Turkey: Economic collapse threatens the future of big companies
Bonds of some of Turkey’s largest companies are entering dangerous territory, driven by high inflation and the worst local currency performance in decades into chaos – especially as companies fail to meet their obligations, threatening the financial centers of major firms in the Turkish market.
Outstanding debt
The US news agency Bloomberg revealed that the bonds of the second largest communications company, Turk Telekomunikasyon AS, have been trading at sad levels since the beginning of last week. Investors are demanding a bonus of more than 100 basis points on the treasury bonds denominated in dollars for the company in June 2024 and February 2025, which total value of $1 billion. This comes as Turkish companies face more than $16 billion of debts due by the end of 2024, with corporate returns on dollar debts on average around 12%.
The pressure of refinancing is exacerbated by the weakness of the lira, as well as the loss of more than a quarter of the value of the dollar currency this year, which puts pressure on the companies to bear on the debts of Turkey – which has, but in most of its debts – The year saw only one sale on international debt markets after Coca-Cola’s Bottle Pack Unit sold the bonds in January, compared to 14 deals in 2021 in full, according to data compiled by Bloomberg.
Scary levels
“As soon as you see the pressure of the lira beginning to appear, you see that companies facing foreign exchange risks are under pressure in terms of bond valuations, a large part of Turk Telecom’s dollar-denominated debt, so there is some pressure on them as well because of the depreciation of the lira”, said Sergei Dergachev, the Chief Director of Portfolio and Head of Corporate Debt in the Emerging Markets in Union Investment Privatfonds GmbH. “Turk Telecom, which is based in Ankara, and owns the country’s sovereign wealth fund, responding to questions that its leverage ratio is low compared to global telecom industry standards and has the ability to meet all of its financial and commercial obligations. Telecom is now well liquidity-positioned, and it manages its financial risk through a proactive and cautious approach in the current climate.”
According to the US agency, on the other hand, secondary bank bonds sold by Akbank TAS and Turkish Is Bankasi AS are also trading at alarming levels, as is the case with the debt of the Ulker Biskuvi Sanayi AS Light Food Manufacturing Company.
Emerging market analyst Igor Fedorov said: The government’s move to ban loans to companies holding foreign-exchange funds, aimed at slowing the depreciation of the lira, reduces firms’ ability to hedge their foreign-exchange positions and increases corporate debt risks at ING.
The credit ratings agency Fitch last week downgraded the ratings of 25 Turkish banks as a source of long-term foreign currency, citing “uncertainty in increasingly interventionist and interventionist policies,” as well as inflation. In addition, Turkey will hold parliamentary and presidential elections in June 2023.
