Turkey: Income indexed bonds to bring 23.04% annual compound

The Ministry of Treasury and Finance has published the details of the income-indexed bonds to be issued after the 15-22 June bookbuilding. According to this;

The annual compound return of 6-month bills is 23.04%, and the periodic return is 5.32%.

Bonds and issuances to be sold to individuals will be managed by state-owned Ziraat Bank, Halkbank and Vakıfbank.

The minimum demand amount for promissory notes is 1,000 TRY ($59) and will be issued in multiples of 1 TRY. The bonds will be transferred to the investors’ accounts on Friday, June 24, 2022, the week following the bookbuilding period.

SPP revenues will be indexed to the revenue shares transferred to the budget from the State Airports Operator (DHMI) and the General Directorate of Coastal Safety (KEGM), which are included in the State Economic Enterprises. In this framework, the sum of the revenue shares transferred to the budget quarterly by DHMI and KEGM will be taken as a basis in the calculation of the payments regarding the returns of the said bills.

DHMI expects 874.1 million liras and KEGM 308.2 million liras for 2022. In this context, the calculation of the income index for the relevant months is based on the assumption that the income estimation figures of the said projections are equally distributed for the relevant year.

Coupon payments will be calculated using the index value calculated as a result of the realization of the income share amounts and the revaluation method of the rate of return determined by the Treasury.

The promissory notes are subject to the current tax legislation and will be taxed in accordance with the Provisional Article 67 of the Income Tax Law.

Coupon payments are exempt from withholding.

The 3-month periodical 5.32% and annual compounded yield of 23.04% seem to be below the 30% band and benchmark bond interest pronounced in the market. DHMİ and KEGM, the two SEEs whose incomes are indexed, are profitable enterprises and the total income projection of these two enterprises is over 1 billion TRY. Choosing SPPs with good income is good in terms of the amount of return, but here it is seen that the annual compounded return remains a little low at the point of approaching the inflation rate. Here, the revaluation rates to be used in coupon payments will be important in terms of the final return amount. In terms of principal, interest and coupon payments, it does not seem like a rate that will reduce the demand of savers towards foreign currency or higher return rates in different risk groups.

On the other hand, it can be read more positively regarding the diversity of Treasury debt instruments. It is also positive that a certain lower amount is guaranteed in terms of return in coupon payments. If the lot is drawn, a direct U-turn effect is not expected. On issues such as reducing inflation and balancing the exchange rate, it seems difficult to have an effect similar to December 20 in the general package. As for swaps allocated to foreigners, the details are not entirely clear. The restriction of swap movements towards foreigners was in question before, this opportunity is being expanded with dedicated swaps. The possibility of finding TRY for foreigners through swap channels will probably be based on some commitments, such as investing in Turkish lira for a certain period of time.

Kaynak
Hibya Haber Ajansı