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Fitch Rates Turkey's USD1bn 2017 Eurobond 'BB-'

January 09, 2009 | "Fitch Ratings"

Fitch Ratings-London-08 January 2009: Fitch Ratings has today assigned the Republic of Turkey's forthcoming USD1bn eurobond, due on 14 July 2017, a 'BB-' (BB minus) rating. The Turkish Treasury reported the pricing of the bond today. The eurobond has a coupon rate of 7.5% and a spread over US Treasury Bonds of 501 basis points. The rating is in line with Turkey's Long-term foreign currency Issuer Default Rating, which has a Stable Outlook.

"Turkey's sovereign eurobond issue highlights its continued international capital market access in challenging global financial conditions and its relative resilience, so far, to the credit crunch," says Edward Parker, Head of Emerging Europe in Fitch's Sovereigns team. "Nevertheless, Turkey faces a challenging near-term outlook and Fitch believes the timely agreement of a new IMF loan programme will be important to reduce fiscal and external financing risks."

Fitch estimates that Turkey's real GDP growth will fall sharply to 1.8% for 2008 and to minus 0.5% in 2009, compared with growth of 4.5% in H108. The agency views external financing risks as the main uncertainty facing Turkey. Fitch forecasts the country's current account deficit will narrow to around USD23bn (3.6% of GDP) in 2009 from USD43bn in 2008, helped by lower oil prices and weak domestic demand. Nonetheless, medium- and long-term amortisation of USD53bn (including non-resident holdings of domestic debt), plus short-term debt of around USD50bn represent a large financing requirement, relative to foreign exchange (FX) reserves of USD70bn. The external financing outlook might be challenging in current global financial conditions.

However, such concerns are partly mitigated by Turkey's strong banking sector, which is moderate in size, well capitalised, has a close to balanced net external debtor position, has no significant open FX position and a low loan-to-deposit ratio of only 80%. The private sector has external deposits of USD71bn, part of which could be drawn to meet debt payments. Households are long foreign currency, with very low FX debt and sizeable FX bank deposits.

Nonetheless, Fitch believes the timely agreement of a new IMF loan programme will be important to meet part of the "ex-ante" external financing requirement and in buttressing private sector confidence in refinancing maturing debt. Turkey's 2009 budget is based on a GDP growth assumption of 4%, which appears unrealistic in the present economic climate. A fiscal adjustment, which would likely be a condition of an IMF programme, would help to guard against risks of unsettling market confidence and crowding out the private sector in the event of lower capital inflows, and would limit pressures on government debt issuance.

Turkey's sovereign ratings are underpinned by its high GDP per capita, which at USD9,310 (in 2007 at market exchange rates) is the highest in the 'BB' rating category. Prior to the current economic downturn, real GDP growth averaged 6.9% in the five years to 2007. Turkey's other strengths include its favourable business climate and governance, its customs union with the EU, its track record in attracting FDI, low commodity price dependence and good modern debt service record.

Società: Turkey

Nome completo della societàRepublic of Turkey
Paese di registrazioneTurkey


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