The treasury has mandated JP Morgan and SBC Warburg to arrange a five- year, US dollar Eurobond, despite a downgrading of Turkey’s long-term debt rating by the US’ Moody’s Investors Service on 13 March. The issue will be launched in early April.
The Eurobond issue, valued at upwards of $250 million, will be marketed mainly in Europe and Asia, but a substantial portion will be offered in the US. Turkey’s international credit rating suffered temporarily from the downgrading, but bidders for the mandate did not subsequently revise their offers, treasury sources say.
Moody’s downgraded its long-term sovereign debt rating and also its external bond rating to B1 from BA3. The agency also downgraded the long-term deposit rating of 14 local banks.
The move by Moody’s is the latest in a series of downgradings by international risk rating agencies: the US’ Standard & Poor’s (S&P), for example, in December downgraded its long-term debt rating for Turkey to B from B+. Partly as a result of the downgradings, costs have increased for international borrowing by both private and public sector bodies (MEED 3:1:97; 21:3:97).
Moody’s said its rating was reduced due to political uncertainty, failure to introduce structural reforms, and the country’s weakening financial position. The agency noted the public sector borrowing requirement had reached almost 10 per cent of gross national product, and though it welcomed recent initiatives, the agency said the government’s 1997 target for $10,000 million in privatisation revenues seemed unrealistic.
The Eurobond issue follows the settlement on 18 March of a five-year, IL 300,000 million ($177 million) bond lead managed by Chase Manhattan Bank with a coupon of 9 per cent . The treasury in late January also successfully launched a seven-year, DM 500 million ($296 million) Eurobond with a coupon of 7.75 per cent lead managed by Commerzbank and Deutsche Morgan Grenfell.
The treasury will need to obtain about $2,000 million in 1997 in fresh borrowing abroad for external debt servicing totalling about $5,700 million. Total debt service costs are expected to reach $11,800 million, treasury sources say. In 1996, the treasury borrowed the equivalent of $2,800 million for balance-of-payments purposes.