CBRT dividends of TL37 bn to be made available to Treasury as early as January
According to Finance & Treasury Minister Berat Albayrak, transfer of Central Bank (CBRT) dividend payment to the Treasury would boost state coffers by TL37 bn, or ca $7 bn. As may be remembered, April deadline for the shareholder’s meeting and subsequent pay-out was brought forward to January as Government seeks to close the gap on funding shortfall and keep low domestic debt rollover going forward. However, some source claim, Albayrak may also deploy the funds for additional social spending without jeopardizing self-imposed non-interest surplus targets.
Although transfer of central bank earnings to Treasury is a standard practice across the developed world and Turkey alike, the optics of calling an extraordinary shareholder meeting didn’t look good, as bringing forward the payment date smacked of desperation according to some commentators. Concerns regarding widening structural fiscal deficits may have a role in this decision, commented Yatirim Finansman investment house research.
Despite structural deficits (Something close to IMF definition of deficits, as compared to the accounting methods used by Turkish Treasury) approaching 3.0% of GDP, the dividends to be collected from CBRT and other SEEs, as well as the fresh $2bn Euro-bond issue (see story below) would temporarily keep funding shortfall fairly limited.
However, rising expenditures and stagnant tax revenues represent a risk on the fiscal balances, especially past 2Q, with most analysts predicting a deepening recession and very low consumer spending. “We believe current path of fiscal policy and expectation of CBRT rate cut as early as in 2Q19 may lead to steeping of the curve and, which means tightening of the 2-10 GB spread from the current 300bps” added Yatirim Finansman.
Turkey taps Eurobond market early as usual at the same time with Saudi Arabia and Israel
Republic of Turkey mandated 3 global investment banks for a 10-y USD-denominated Eurobond issue. Last year, in early January, Treasury likewise issued USD2.0bn worth USD-denominated 10-y Eurobond with a coupon rate of 5.125%. Latest Eurobond issue by the Treasury took place in mid-October – 5-year USD-denominated bond with a coupon rate of 7.25% – after a long hiatus dating back to April 2018.
Turkey has total Central Government external debt payment of UDS9.0bn in the whole of 2019 with March (USD2.25bn) and April (USD2.0bn) accounting for bulk of the due debt payment. Earlier this year, Treasury had announced USD8bn target for borrowing from Eurobond market.
Treasury sold $2 billion in 10-year bonds due April 2029, paying a coupon of 7.625 percent, according to data compiled by Bloomberg. The notes were priced slightly under par. Turkey’s current 10-year bonds, due in October 2028, traded with a yield of around 7.35 percent before the deal was announced on Wednesday morning in New York.
The last time the country raised 10-year dollar debt was in April 2018, before a selloff shaved 40 percent from the lira’s value. While the currency has recovered since, helped by tighter monetary policy, some investors say the prospect of fiscal easing before municipal elections will raise the government’s cash needs, especially as the economy slows.
“Turkey always likes to come early, to get some cash in the bank,” said Timothy Ash, a strategist at BlueBay Asset Management in London. “It will want to get some additional cash in the bank this side of local elections — and while the window for financing has opened as reflected in new deals announced today for Saudi Arabia and also Israel.” (Bloomberg)