January 11, 2018 / 11:15 AM / in a year

Turkish issuers overcome rates speed bump

LONDON, Jan 11 (IFR) - Tuesday proved Turkey day with both the sovereign and development bank, TSKB, printing deals and overcoming a rough day in the rates market that saw 10-year Treasury yields jump 7bp.

Though both issuers appeal to a similar investor base, bankers on the deals denied that there were any negative effects from going head-to-head.

“The issuer was aware the sovereign could come but they have different credit profiles and the deals had different tenors,” said a banker on TSKB.

He said one of the strategies on that deal was to announce the initial price thoughts as early as possible in case the sovereign went ahead later the same day.

In the event the sovereign did announce a Feb 2028 deal a couple of hours later, by which stage TSKB had already garnered an US$800m book for its US$350m no-grow Jan 2023 trade.

That demand peaked at over US$1.1bn, which enabled leads to cut pricing from 340bp area over mid-swaps to plus 325bp.

Calculating what the final spread meant in terms of a concession was difficult to gauge with TSKB May 2021s (a Green bond) quoted at plus 270bp.

One lead reckoned the curve was worth 45bp, making the premium 10bp. But a banker away thought it was a 25bp concession.

Another method - based on state-owned Ziraat Bank’s curve and the pick-up of TSKB versus Ziraat at a 2021 maturity - puts the concession at more like 15bp.

“It was a good solid deal to open the market. We didn’t want to be too aggressive,” said the lead.

A lead on the sovereign’s US$2bn 5.125% 10-year was pleased with that deal’s outcome too, especially given a sell-off in the Treasury market that saw 10-year yields reach 2.59%, their highest level since March. The move was triggered by news that the Bank of Japan had cut purchases of long-end JGBs.

“What’s pleasing is that we got to where we wanted in terms of size and pricing,” he said.

The deal began marketing at 5.40% area before books that topped US$7bn at one point enabled leads to print at 5.20%. Final orders were in excess of US$6bn.

“The book did shrink [from its peak] but we were in such a strong position we were able to overcome the speed bump,” said the banker, referring to the sell-off in Treasuries.

He reckoned the concession was about 10bp, saying leads were aware this wasn’t a market to squeeze pricing to the last basis point. “The market is sensitive to appropriate value across all asset classes,” he said.

Still, Turkey is one of the most attractive sovereigns in the Double B sector on a relative value basis. South Africa, for example, has Sep 2027s bid at 4.63%; Russia June 2028s are at 4.037% (with an extremely high 173 handle); while Brazil Jan 2028s are at 4.51%.

The deal attracted more than 200 accounts with 35% going to UK investors, 25% to US funds, 15% to Turkey, 15% to other Europe and 10% to others, according to a statement on the Treasury’s website.

The bonds traded down half a point in the secondary as the Treasury sell-off continued on Wednesday morning.

Citigroup, Deutsche Bank and HSBC were leads on the Turkey (Ba1/-/BB+) SEC-registered deal.

BNP Paribas, Commerzbank and ING were global coordinators on the TSKB (Ba1/-/BB+) Reg S trade and were joined on the books by Bank ABC, SG CIB, SMBC Nikko and UniCredit.

Editing by Julian Baker

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