Republic of Turkey Undersecretariat of Treasury DEBT MANAGEMENT OF - - PowerPoint PPT Presentation

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Republic of Turkey Undersecretariat of Treasury DEBT MANAGEMENT OF - - PowerPoint PPT Presentation

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Republic of Turkey Undersecretariat of Treasury DEBT MANAGEMENT OF TURKEY Choosing between USD or EUR- denominated debt in the international markets K. aatay MRG Deputy Director General Foreign Economic Relations October 19,

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Republic of Turkey Undersecretariat of Treasury DEBT MANAGEMENT OF TURKEY ‘Choosing between USD or EUR- denominated debt in the international markets’

  • K. Çağatay İMİRGİ

Deputy Director General Foreign Economic Relations October 19, 2016

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8.8 5.2 1.1 0.6 1.6 1.8 5.5 3.6 1.4 2.1 1.2 1.3 1.2 1.6 1 2 3 4 5 6 7 8 9 10 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E

Central Government Deficit (% of GDP)

Source: Undersecretariat of Treasury, MoF, MoD, TURKSTAT, IMF 2 E: Realization Estimate, Medium Term Program 2017-2019 67.7 59.6 52.7 46.5 39.9 40.0 46.0 42.3 39.1 36.2 36.1 33.5 32.9 32.8 20 30 40 50 60 70 80 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E

EU Defined Public Debt (% of GDP)

Maastricht Criteria: 60%

Public Deficit & Debt

Fiscal position is Turkey’s main anchor…

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Debt and Risk Management Committee Deputy Prime Minister Front Offices Middle Office Undersecretary of Treasury Back Office

Strategic Benchmark Proposals Strategic Benchmarks

Debt Management Office Structure

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Strategic Benchmarks: The direction we would like to move

Domestic Borrowing:

  • Reduce currency risk:

borrow only in TRY

  • Reduce interest rate risk:

use fixed rate instruments as the major source of domestic borrowing

  • Reduce liquidity risk:

maintain a certain level of cash reserve

  • Reduce refinancing risk:

increase the average maturity of domestic cash borrowing

External Borrowing:

  • Diversification:

expand investor base

diversify borrowing instruments

4

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Source: Undersecretariat of Treasury 5

Annual Domestic & External Borrowing

96.3 138.9 159.0 111.7 101.5 141.2 127.9 90.4 10.9 11.3 14.9 9.3 13.6 13.5 17.7 7.5

25 50 75 100 125 150 175 200

2008 2009 2010 2011 2012 2013 2014 2015

Domestic Borrowing External Borrowing

(Billion TL)

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Composition of Central Government Gross Debt (%)

57.0 53.4 56.0 59.2 59.8 61.5 65.2 67.6 68.2 37.3 38.0 32.8 28.4 25.9 22.1 18.3 17.7 17.3 5.7 8.5 11.2 12.4 14.3 16.4 16.5 14.7 14.5

25 50 75 100

2008 2009 2010 2011 2012 2013 2014 2015 2016 Aug.

Fixed Floating Indexed to CPI

Source: Undersecretariat of Treasury

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53.7 58.5 62.4 62.8 68.7 66.2 70.9 73.3 70.4 72.7 68.8 67.7 65.0 64.5 46.3 41.5 37.6 37.2 31.3 33.8 29.1 26.7 29.6 27.3 31.2 32.3 35.0 35.5

25 50 75 100

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 August

TL Foreign Exchange

Currency Composition of Central Government Debt (%)

Source: Undersecretariat of Treasury

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Domestic & External Sources of Financing

Domestic Financing

  • TL Denominated Issuances:
  • Fixed Coupon Bonds (2, 5, 10 years)
  • Zero-coupon Bonds (up to 2 years)
  • Floating Rate Note (7 years)
  • CPI Indexed G. Bond (5, 10 years)
  • Treasury Bill (shorter than 1 year)
  • Lease Certificates (2 years)
  • CPI Indexed Lease Certificates (5 years)
  • No FX issuance since 2010

External Financing

  • USD Denominated Eurobonds (SEC

Registered - 21 Outstanding)

  • EURO Denominated Eurobonds (SEC

Registered - 5 Outstanding)

  • Lease Certificates (144A /REGS – 4

Outstanding)

  • Samurai Bonds (4 Outstanding)
  • Other Alternatives
  • CHF?
  • MYR?
  • Panda?
  • Green Bond?
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Treasury Financing Program

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External Market Activities

3.9 3.8 4.0 5.5 3.0 4.0 3.8 4.0 2.0 4.5 3.0 4.0 3.0 4.5 1.4 2.0 2.5 1.5 1.6 2.7 1.7 1.4 2.2 1.1 0.2 0.9 1.5 1.50 1.0 1.0 1 2 3 4 5 6 7 8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

USD Euro (USD Equivalent) Yen (USD Equivalent) Lease Certificate (USD)

(*) As of October, 2016 $, billion Source: Undersecretariat of Treasury

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Currency Composition of Eurobond and Sukuk Debt Stock

(*) As of October, 2016 Source: Undersecretariat of Treasury

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Investor Composition of Debt Stock

(*) As of September, 2016 Source: Undersecretariat of Treasury, BRSA

Domestic Debt Stock Eurobond and Sukuk Debt Stock

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External vs. Domestic Borrowing

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Why we issue international bonds despite the deep domestic market?

  • Finance current account deficit

Turkey is a CAD producing country

The Treasury raises $4.5-6.5 billion each year

  • Reduce cost

Lower nominal coupons and relative cost advantage

  • Increase average maturity
  • Broaden the investor base
  • Establish a benchmark for private sector
  • Attract foreigners to the domestic market
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External vs. Domestic Borrowing

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How we decide on share of the external borrowing?

  • Domestic rollover ratio
  • FX portion of debt stock
  • Redemption profile
  • Domestic and external borrowing conditions
  • Absorption capacity - External market is not unlimited
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USD vs. EURO?

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What we look at:

1.

Strategic diversification benefit

2.

Relative cost

3.

Ease of access to markets – execution risk

4.

Liquidity conditions – market backdrop What we don’t look at:

1.

Currency expectations – don’t speculate on currency

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Benchmark Yields

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  • 0.50

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16

Yield (%)

USD 10 Year EUR 10 Year 10 Year Government Yields

Source: Bloomberg

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Basis Swaps & Relative Cost

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  • 60
  • 50
  • 40
  • 30
  • 20
  • 10

10 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Spread (bps)

10 Year USD-EUR Basis Swaps

Source: Bloomberg 50 100 150 200 250 300 350 400 450 50 100 150 200 250 300 350 400 450 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16

Spread (bps) Spread (bps)

Difference (RHS) EUR 2023s USD Equivalent Z-Spread (LHS) USD 2024s Z-Spread (LHS)

Relative Cost Between USD and EURO

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Drivers of the Level of Basis Swaps

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  • Monetary policy divergence among developed countries

 Investors' demands for USD denominated assets  Corporate FX-hedged Bond Issuance

  • Reduced appetite for arbitrage and decline in liquidity

 Market making activities in US money market

  • Decrease in USD supply from real money investors
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Final Thoughts

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  • There is a trade-off between diversification and cost.
  • Keeping investor base engaged pays off in the long run.
  • Having all options open matters for an EM issuer.
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THANK YOU

For further information please contact our Investor Relations Office http://www.hazine.gov.tr/link/iro E-mail: iro@hazine.gov.tr Tel: +90 312 204 6217 Fax: +90 312 204 7366