Turkey applies to sell as much as US$8b in debt abroad

[ISTANBUL] Turkey may sell as much as US$8 billion in debt, according to a US regulatory filing, a sign the government may be preparing to ramp up borrowing as it seeks to plug a widening budget deficit.

Turkey may offer the securities from "time to time in one or more offerings" and will use the proceeds for general financing purposes, which may include the repayment of debt, according to a prospectus on the US Securities and Exchange Commission's website on Friday.

The government has increased spending to bolster growth and policy makers have said they may miss their 1.7 per cent budget deficit target this year by as much as one percentage point.

The government has already sold US$6.25 billion of foreign currency debt in 2017, exceeding the full-year target. Meanwhile, analysts say domestic borrowing plans through July suggest lira debt sales will exceed redemptions this year for the first time since 2009.

So far the fiscal slippage isn't yet enough to spook the bond market, which has seen a surge in foreign demand after the central bank's efforts to stem lira declines sparked a currency rally and drove yields above 11 per cent, creating one of the world's top carry-trade opportunities.

The government debt-to-GDP ratio was around 30 per cent at the end of 2016, about half its level a decade ago and comparing favourably with most emerging markets.

"Timing is not that bad," said Dmitri Barinov, a money manager at Union Investment Privatfonds GmbH in Frankfurt, citing calm in markets and a decrease in the cost of Turkey's credit default swaps.

"The newly issued Turkey '47 is trading at highs in price, so seems like markets like the credit right now."

Turkey's dollar bond due May 2047, issued earlier this month with a coupon of 5.75 per cent, traded at 99.07 as of Friday, up from a low of 95.8 two weeks ago. The cost of insuring the nation's debt against default for five years using credit default swaps was below 200 basis points, the lowest in more than two years.

BLOOMBERG