Friday, January 28

BBVA. The Garanti bonds that earn 6%

The opa of BBVA about Guarantee It unleashed a whole roller coaster of reactions among investors and analysts who debated between the great risks and rewards that the Turkish adventure of the Spanish bank presented.

Expanding the focus, however, it can be seen that since the announcement made on November 15, the shares of BBVA have stabilized around the support of 5 euros after a drop caused by the initial panic to the announcement, while those of Guarantee They have remained above the 11 lira to which their titles climbed that same day.

On the fixed income plane, on the other hand, some debt bonds issued by Garanti in foreign currency they experienced a fall that at the moment is conducive to offering returns well above current interest rates.

As the market bet on the shares of Guarantee encouraged by the backing of BBVA, capital was in retreat from the Turkish bank’s debt instruments, providing an opportunity to achieve returns above 6 percent for riskier investors.

Three margined bonds to maturity

According to the information provided by the Turkish bank itself on its website, Guarantee It has multiple debt instruments to be amortized, such as syndicated loans or subordinated debt whose maturity extends to 2034.

Among the various debt instruments on its balance sheet, the Ottoman financial institution has issued up to 23 bonds with different total values ​​and coupons, of which at least four have been issued in euros or dollars.

This is the case of bonds issued in US dollars that are listed on the bag of Frankfurt, such as ISIN USM8931TAF68 with expiration date of September 2022 and a coupon of 5.25 percent on the principal thereof. Or the bonds XS1576037284, which offer a coupon of 5.875 percent and expire in March 2023.

Coupons of Guarantee with maturing in May 2027, whose coupon is 6.125 percent.

Parallel falls after BBVA’s decision

Looking at the graph of the three bonuses available in the Frankfurt Stock Exchange, a decrease in your rating is clearly visible immediately after the announcement of the offer to Garanti raised by BBVA. Furthermore, a fall that has not been corrected in the last month despite a slight rise in the three debt instruments this week.

The bond maturing in 2022 and a coupon of 5.25 percent fell from $ 102.5 at which it was placed on November 15, to $ 99.48 at which it was placed on December 23. Its performance, therefore, is currently at 5.27 percent, improving 0.6 points in the last month.

The bond with an expiration date of 2023 and a coupon of 5.875 percent fell from $ 104.02 to $ 99.4, currently offering a yield of 5.9 percent.

And finally, the longer-term bond whose coupon offers an attractive 6.125 percent, corrected its price from $ 100.89 to $ 97.8, thus leaving its yield today at 6.26 percent. .

Distrust continues to play a key role

Despite the fact that the bond issues of Guarantee in US dollars or euros offer a return well above current interest rates, which in the case of European sovereign debt has become negative, the uncertainty about the instability of Turkey plays a key role when investors bet on the Eurasian country.

In this context, Fitch revised down the outlook for 13 Turkish banks at the beginning of December, including Guarantee, due to the change in perspective regarding the sovereign debt of Turkey.

The credit rating agency changed the country’s long-term outlook from stable to negative, based, among other factors, on “the premature cycle of easing the country’s monetary policy. Central Bank of Turkey“as well as the prospect of further rate cuts or additional economic stimulus before the 2023 presidential elections.

“Together, these factors have caused a deterioration in internal confidence, which has been reflected in a strong depreciation of the Turkish lira and an increase in inflation,” they explained from Fitch, adding that these elements “have created risks for macroeconomic and financial stability and have been able to reignite the risks of external financing.”

This downward revision of the Turkish outlook translated into a negative outlook also for Guarantee, which, however, maintained its long-term note at a B + rating that shows the speculative risk of its investment.