Turkey plans 10-year bonds to stave off looming debt maturities

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Turkey has hired banks to sell a new long-term U.S. dollar bond and buy back debt maturing over the next two years as Ankara seeks to reduce the scale of a looming default wave and lure international investors.

The country has designated banks to sell a new benchmark 10-year bond, Turkey’s Finance Ministry announced on Tuesday.

It will also launch the first so-called auction transaction, which will allow investors to sell short-term debt and swap their holdings on the new bond. Exchange offers are relatively rare, but countries such as Ukraine and Greece have used them in the past.

Turkey has billions of dollars of foreign currency debt due next year, and the change is designed to push some of that wave of redemptions into the future, a person familiar with the deal said.

The deal comes as Ankara pursues a broad economic recovery program aimed at ending a long-running inflation crisis and drawing foreign investors back into its markets.

President Recep Tayyip Erdoğan presented to US executives at a roundtable in New York on Monday as part of a series of business-focused events coinciding with the UN General Assembly.

Erdoğan told the executives that his country would provide investment support for 30 industries, including chip manufacturing and green energy. “I invite you to benefit from these supports and grow together with a developing Turkey,” he said.

Turkey’s finance minister and central bank chief are due to address a Goldman Sachs investor conference on Tuesday, while the energy and industry ministers will hold separate meetings.

Turkey is hoping that a pivot to more conventional economic policies, which began after Erdogan’s re-election last May, will lure back foreign investors who were scared away by previous policies.

The central bank has been at the center of the reforms, raising its main interest rate by more than 40 percentage points since last summer to 50% in a bid to slow soaring prices.

The new program has already shown some signs of success, with inflation falling from a peak of more than 85% in 2022 to just over 50% this summer.

S&P Global Ratings, Moody’s Ratings and Fitch have all raised their ratings on Turkey’s creditworthiness in recent months, although the country remains deep in junk, or non-investment grade, territory.

The new 10-year bond will be of “benchmark” size, according to an announcement sent to investors and seen by the Financial Times, which typically means the country is trying to raise at least $500 million.

Turkey has raised $6.9 billion in international capital markets so far in 2024. Debt maturing in 2024, 2025 and 2026 are eligible for the swap deal.

Turkey has $14.4 billion in principal payments due in 2025 on the central government’s foreign debt, according to Finance Ministry projections.

However, most analysts say Turkey has a tight fiscal ship compared to many of its emerging market peers. Earlier this month, Fitch estimated that Turkey’s overall public debt would be around 27% of GDP this year, much lower than the 55% median for countries that are also in the double-B rating category.

BBVA, Bank of America, Citigroup and JPMorgan are acting as joint bookrunners for the bond transaction, and JPMorgan and BBVA are managing the exchange.