We are assigning a Buy recommendation to the US$400mn TSKB (TSKBTI) 5-Year bond, issued to yield 6.125%. This places the new bond over 100bp wider than the Akbank (AKBNK) 5.125% 2025 security. In comparison, the TSKBTI 5.5% 2023 bond is quoted c.73bp wider than the Garanti BBVA (GARAN) 5.875% 2023 and c.84bp wider than the AKBNK 5% 2022 bond. We think the new bond looks interesting relative to comparable securities.
The new issue comes after TSKB redeemed its US$350mn bond in October last year. After the mandate announcement on 9 January, TSKB published initial guidance for its planned 5Y bond early on 15 January. The IPT of 6.625%-6.75% for the US$-denominated senior bond equated to a spread of more than 500bp over 5Y US$ mid-swaps. The table below shows indicative levels for Turkish bank senior bonds maturing in 2024 and 2025. The IPT for the new TSKB bond was clearly very generous relative to these comps. The level at which the new bond was launched is attractive too, in our view.
| Bond Name | Amount (US$ mn) | Mid Price | Mid YTM | Mid Z-Spread |
|---|---|---|---|---|
| AKBNK 5.125% 2025 | 500 | 100.34 | 5.05 | 344 |
| EXCRTU 8.25% 2024 | 500 | 110.23 | 5.39 | 379 |
| EXCRTU 6.125% 2024 | 500 | 103.11 | 5.30 | 371 |
| QNBFB 6.875% 2024 | 650 | 108.24 | 4.87 | 326 |
| ISCTR 6.125% 2024 | 1250 | 102.02 | 5.58 | 399 |
| VAKBN 8.125% 2024 | 600 | 108.68 | 5.76 | 417 |
| YKBNK 5.85% 2024 | 500 | 101.49 | 5.47 | 386 |
| YKBNK 8.25% 2024 | 500 | 110.61 | 5.66 | 406 |
TSKB has 2020, 2021 and 2023 senior bonds, and a 2027 subordinated security. We retain our Hold recommendation on these TSKB bonds. Comparing these existing securities to other Turkish banks' bonds, TSKB senior bonds are quoted wider than Garanti, Turk Eximbank (EXCRTU) and Ziraat Bank (TCZIRA) but tighter than Isbank, Vakifbank and of course Halkbank. The TSKB 2027 subordinated bond is quoted wider than comparable Akbank, Garanti and Isbank securities, but almost flat versus the Vakifbank 8% 2027, and much tighter than issuers such as Fibabanka (FCFIN). The 2023 senior bonds are shown in the table below.
Table 2: Turkish banks - 2023 senior bonds
| Bond Name | Amount (US$ mn) | Mid Price | Mid YTM | Mid Z-Spread | vs. TSKB |
|---|---|---|---|---|---|
| TSKBTI 5.5% 2023 | 350 | 100.96 | 5.15 | 355 | |
| EXCRTU 5.375% 2023 | 500 | 101.38 | 4.97 | 337 | -18 |
| FCFIN 6% 2023 | 300 | 99.48 | 6.19 | 459 | 104 |
| GARAN 5.875% 2023 | 500 | 104.54 | 4.32 | 273 | -83 |
| VAKBN 5.75% 2023 | 650 | 101.43 | 5.23 | 364 | 8 |
| TCZIRA 5.125% 2023 | 500 | 100.32 | 5.03 | 343 | -12 |
| YKBNK 6.1% 2023 | 500 | 103.14 | 5.01 | 342 | -14 |
Source: Bloomberg. Indicative levels only.
We recall that Isbank owns just over 50% of TSKB and Vakifbank owns another 8.4%. In addition, TSKB's business model means that the issuer benefits from relatively long-term DFI funding – at end-Sept 2019, TSKB had US$865mn in undrawn facilities from those institutions.