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Foreign investors are investing in Turkish stocks and bonds because of Ankara’s economic policy overhaul, fueling interest from fund managers who have left the country in recent years.
A trio of deals this week is the latest sign of how some foreign investors are keen to test the waters after Turkey’s President Recep Tayyip Erdoğan made a sudden shift in economic policy after winning the May general election.
Turkish lenders Vakıfbank and Yapi Kredi successfully sold a collective $1.3 billion in dollar-denominated bonds, while baby goods retailer Ebebek attracted two dozen foreign institutional investors for its $70 million initial public offering.
“Recent months have seen a remarkable and positive shift in international investor interest in Turkey’s capital markets,” said Selim Karavanci, chief executive officer of HSBC Turkey. “This interest is widespread due to demand from the UK, Europe, America and the Middle East to re-focus on Turkey as an investment destination.”
Ebebek has attracted far more institutional foreign money managers than any other IPO on Istanbul’s stock exchange so far this year, according to Financial Times calculations based on corporate disclosures, while the average 2023 deal involved only two international institutional investors. Investors have joined. Many deals this year have been heavily dependent on Turkish retail investors, who have jumped into the market to avoid a crippling inflation crisis.
According to regulatory filings, US-based Franklin Templeton and emerging markets specialist East Capital acquired a little more than 5 per cent of Abebec shares on offer. It is the first time this year that a mainstream foreign fund manager has bought such a significant portion of a Turkish IPO.
Foreign investors have pumped about $1.4 billion into Turkey’s equity market since the beginning of June, but the country’s stocks and bonds have plummeted after Erdoğan’s unorthodox policies destabilized Turkey’s $900 billion economy and triggered an inflationary crisis. Allocation remains at a historic low.
“High-quality institutional foreign investors are now starting to show more interest with the decisions being taken in Turkey’s economy,” said Tunç Yıldırım, Head of Institutional Equity Sales at UNLU & Co., which led the Ebebek IPO.
Yildirim said interest among foreign investors has “intensified” after Turkey’s central bank last month raised interest rates by 7.5 percentage points, more than the market expected, as it ramped up its fight against inflation. Has accelerated. The increase was seen by many investors as a sign that the head of the central bank, Hafez Gay Erkan, who was appointed in June, is fulfilling his pledge to restore price stability by reversing the low-rate policies implemented at the direction of Erdoğan. are serious about.
Jacob Grapengiesser, chief investment officer at East Capital, described the big rate hike as a “game changer.” He added that asset managers were “quite lightly deployed in Turkey but we are gradually increasing positions”. [since the election],
Hopes Turkey would stick to its new economic plan were further boosted on Wednesday when Erdogan, a lifelong opponent of high borrowing costs, pledged to use “tighter monetary policy” to fight inflation, which the government forecasts will hit 65%. To reach per. percent by the end of the year.
The Vakifbank and Yapi Kredi deals also highlight that the companies are starting to look at tapping international bond markets, which many officials and bankers had largely closed to Turkish entities since the beginning of this year. Economic concerns had increased.
State bank Waqifbank raised $2.2 billion in orders for its $750 million five-year durable dollar bond deal, according to term sheets seen by the FT. The deal was the first major international bond issuance by the Turkish entity since April, with a yield of just over 9 percent, Deallogic data showed. Another Vakıfbank dollar bond maturing in 2026 traded with a yield of 12 percent in May at a time of severe turmoil in Turkish markets.
In another sign that debt capital market activity is heating up, Yapi Credi, another large Turkish lender, sold $500 million of five-year durable dollar bonds at a yield of 9.4 percent, leading to $1 billion in orders for the deal. Attracted. A senior capital markets banker at a major Western bank said other Turkish companies are also in the process of making loan deals.
One trend that could benefit Turkey’s capital markets going forward is that a wider group of investors are now considering Turkish financial assets, said Kervanci at HSBC, adding: “Investors [are] Looking to invest in a wide range of listed Turkish customers beyond the main blue-chip names and exporters.”