Saudi Arabia inadvertently helped Turkey raise $2 billion

Saudi Arabia probably gave Turkey an unintended helping hand this week when it sold $7.5 billion of new 10-year and 30-year bonds to investors.

The sale gave Turkey the chance to come out of nowhere and offer $2 billion in its own 10-year dollar bonds with no roadshow and no advance announcement, wrote former Haitong Securities strategist Marcus Ashworth in a column for Bloomberg Opinion.

The Saudi deal “left a window for Turkey to present themselves to bond funds who were already looking at the Middle East, but who’d perhaps not been allocated enough from the heavily oversubscribed Saudi deal,” Ashworth wrote. “Turkey’s timing was impeccable.”

The two debt issues happened three months after the murder of Saudi dissident journalist and political activist Jamal Khashoggi, who was killed at the country’s consulate in Istanbul. The murder sparked a political dispute between Ankara and Riyadh, forcing a U.S. intervention to calm things down. Saudi Arabia has refused Turkish demands to have the suspects sent to Istanbul for trial.

Investors will get almost 500 basis points more in returns on the Turkish bonds than U.S. Treasuries, meaning they look good value at first glance, being more attractive in terms of price than similar BB-rated debt. But Turkey was in the middle of a full-blown crisis just a few months ago, so one may have expected profits to be a lot higher, Ashworth said.

“The country’s sovereign debt is respectably low at 30 percent of gross domestic product, and its currency has calmed down, but it is heading for an almost certain recession,” he said. “Its corporate sector and banking system will bear the brunt of the government’s mismanagement of the economy.

“Turkey has $8 billion of external financing needs this year, so completing a quarter of that within the second week of the year is a good start. Given the financial risks for investors, you’d have to say its debt syndicate advisers have earned their fees.”