Dubai:  Sovereign financing, funding diversification goals, and the Islamic finance development agenda will continue to drive Turkish debt capital market (DCM) issuance over the next two years, Fitch Ratings says. We expect banks and corporates to keep a smaller DCM share than sovereigns, with issuance mostly opportunistic given still-high costs. In the medium term, DCM will likely cross USD450 billion outstanding, with sukuk to cross 20% of the issuance mix.

“The recent revival in foreign-currency debt issuances signals lower near-term refinancing risks as investor sentiment improves following Turkiye’s adoption of more conventional macroeconomic policies,” said Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings. “With over USD225 billion external debt maturing in the next 12 months as of December 2023, Turkiye has always been vulnerable to shifts in investor sentiments, although the sovereign and private sector have proved resilient in their ability to access external financing.”

Turkiye, which we upgraded in March, issued USD10 billion in external markets in 2023, with a similar amount planned for 2024. It issued a USD3 billion bond in February 2024, with the lowest spread of the past four years. Rated banks and corporates have shown signs of returning to the market since 2H23.

The Turkish DCM grew 8% yoy (end-1Q24: USD422.6 billion outstanding), with almost two-thirds in Turkish lira, a third in US dollars, and the remainder in euros. Turkiye is the fourth-largest sukuk issuer globally, and one of just three G20 countries active in the sukuk market. Sukuk rose to 15% of 2023 DCM issuance (2018: 6.2%), with the rest in bonds. Fitch rates 90% of Turkish US dollar sukuk (93%: B+).

General government debt is low, with a strong revenue base, manageable debt amortisations, and improved financing conditions. Non-resident investors held just 1.7% of domestic sovereign debt in 1Q24 (2017: 19.4%).

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