Investor explosion over Türkiye Wealth Fund’s $500 million bond deal

Turkey Wealth Fund’s $500 million bond issuance agreement received over $7 billion in demand. The British Financial Times wrote that many financial giants, from JPMorgan to Banc of America, have begun to trust the Turkish economy more.

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Turkey Wealth Fund issued bonds in international markets on February 7, after meetings with investors in London.

The starting price of the 5-year forward transaction, which is in the Reg S structure and offered to investors outside the United States, was determined as 9.125%.

More than 7 billion dollars of demand was received

The transaction attracted great interest from investors immediately after the opening, and over $7 billion was demanded for the bond issue. After two subsequent price revisions, the return rate was reduced to 8.375%.

Demand for TVF’s bond issue increased 14.5 times

The fact that the demand for the Turkish Wealth Fund’s 500 million dollar bond issue was over 7 billion dollars strengthened the confidence of foreign investors in the Turkish economy.

International confidence in the Turkish economy has been proven

The interest in bond issuance following the change of management at the Central Bank once again showed the confidence of international markets in the Turkish economy and new economic policies. Investors’ demands continue.

Financial Times analysis: “Turkey Wealth Fund tests investor appetite with $500 million bond deal”

Turkey Wealth Fund is continuing its plans for the first international bond deal to test investors’ interest in the country’s assets after Central Bank Governor Hafize Gaye Erkan left his post last week.

Banks chartered by the Turkey Wealth Fund began offering a US dollar-denominated bond to investors this week and began taking orders on Wednesday, according to an analysis by the British economic newspaper Financial Times. The fund aimed to raise approximately $500 million.

TVF’s fundraising plans come after Central Bank Governor Hafize Gaye Erkan resigned late Friday after a seven-month tenure in which he increased interest rates from 8.5 percent to 45 percent.

The “little chaos” created by the change in the Central Bank was ignored

Domestic and foreign analysts have largely discounted Turkey’s latest central bank reshuffle, predicting that Erkan’s replacement, Vice President Fatih Karahan, will stick to his policy of using high borrowing costs as the main tool to reduce inflation, which is approaching 65 percent.

Five-year TWF bonds were offered with a yield of approximately 9.125 percent, according to a specification. This compares with about 7.6 percent for Turkish government dollar bonds maturing in March 2029.

Founded in 2016, TVF has shares in many Turkish companies, infrastructure and real estate assets, including Turkish Airlines, several major credit institutions and the country’s stock exchange, Borsa Istanbul. The fund also has full ownership of energy group Botaş, considered one of Turkey’s most important assets, the national postal company PTT and a major port near the western city of Izmir.

TVF declined to comment on its fundraising plans.

Foreign investors came back with Erdogan’s revision

The controversial TWF agreement came to the fore as foreign investors, who had largely abandoned Turkey’s local and international assets in the last decade, began to return with a broad economic overhaul following President Recep Tayyip Erdoğan’s re-election in May. The Central Bank’s interest rate increases, which reversed Erdogan’s insistence on keeping borrowing costs low, became one of the mainstays of the program.

Tighter monetary policy may continue

Analysts emphasized that they expect Karahan to continue his tighter monetary policy.

“Unlike previous leadership changes, Erkan’s resignation does not appear to be due to any disagreement between the country’s political leadership and the central bank,” Goldman Sachs economist Clemens Grafe said.

“We see no reason to doubt that Karahan will follow a path similar to that chosen by his predecessor,” Grafe added.

JPMorgan economists similarly told clients that Karahan, a former New York Federal Reserve Bank economist, “is likely to keep monetary policy tight for longer.”

Confidence was renewed, BIST 100 stock index rose by 3 percent

Turkish asset prices generally reflected economists’ calm reaction to Karahan’s appointment and helped support bankers’ confidence in proceeding with the TWF deal.

While the Turkish lira has fallen slightly against the dollar since Erkan’s resignation, the benchmark BIST 100 stock index has risen 3 percent.

Cost of hedging against Turkish debt default falls by 10 basis points

The cost of hedging against a Turkish debt default using five-year credit default swaps, a key measure of the perceived risk of holding Turkish assets, has fallen about 10 basis points since last Thursday to 330 bps, according to FactSet data.

There are many bookrunners, from JPMorgan to Bank of America and QNB

BBVA, JPMorgan and Standard Chartered are the joint global coordinators and bookrunners for the TVF transaction, while Bank of America, Emirates NBD Capital, ICBC, ING, QNB Capital and Société Générale are also among the bookrunners.

Purpose of establishment of Türkiye Wealth Fund

Established within the framework of Law No. 6741 dated 2016, TVF currently has an asset portfolio consisting of 30 companies from 7 different sectors, 2 licenses and real estate.

TWF is an asset-based development fund and focused on value creation. It contributes to the growth targets of the organizations in its portfolio.

The fund aims to create a structure that can finance itself by obtaining license, profit and rental income from the companies where it creates value. It also works to provide capital support to Turkey’s visionary projects.

Its ultimate goal is to support companies in Turkey to become regional and global leaders through strategic investments, to contribute to the improvement of financial markets and to leave a country with a strong economy to future generations.