TURKEY: Treasury to sign $500 million loan

28 April 1995

The treasury was expected to sign a $500 million general purpose syndication in London on April 26. The deal would be the first from the international commercial markets after almost a year of absence during the economic crisis. Plans are also being discussed for a second borrowing.

The three-year syndication will be at a fairly high all-in cost of 345 basis points over the London interbank offered rate (Libor). But the treasury's main purpose in the deal is to re-establish Turkey's presence and creditworthiness in the markets, bankers say.

Ample fees to attract the banks explain the high total cost above the nominal interest spread of 175 basis points over Libor, bankers say. Rates may come down for further Turkish borrowings if economic recovery continues, they add.

The treasury will wait on market developments before attempting another borrowing, however, according to senior treasury sources. In 1995, the treasury will probably seek about $1,500 million, to a maximum of $2,000 million, in fresh borrowing to help meet external debt servicing requirements totalling around $6,500 million-7,000 million for the year.

Although the type of instrument for the next borrowing has not been decided yet, it will not be another syndication, the sources say. An option may be the Deutschmark bond market, as ratings difficulties hinder access to the Tokyo samurai and US Yankee bond markets.

However, US risk ratings agencies Standard & Poors and Moodys Investor Service have asked to come to Turkey soon for an assessment of the situation, the sources say. The government will be hoping that the agencies will decide to upgrade Turkey, after the country was lowered to the sub-investment grade in 1994.

Participants in the $500 million syndication are: Bank of Tokyo, Chase Manhattan Bank, Chemical Bank, Citibank, Commerzbank, Fuji Bank, JP Morgan & Company, Sakura Bank, Sanwa Bank, Sumitomo Bank, and UBS, securities houses Morgan Stanley, Nomura, Yamaichi, and Goldman Sachs, and the three domestic institutions, Is Bankasi, Halk Bankasi and Vakiflar Bankasi.

The loan will be in two tranches, a $240 million conventional syndication, and a $260 million floating rate note (FRN). The four securities houses are all in the FRN tranche, and are expected to sell it down quickly. The treasury itself is acting as arranger, while Chase and Citibank are agents respectively for the loan and FRN portions.

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