Following Moody’s decision to downgrade the Turkish sovereign to Ba1, the ratings agency has lowered the ratings of the country’s banks including Akbank, Alternatifbank, Ziraat Bankasi, Turkiye Halk Bankasi, Turkiye Vakiflar Bankasi, Turkiye Garanti Bankasi, Yapi ve Kredi Bankasi and Turkiye IS Bankasi.
Conversely, Turkish corporates have avoided downgrades. The Baa3 stable ratings of Koc Holding, Coca-Cola Icecek and Turkcell were all reaffirmed by Moody’s, as well as the Ba1 ratings of Turkiye Sis eve Cam Fabrikalari and Turkiye Petrol Rafinerileri.
However, there is usually a slight time delay on such action according to analysts, so there could be a change in line with the sovereign ceiling for the corporates despite the strong fundamentals they possess.
These fundamentals allow Turkish corporate debt to trade reasonably tight against the sovereign. Although corporate bonds have weakened slightly following the downgrades, they are still outperforming the sovereign. This is bolstered by the fact that there is a scarcity value in the country’s corporate debt, as there are not a lot of entities in the market.
“For funds that need exposure to Turkey for diversification amongst other reasons, the choices are limited, and there are only about 5-10 corporates to pick from,” said a London based CEEMEA focussed trader.
This demand for Turkish corporate debt could lead to other entities to look at tapping the markets to capitalise on the tight pricing.
“Ee have only seen the main established corporate entities in the markets; the Turkish banking sector is very advanced, so that has to some extent substituted the bond market,” the trader noted.
“That said, larger corporates that need longer term financing or want to diversify their sources of funding might tap the markets. There are more corporates, the market just needs to mature further for such corporates to enter the markets.”
Any new corporates that do tap the markets are likely to find sufficient demand. Investors are still searching for yield, and the environment remains very supportive for EMs.
In addition, Turkey’s sovereign downgraded will simply shift the investor base from IG investors to high yield investors. “A certain pocket of money flows out, but another pocket of money will flow in,” stated the trader, who added that corporates in the telecoms, banking and consumer sectors would likely perform well.