DOMESTIC BORROWING STRATEGY FOR MARCH



October 31st, 2019

PRESS RELEASE

TREASURY FINANCING PROGRAM:

2019 DEVELOPMENTS AND 2020 PROJECTIONS

The New Economic Program (Medium Term Program) of 2020-2022 was published on September 30th, 2019, and Central Government Budget was submitted to the Grand National Assembly of Turkey on October 17th, 2019.

Treasury Financing Program for 2020 has been prepared based on the Medium Term Program and Central Government Budget projections.

I–Financing Program

a) Developments in 2019

▪ The average maturity of cash domestic borrowing, which was 59.3 months in 2018, realized as 28.2 months in the period of January - October 2019.

▪ The average cost of fixed rate domestic borrowing, which was 17.5 percent in 2018, realized as 20.2 percent in the period of January - October 2019.

▪ In order to broaden the investor base and to diversify the borrowing instruments, lease certificates were issued for the first time in 2012 both in domestic and international markets. Regular issuance of the lease certificates in domestic markets continued in 2019 and Turkish Treasury raised TL 3.9 billion through the TL denominated issuances in February, June and August.

▪ In 2019, Treasury continued its efforts to increase the diversity of Lease certificates and to lengthen their maturities in order to sustain a sound yield curve.

▪ In 2019, Treasury continued to issue Gold Bond and Gold Denominated Lease Certificates which were issued for the first time on October 2017, in order to bring the idle gold into economy, to broaden investor base and to diversify borrowing instruments. On the other hand, in order to strengthen the capital markets, the Ministry has also started gold denominated issuances targeting banks and investment funds. The total amount of issuances in 2019 has reached to 72 tonnes; consisting of 9.5 tonnes of Gold Bond and 62.5 tonnes of Gold Denominated Lease Certificates.

Estimated year-end realization for 2019 and Financing Program of 2020 are given below.

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b) Treasury Financing Program for 2020

The debt service and related financing policy in the 2020 Financing Program are as follows;

▪ In 2020, total amount of debt service is projected as TL 352.1 billion, comprising the payments of TL 222.6 billion in principal and TL 129.4 billion in interest. Total domestic debt service is expected to realize as TL 287 billion while total external debt service is expected to realize as TL 65.1 billion.

▪ The total domestic debt service consists of repayments to the market amounting TL 229.5 billion, repayments of non-competitive sales to public institutions with the amount of TL 57.5 billion (Appendix 1).

▪ The total non-borrowing resources including the cash primary surplus, privatization revenues, the revenues from 2-B land sales, The Savings Deposit Insurance Fund transfers, receipts from on-lent and guaranteed debt and use of cash account are -5.1 billion TL.

▪ Treasury plans to raise USD 9 billion equivalent external funding in 2020 through bond issuances in international capital markets. In addition to bond/lease certificate issuances in international markets, the total amount of external financing is planned to reach at most USD 9.6 billion via project and program loans from international financial institutions.

▪ Considering these projections, the total domestic borrowing is planned as TL 299.6 billion in 2020.

II – 2020 Borrowing Strategy

A) By implementing strategic benchmarking policy since 2003, the sensitivity of Treasury’s debt portfolio to the foreign exchange, interest rate and liquidity risks has been significantly reduced. In this regard, the effects of the changes in foreign exchange rates, interest rates and growth rates on EU defined general government debt stock to GDP ratio are summarized below:

| |2001 |2018 |

|Change in real exchange rate app/dep |+ / - 2.1 Points |+ / - 0.7 Points |

|by 5 percentage points | | |

|Change in TL interest rate by 500bp |+ / - 1.6 Points |+ / - 0.8 Points |

|Change in GDP growth rate by |+ / - 1.6 Points |+ / - 0.6 Points |

|2 percentage points | | |

| | | |

B) The main pillars of borrowing strategies for 2020 are as follows:

▪ To borrow mainly in TL

▪ To borrow in foreign currencies besides US dollar in international markets for market diversification

▪ To keep the share of debt maturing within 12 months and the share of debt stock with interest rate refixing period of less than 12 months at a certain level, by taking into account appropriate instrument and maturity composition to optimize interest payments

▪ To keep a certain level of cash reserve in order to reduce the liquidity risk associated with cash and debt management.

C) In 2020, the domestic borrowing will be conducted according to the issuance plan outlined below:

▪ Depending on the redemption profile in 2020, TL denominated fixed rate coupon bonds with various maturities will continue to be issued as “benchmark bonds”.

▪ Depending on the redemption profile and market conditions, Treasury will continue to issue TL denominated zero coupon Treasury Bills / Government Bonds, floating rate notes with various maturities, long-term inflation linked bonds.

▪ Gold Bond and Gold Indexed Lease Certificates, issued for the first time on October 2017, are also planned to be issued in 2020.

▪ TL denominated lease certificate issuances are programmed in February, April, September and November. Additional demand from the market participants will be evaluated.

▪ Short term Treasury Bills and financing instruments specified in the “Regulation on the Treasury Financing through Money Market Cash Operations” might be used to manage the temporary mismatch between monthly cash flows.

▪ Depending on market conditions and cash management policy, switch and buy-back auctions may be used to ensure a balanced debt redemption profile and to increase the price efficiency of secondary market.

▪ Auction details will be announced at least one business day before the auctions.

Appendices:

App.-1: 2020 Debt Service Distribution by Lenders

App.-2: Currency and Interest Rate Composition of 2020 Debt Service

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REPUBLIC OF TURKEY

MINISTRY OF TREASURY AND FINANCE

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