We are assigning Hold recommendations to the Yapi Kredi (YKBNK) US$-denominated 2019 and 2020 bonds, and Buy recommendations to securities maturing in or after 2022, including the YKBNK 13.875% Perp. At current levels, we think the YKBNK Perp is worth highlighting. This bond has clearly recovered from the lows seen in May. However, the spread difference between the YKBNK Perp and the UniCredit (UCGIM) 8% Perp is still quite wide. We note that Koç Holding and UniCredit still hold US$400mn of the US$650mn outstanding, and believe that both key shareholders remain supportive of Yapi Kredi.
Turning to another YKBNK bond, management recently stated that the call option on the Yapi Kredi 8.5% bond will be assessed based on economic considerations, suggesting that early redemption is far from certain. We note that the call date isn’t until March 2021, and the bond is still quoted almost 2x as wide as the YKBNK 5.75% 2022 senior bond.
As at Akbank and other major Turkish lenders we cover, key near-term risks to our view include escalation of tensions between the US and Turkey, TRY weakness and significant asset quality deterioration.