Turkey’s debut covered bond consists of three tranches pricing between 200 basis points and 250 basis points over Euribor, a spread that will be swapped into a Turkish rate for originator Sekerbank at the time of the closing, said Huib-Jan de Ruijter, director of financial markets at Dutch development bank the FMO, one of the investors in the deal.
The size of the transaction, which is secured by SME loans, is TL230 million ($135 million). The FMO will take a €25-million ($16 million) equivalent tranche; Unicredit, the arranger, will take €50 million; and Washington-based multilateral the International Finance Corp. will invest $25 million. The final maturity is 2019 and expected maturity 2016 for the FMO and IFC tranches. Unicredit’s expected maturity is a bit shorter, Ruijter said.
The club investors signed off on the deal today. It will formally close once the Capital Markets Board of Turkey has given its approval.
A second transaction from Sekerbank’s TL800 million program is expected out as soon as September. The European Bank of Reconstruction and Development is rumored to be looking at it, according to a market source. Moody's Investors Service has given a provisional rating of '(P)A3' on the first tap of the program.
Whether market investors will invest in a Turkish covered bond remains an open question. One market source said that mortgage covered bonds would be an easier sell than a deal backed by SME loans, as traditional European investors in the asset class are far more familiar with the former. Ruijter said that Sekerbank’s strengths in the SME business made this asset class the most suitable collateral for its maiden deal.
Another salient barrier is the local currency denomination, although it may not be as insurmountable as it once was. “There are investors who buy Turkish lira product and that might be increasing more and more,” Ruijter said. “But I don’t think there’s a broad established investor base for this.
FMO Senior Investment Officer Magchiel Groot said that covered bonds should be an important tool for emerging market banks to diversify their funding, especially in light of the difficulties that have faced RMBS markets throughout the crisis.