Emerging Markets: Turkey prices $2 billion 5.5-year notes; Fitch cuts Russian banks

By Rebecca Melvin

Concord, N.H., March 18 – The Republic of Turkey waded into the emerging markets bond market late in the past tempest-tossed week to price $2 billion 8.6% global notes due Sept. 24, 2027.

The North Atlantic Treaty Organization member, which also maintains economic and military ties to Russia, tapped the primary market after the Federal Reserve kicked off its expected rate-hiking cycle with a 25 basis points increase to the Fed funds rate on Wednesday.

Turkey priced the 5.5-year notes at 99.892 on Thursday to yield 8 5/8%, or a spread over U.S. Treasuries of 645.1 basis points. The notes are expected to settle on March 24 and be listed on the Luxembourg Stock Exchange regulated market.

Citigroup Global Markets Inc., Goldman Sachs International and J.P. Morgan Securities plc were bookrunners of the notes deal for the sovereign, which was called upon this month to help NATO mediate between the governments of Moscow and Ukraine’s Kyiv.

Russia’s invasion of Ukraine has met with widescale condemnation, inspiring moral outrage in many parts of the globe, but also economic and financial uncertainty as stiff economic sanctions imposed by the West against Russia are reportedly beginning to bite.

Aside from Turkey, the emerging markets bond primary market was mostly quiet along with other corners of the bond market like high yield. Both emerging markets and high-yield bond funds saw another week of outflows, according to data tracker EPFR in its weekly update published Friday.

But the expected Fed rate increase was greeted with relief among equity indexes, which climbed Wednesday through Friday. This could clear a path to a more active March 21 week for new debt deals.

Meanwhile, the rating agencies continued to pelt Russia with downgrades. Fitch Ratings said it dropped the long-term foreign-currency issuer default ratings for Russian financial institutions to CC from B and removed them from rating watch negative.

The downgrades follow Fitch cutting Russia’s sovereign ratings to C on March 8, the agency said.

The banks downgraded include SB Capital SA, Credit Bank of Moscow, CBOM Finance plc, TCS Finance DAC, Eurasia Capital SA and PJSC Bank Zenit, Russian Agricultural Bank, Alpha Holding Issuance plc, AO Toyota Bank, Gazprombank, Rosbank, Alfa Bond Issuance plc and Tinkoff Bank.

The agency also dropped the subordinated debt ratings for Alfa Bond Issuance, TCS Finance DAC, SB Capital and Eurasia Capital to C.

Fitch cuts GTLK

Fitch Ratings said it cut its ratings for JSC GTLK’s foreign- and local-currency issuer default ratings to CC from B and removed them from rating watch negative.

The foreign-currency downgrade follows Fitch cutting Russia’s sovereign foreign-currency IDR to C from B on March 8, the agency said.

GTLK’s foreign-currency bonds were issued through its GTLK Europe DAC and GTLK Europe Capital DAC units.

Fitch said it sliced the local-currency rating to indicate the heightened default risk on GTLK’s ruble-denominated “bonds because of potential restrictions imposed by authorities on LC debt payments to certain international creditors under the presidential decree of March 5.”

On Friday, emerging markets-focused VEON Holdings BV reiterated its currency election option under three series of ruble-denominated notes, reminding investors in a press release how they can elect to receive interest or principal payments in U.S. dollars.

Under the terms of the notes, holders may notify Citibank NA London Branch as principal paying agent to receive payments in dollars if they do so on or before the 10th business day prior to an interest or principal payment date, the company said.

The currency option pertains to RUB 20 billion 6.3% ruble-denominated notes maturing June 2025; RUB 10 billion 6˝% ruble-denominated notes maturing September 2025; and RUB 20 billion 8 1/8% ruble-denominated notes maturing September 2026.

Amsterdam-based VEON provides mobile and fixed-line telecommunications services through its subsidiaries in emerging markets.

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