republic of turkey undersecretariatof treasury debt...
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Republic of TurkeyUndersecretariat of Treasury
DEBT MANAGEMENT OF TURKEY
‘Choosing between USD or EUR-denominated debt in the international
markets’
K. Çağatay İMİRGİDeputy Director General
Foreign Economic Relations
October 19, 2016
8.8
5.2
1.10.6
1.61.8
5.5
3.6
1.42.1
1.2 1.3 1.2 1.6
0123456789
10
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
E
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
52.746.5
39.9 40.046.0
42.339.1
36.2 36.133.5 32.9 32.8
20
30
40
50
60
70
80
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
E
EU Defined Public Debt (% of GDP)
Maastricht Criteria: 60%
Public Deficit & Debt
Fiscal position is Turkey’s main anchor…
3
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
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
Source: Undersecretariat of Treasury 5
Annual Domestic & External Borrowing
96.3
138.9159.0
111.7101.5
141.2127.9
90.4
10.9
11.3
14.9
9.313.6
13.517.7
7.5
0
25
50
75
100
125
150
175
200
2008
2009
2010
2011
2012
2013
2014
2015
Domestic Borrowing External Borrowing
(Billion TL)
6
Composition of Central Government Gross Debt (%)
57.0 53.4 56.0 59.2 59.8 61.5 65.2 67.6 68.2
37.338.0 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
0
25
50
75
10020
08
2009
2010
2011
2012
2013
2014
2015
2016
Aug
.
Fixed Floating Indexed to CPI
Source: Undersecretariat of Treasury
777
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
0
25
50
75
10020
03
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Aug
ust
TL Foreign Exchange
Currency Composition of Central Government Debt (%)
Source: Undersecretariat of Treasury
8
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?
9
Treasury Financing Program
10
External Market Activities
3.9 3.8 4.05.5
3.04.0 3.8 4.0
2.0
4.53.0
4.03.0
4.5
1.4 2.02.5
1.5
1.6
2.7
1.7
1.4
2.2
1.1 0.2
0.91.5
1.50
1.0
1.0
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
11
Currency Composition of Eurobond and Sukuk Debt Stock
(*) As of October, 2016
Source: Undersecretariat of Treasury
12
Investor Composition of Debt Stock
(*) As of September, 2016
Source: Undersecretariat of Treasury, BRSA
Domestic Debt Stock Eurobond and Sukuk Debt Stock
External vs. Domestic Borrowing
13
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
External vs. Domestic Borrowing
14
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
USD vs. EURO?
15
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
Benchmark Yields
16
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50Ja
n-13
Mar
-13
May
-13
Jul-1
3
Sep-
13
Nov
-13
Jan-
14
Mar
-14
May
-14
Jul-1
4
Sep-
14
Nov
-14
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep-
15
Nov
-15
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep-
16
Yiel
d (%
)
USD 10 Year EUR 10 Year
10 Year Government Yields
Source: Bloomberg
Basis Swaps & Relative Cost
17
-60-50-40-30-20-10
010
Apr-
14M
ay-1
4Ju
n-14
Jul-1
4
Aug-
14
Sep-
14O
ct-1
4
Nov
-14
Dec-
14Ja
n-15
Feb-
15M
ar-1
5
Apr-
15M
ay-1
5
Jun-
15Ju
l-15
Aug-
15
Sep-
15O
ct-1
5
Nov
-15
Dec-
15
Jan-
16Fe
b-16
Mar
-16
Apr-
16M
ay-1
6
Jun-
16Ju
l-16
Aug-
16Se
p-16
Spre
ad (b
ps)
10 Year USD-EUR Basis Swaps
Source: Bloomberg
050100150200250300350400450
050
100150200250300350400450
Apr
-14
May
-14
Jun-
14
Jul-1
4
Aug
-14
Sep
-14
Oct
-14
Nov
-14
Dec
-14
Jan-
15
Feb-
15
Mar
-15
Apr
-15
May
-15
Jun-
15
Jul-1
5
Aug
-15
Sep
-15
Oct
-15
Nov
-15
Dec
-15
Jan-
16
Feb-
16
Mar
-16
Apr
-16
May
-16
Jun-
16
Jul-1
6
Aug
-16
Sep
-16
Oct
-16
Spr
ead
(bps
)
Spr
ead
(bps
)
Difference (RHS) EUR 2023s USD Equivalent Z-Spread (LHS) USD 2024s Z-Spread (LHS)
Relative Cost Between USD and EURO
Drivers of the Level of Basis Swaps
18
• 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
Final Thoughts
19
• 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.
THANK YOU
For further information please contact our Investor Relations Office
http://www.hazine.gov.tr/link/iroE-mail: [email protected]
Tel: +90 312 204 6217Fax: +90 312 204 7366