IFR Turkey 2007

This year Turkey sees two elections of very different sorts. First, in May, the Parliament will choose a new president to serve a seven-year term. Then, at the latest by early November, Parliamentary elections are due. In the presidential election there was only ever one question: would Prime Minister Recep Tayyip Erdogan propose himself for the post. Given that his party, the AKP, has an overall majority in Parliament, the presidential election itself is a formality. Among observers, the main concern had been that an Erdogan presidency would...

Go back a few years, and foreign direct investment in Turkey languished at US$1bn–$2bn a year, below the level in smaller economies in Eastern Europe. Economic and political instability kept investors away, while the economies of the former Communist bloc appealed. Now things are very different. In 2005–2006 FDI soared, and much of that money went into the banking sector. The list of acquisitions is long, and the origin of the acquirors varied. Since 2005, Fortis has acquired Disbank for US$1.2bn, National Bank of Greece has bought 46% of...

Amostly favourable fundamental macroeconomic backdrop has reinforced Turkey's continuing spread narrowing, but another record current account deficit and high Eurobond issuance have ensured further underperformance against LatAm high beta countries. Booming commodity prices have translated into large external surpluses that have allowed several LatAm countries to accelerate debt buyback programmes, and many governments have internalised their debt, switching their borrowing to local currency Eurobonds that served to boost foreign currency...

Turkey suffered disproportionately from the unwinding of carry trades during the emerging market sell-off in spring 2006. The Turkish lira tumbled 30% and local interest rates soared, currency depreciation exacerbating rising inflation and prompting foreign investors to withdraw en masse. As confidence returned to EM the TL regained its poise to trade back near record highs, although the February/March 2007 correction showed that Turkey was still particularly vulnerable during the EM asset class's periodic bouts of weakness. The Central Bank...

The Turkish lira’s appeal to bond investors remains undiminished. Offering among the highest nominal and real rates of return around (two-year interest rates are in the 18.25% region and inflation is running at 10%), its allure is simple to understand. The risk/reward profile is therefore attractively skewed towards taking on the currency risk, as the amount the currency would have to fall to wipe out coupon payments in the case of a hiccup is reassuringly great, said David Smith, executive director, emerging markets trading at JPMorgan. JPM is...

Medium term, many Turkish banks are looking to the securitisation of existing assets as a new source of funding. But to turn those aspirations and that potential into reality requires data and regulations that are often still lacking. For years many Turkish banks were little more than vehicles for investing in government bonds, and it was only the emergence from the crisis of 2000–2001 – and lower interest rates – that saw the beginning of a market for products like mortgage loans. With only a couple of years’ numbers, RMBS and covered bond...

The figures are startling. In the first quarter, according to Thomson Financial, Turkish corporates have borrowed close to US$9bn – more than during all of 2006. Moreover, the majority of this year's volume is explained by three groundbreaking deals. "Banks are positive towards Turkey and with the FI sector now offering lower returns, lenders are turning to the corporate market," said Raouf Jundi, head of origination MEA at Bank of Tokyo-Mitsubishi UFJ. "While on a pure rating basis, pricing in Turkey seems low, banks take the view that the...

With the presidential election in May and parliamentary elections on November 4, the Turkish ECM market is expected to remain relatively quiet through 2007, as the uncertainty adds to an already volatile backdrop. So far this year, the country has delivered just one IPO, and although bankers report a relatively healthy pipeline, only two more deals are currently confirmed as first half business. "The Turkish primary issuance market is characterised by market windows that open and close relatively quickly. Activity has generally been pretty...

In March this year Turkey passed its first Mortgage Law. The legislation, which had been in the works for several years, regularises the law relating to mortgages, related collateral and bankruptcy, and sets out a framework for the development of a secondary market in mortgages, the precursor to the creation of a covered bond market. But a survey of bankers and lawyers in Istanbul suggests that optimism about the prospects for covered bond issuance in the relatively short term is misplaced. To turn the framework into reality will require action...