Turkey raises $2.25 billion in its first bond deal since the earthquake

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Turkey closed its first international bond deal since last month’s earthquake as the government launched a massive effort to rebuild homes, businesses and critical infrastructure destroyed in the disaster.

On Thursday, the country raised $2.25 billion in dollar-denominated debt in its first overseas market bond transaction since January, according to the Finance Ministry.

The Feb. 6 earthquake caused $34 billion in damage, according to the World Bank, though some engineers and local officials have estimated the eventual reconstruction bill could be as high as $100 billion.

Economists expect Turkey to pay for recovery costs in part through fundraising in debt markets and bilateral deals with international partners, although Thursday’s deal was not marketed as a reconstruction bond.

British, American and other European investors took 70 percent of the bond deal, and 10 percent went to those in the Middle East. Local investors took 19 percent of the issue.

The bonds, which mature in March 2029, were sold Thursday at a yield of 9.5 percent, or 5.2 percentage points higher than US Treasury bonds. That compares favorably with the 6.2 percentage point “split” that Turkey paid on a $2.75 billion bond deal in January. Relatively high borrowing costs reflect Turkey’s highly speculative credit rating.

Turkey has retained access to international financing despite deep concerns about President Recep Tayyip Erdogan’s management of the economy. Inflation exceeded 85 percent last October, as the central bank cut interest rates, unlike most other countries that raised them. The lira has plunged in recent years as international investors shun the market, reaching a record low of 18.96 Turkish lira to the dollar on Thursday.

Investors are closely watching the Turkish presidential election campaign on May 14. It was triggered on Monday when a coalition of six opposition parties chose Kemal Kilicdaroglu as a candidate to challenge Erdogan, who has led the country for two decades.

The opposition coalition, known as the “Table of Six”, has agreed to dozens of policy proposals, including investor-friendly measures such as ensuring the central bank remains independent and focusing on inflation. Erdogan, a longtime opponent of high interest rates, is in fact in control of monetary policy and insisted on lowering interest rates last year.

Erdogan has come under fire over the cost-of-living crisis, the government’s sometimes faltering response to the earthquake and lackluster compliance with building codes that exacerbated the damage caused by the natural disaster. More than 45,000 people died in the earthquake in Turkey and thousands died in neighboring Syria.

“The potential for systemic change is increasing, which was true before the earthquakes, but even more so now that crisis conditions have formed,” Wells Fargo economist Brendan McKenna told clients on Wednesday, while noting that his baseline forecast Still for Erdogan to win. .

If the opposition manages to pull off a surprise, the US bank said, “the lira could see one of the largest gains in recent history with the restoration of an independent central bank and the implementation of the traditional monetary policy framework.”

The debt deal was first reported Thursday by Bloomberg. Deutsche Bank, HSBC and JPMorgan were hired on Wednesday to manage the fundraiser.

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