Turkey improves after rate hike; Saudi Arabia, African Development Bank tap market

By Rebecca Melvin

New York, Sept. 13 – Turkey’s sovereign and corporate bonds improved on Thursday after the country’s central bank raised interest rates by 625 basis points to combat rising inflation. The central bank move also helped the Turkish lira.

Turkey’s sovereign curve tightened by 45 bps to 60 bps, a London-based trader said.

The Turkish central bank raised its main rate to 24% from 17¾%, citing concerns over rising inflation. In June, the bank raised rates to 17¾% from 8%.

The move cheered investors, who have worried that the central bank isn’t independent from Turkey’s president Recep Tayyip Erdogan, who has said that he wants to keep rates low.

Not only did Turkey improve, but the spectrum of EM debt was firmer overall.

The Kingdom of Saudi Arabia, acting through the Ministry of Finance, priced a $2 billion 10-year sukuk, or Islamic bond, at 99.997 for a yield of 4.304%, or spread of mid-swaps plus 127 bps, according to a syndicate source on Thursday.

The new Saudi sukuk added about 0.25 point in first-day trading, quoted at 100.25 bid, 100.30 offered and pushing its spread to 123 bps on the day.

At pricing, the sukuk’s spread over U.S. Treasuries was 134.1 bps.

Pricing was tightened from initial talk set at mid-swaps plus 145 bps.

Saudi Arabia was in the international market last in April for $11 billion in three tranches maturing in 2025, 2030 and 2049.

African Development Bank also priced a deal, and the deal size was also $2 billion. The multilateral lender priced 3% five-year global Securities and Exchange Commission-exempt bonds at 99.811 for a yield of 3.041%, or a spread of mid-swaps plus 5 bps. That pricing was 2 bps tighter than initial talk.

Books were in excess of $3.4 billion, and Barclays, BNP Paribas, Goldman Sachs International, JPMorgan and TD Securities were bookrunners for the deal.

Calendar builds

Meanwhile, the new issue calendar continued to grow. Saudi Electricity Co. announced that it plans to sell a dollar-denominated sukuk, and the Republic of Korea plans to price one or more dollar-denominated benchmark tranches of notes.

S&P Global Ratings said the Korean tranches will be 10-year and 30-year maturities and said that its rating is based on the country's favorable policy environment, sound fiscal position and net external creditor position.

Secondary movers

The generally stronger market helped new issues. Arab Petroleum Investments Corp.’s new $750 million of 4 1/8% five-year senior notes, which priced on Tuesday, were higher at 100.5 bid, 100.62 offered on Thursday, better by well over 0.5 point after that paper priced below par at mid-swaps plus 117 bps.

Also new to the market is Abu Dhabi-based Al Hilal Bank’s 4 3/8% 2023 trust certificates and Abu Dhabi Islamic Bank’s 7 1/8% new Tier 1 perpetuals.

The Al Hilal trust certificates were seen at 100.27 bid, 100.47 offered on Thursday, and ADIB’s new Tier 1 perpetuals were seen at 100.87 bid, 101.12 offered.

The lira was better by more than 5% on Thursday standing at about 6.10 against the U.S. dollar late on Thursday, compared to 6.35 on Wednesday.

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