[A-List] Turkey: Being on the "right" side of the war

[Sabri Oncu]

Friday December 6, 2:20 AM

Turkey Returns As A Top Sovereign Debt Issuer In 2002

By Angela Pruitt
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--After being exiled from international
capital markets most of last year, Turkey returned to emerging
market debt with a vengeance in 2002, retaking its mantle as one
of the biggest sovereign issuers in the industry.

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Following a $400 million reopening this week of its existing
global bond maturing in 2012, Turkey ranks second with the
Philippines after Brazil as offering the most sovereign debt
overseas, according to data provided by Merrill Lynch. The
country issued some $3 billion in debt so far this year. About
one-third of the issuance has been placed since early November in
the aftermath of the country's elections and amid declining risk
aversion globally.

Turkey and Argentina were the biggest suppliers of new emerging
market bonds before severe economic crises in 2001 forced them
out of the overseas capital markets. Indeed, a currency
devaluation, a severe recession, skyrocketing interest rates and
a brush with domestic debt restructuring last year sullied
Turkey's reputation with investors.

Although the country still faces vulnerable economic conditions,
Turkey, unlike Argentina, managed a turnaround due to its
geopolitical importance in the U.S.-led war against terrorism and
expectations the government will eventually be admitted to the
European Union. Also, expectations of political stability after
the Nov. 3 election is fueling optimism.

"The fact that one party is in control, the political squabbling
in parliament regarding policy disappears," said Isaac Tabor,
head of fixed-income emerging markets research at Merrill Lynch.
The Islamist-based Justice and Development Party, or AKP, secured
363 seats in the 550-seat parliament in November, marking the
first stable majority in twenty years.

Amid the improved market tone, Turkey was the best performing
sovereign in November, garnering some 10% in returns as
calculated by the widely-tracked J.P. Morgan Emerging Markets
Bond Index Plus.

Analysts say the latest round of issuance from Turkey is likely
pre-financing for the government's $3.5 billion financing needs
targeted for 2003. However, they say the government is likely to
surpass their goal by at least $2 billion.

"I think Turkey will be up there (either) number one or two in
terms of issuance" next year, said Kaushik Rudra, an analyst at
Lehman Brothers. He said that preceding the elections, most
investors were either underweight or marketweight Turkish bonds
and are using the new offerings to increase their country
exposure.

"The existing bonds have rallied so much (it's) not as compelling
to get into those bonds. (Investors) are using the primary
issuance to cover those positions," he said.

The threat of an involuntary local debt restructuring has also
faded as the government's debt-servicing costs drop amid a sharp
decline in interest rates. Analysts say the government should
have no problem in rolling over an estimated $70 billion in
domestic debt next year.

And observers note it's wise of the government to delve into
overseas markets given it's a cheaper alternative to the local
sector.

"To the degree the government (adopts) the right policies and
continues on the right path," the market will accept more
issuance from Turkey, said a New York portfolio manager. However,
he said investors would frown if the government went on to issue
a tremendous amount of new debt.

Turkey has already secured $31 billion in loans from the
International Monetary Fund. The Fund said this week the country
does not need any additional financing.

Among the key risks that could derail Turkey's performance is a
potential war between the U.S. and Iraq, analysts say.

"It helps that Turkey will be on the right side of the war," said
Lehman's Rudra, referring to aid the country is likely to receive
for its support to the U.S. "The initial impact will be negative.
People will sell (their) assets on heightened risk aversion."

-By Angela Pruitt, Dow Jones Newswires, 201-938-2269,
angela.pruitt at dowjones.com

Article at:
http://sg.biz.yahoo.com/021205/15/35g9o.html