired in ‘death of democracy’ outrage—but global lenders are unfazed. Spring season syndicated loan renewals concluded successfully albeit with lower roll-over rations and higher costs.

Bids for Turkish national lottery operating rights expected in June: wealth fund head.

Some of the owners of the joint venture that operates Istanbul’s giant new airport have hired Lazard to sell their stake in the $11bn flight hub. Vinci SA, Aeroports de Paris and its Turkish unit TAV Havaliamanlari Holding, and Ferrovial SA are among interested parties.

Italy’s Astaldi has relaunched talks to sell its 33.35% stake in Turkey’s Third Bosphorus Bridge.

US-based Lincoln Electric Holdings has entered into an agreement to purchase an additional 49.6% stake in Turkey’s Askaynak.

Anadolu considers McDonald’s operator options.

Teklas Kaucuk, a supplier of components to carmakers such as General Motors and BMW, has been put up for sale in a deal that could value the company at as much as €700mn.

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