(Bloomberg) — Turkey paid dearly for its biggest-ever dollar bond sale as borrowing costs surge across the globe on prospects of tighter financial conditions.
The nation sold $3 billion in five-year Islamic dollar notes on Wednesday, its largest overseas debt placement on record. While strong demand allowed the government to pay less than initially planned, the 7.25% yield is still higher than most sukuk bonds offer.
Of the $250 billion in Islamic bonds outstanding globally, $190 billion have a coupon rate below 5%, according to Bloomberg data. Even single-B rated Bahrain sold seven-year bonds paying less than 4% in 2020. Since 1999, only Pakistan, Indonesia and the Maldives paid such high rates for dollar sukuk.
Turkey’s Treasury & Finance Ministry said the demand for the notes was more than three times the final size of the deal, with over 200 accounts participating in the order book. The sukuk market has a separate investor base, which looks for diversification and yield, and Turkey offers both. Most sukuk issuers are investment-grade borrowers from the Gulf region which offer less juice.
While the offering was Turkey’s biggest one-off sale, the single-B rated nation sold a total of $10 billion in regular foreign-currency bonds last year. The country last sold Islamic bonds in June 2021, raising $2.5 billion with five-year bonds at 5.125%, according to data compiled by Bloomberg.
The Turkish deal comes amid a surge in borrowing costs due to tensions between Russia and Ukraine and outflows from emerging-market debt funds as the Federal Reserve prepares to raise rates. And despite the return of relative calm in Turkish markets, the traditional investor base remains skeptical of the country’s debt due to policies that test the limits of conventional economics.
