Bonds & Loans: Following a tough year in 2018, Turkey is now on the road to recovery. Given the current macroeconomic backdrop, how do you perceive investor sentiment towards Turkey today?
Yiğit Arslancık: Investor sentiment towards Turkey improved over the course of 2019, with generally conducive conditions for new Turkish bond issuance through the end of Q3 in international markets. This was exemplified by the Turkish Sovereign’s most recent deal in July, when the Republic of Turkey issued a new 5yr USD2.25bn Senior Unsecured Eurobond that attracted an impressive pre-conciliated orderbook of around USD6.3bn. HSBC acted as the bookrunner and billing and delivery agent on this deal which effectively re-opened the international market for Turkish bond issuers following prior months of volatility.
HSBC’s ongoing dialogue with investors gave us insight into strong buying interest from investor accounts in the late summer and early autumn months as sentiment towards Turkey improved in line with increasing focus to wider EM.
Additionally, in September we hosted the HSBC Global Emerging Markets Investor Forum in London, where several of our Turkish clients met with bond and equity investors. These meeting resulted in strong interest from investors, which is certainly positive. Considering the strong reception received by the sovereign deal, our ongoing investor dialogue and the improving macro backdrop, we feel that international bond issuance from Turkey is set to continue to recover in Q4. The recent geopolitical developments in Syria region led to a level of uncertainty for a period, however market sentiment is on track to return to a more stable environment.
Bonds & Loans: How do you see the bond supply evolving over the coming months? Which sectors are likely to drive deal flow?
Yiğit Arslancık: As highlighted earlier, the market may require clarity, so it may take some time for things to settle down. However, due to recent developments, we expect to see bond issuance pick up over the coming months.
The sovereign is a dynamic issuer with the ability to act swiftly and take advantage of attractive issuance windows. There are several bank issuers who were expected to come to market while Turkish corporates are more diverse and come to market less frequently with no particular sector driving volume.
Bonds & Loans: Have you seen Turkish borrowers lean more towards the syndicated loan markets or the bond markets?
Yiğit Arslancık: It is worth mentioning that issuers do tap the bond market when available because it can help leave banking liquidity available, which is of greater help during periods of market volatility or when the bond market is unavailable or very expensive. The volatility fuelled by the currency crisis of 2018 seems to be improving, as demonstrated by improvements in exchange and interest rates. The economy is clearly on a more stable path and we expect an increase in appetite for bonds and syndicated facilities as market sentiment improves, when compared to last year’s macroeconomic outlook. As such, although the current political outlook has briefly interrupted the capital markets, we expect that improving market conditions will support a greater portion of bond issuance and a more dynamic syndicated loan market in the coming days.
Bonds & Loans: As a signatory of the 2015 Paris Convention on climate change, Turkey committed to reducing greenhouse gas emissions by 21% by 2030. Have you seen an uptake in Turkish borrowers using green and/or sustainability-linked financing tools? How is HSBC engaging with the efforts of borrowers in this area, give its expertise and commitment to providing USD100bn of funding for green initiatives?
Yiğit Arslancık: You’re correct – Turkey’s commitments to the Paris Agreement will require investment in low-carbon sources, energy efficiency projects, and clean transportation projects.
However, partly because of broader macro factors, we have only seen a handful of sustainable bond issuances from Turkey up until now. TSKB has issued two sustainability bonds at a total value of USD600mn and ELZ Finance, acting as an issuer on behalf of Elazig Saglik Yatırım AS, has issued a total of USD305mn for a value of three sustainability bonds. HSBC was Joint Lead Manager on all of these issuances. The sustainable bond market is still in an early stage of development in most emerging markets, including Turkey. Following a few deals last year, we saw Turkey becoming more active in the green loans market.
However nascent, HSBC is strongly supportive of this market, acting as a trusted advisor to our clients, sharing our best practices and innovations that may have relevance to the Turkish market. We remain the leading bank for sustainable finance and maintain our global leadership in green, social and sustainable bonds.
Some of the key developments under HSBC’s USD100bn commitment sustainable finance include:
- Sustainability-linked lending has been a key area of development for us over the past year, including the introduction of green loans, sustainable supply chain financing, and sustainability-linked loans
- HSBC participated in the development of the Green Loan Principles which were published in March 2018, and subsequently introduced a formal green loan framework for clients
- In the UK, we recently expanded the green loan offering for Commercial Banking clients to loans as small as GBP300k, making the product available to a wide range of smaller businesses in addition to larger corporates and other institutions
- Early this year, we announced a partnership with Walmart to offer better trade financing terms to suppliers who can prove they have a lower environmental impact; this is part of a sustainable supply chain financing programme we have introduced through our Global Trade and Receivables Finance business
- We supported the development of the Sustainability Linked Loan Principles and are active participants in this area of the growing sustainability loans market
Bonds & Loans: How does HSBC work to maintain strong relationships with borrowers and investors?
Yiğit Arslancık: The global liquidity squeeze exacerbated by trade wars and looming global economic downturn have presented obstacles to attracting the local and foreign investment Turkey deserves. However, compared to last year’s macroeconomic outlook, we expect that Turkey will be a much more attractive destination for foreign investment in the next three to four-year period. With a solid industry base, strong human capital, developed infrastructure, and geographic advantage, Turkey is a fruitful destination for investors seeking lucrative returns. As HSBC Turkey, we aspire to contribute to the Turkish economy and private sector’s financial stability in these volatile periods by leveraging our international network and expertise to create value for investors and borrowers. As its geographic position makes Turkey an essential part of the global economy, we are also ideally positioned to support our borrowers to benefit from HSBC’s unique value proposition and international presence.
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