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Thursday, 19 October 2017

Covered bonds: Sekerbank covered bond reaches initial closing

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Update: The first ever covered bond deal for a Turkish financial institution was priced on Tuesday as the popularity for the product continues to grow globally. 

Turkish mid-sized lender Sekerbank sold a three-tranche offering which was placed with UniCredit, International Finance Corporation and Dutch development agency FMO. UniCredit arranged the TKY800m programme and led the inaugural trade. The issuer hopes to be able to sell a bond publicly later on this year.  

According to Hasan Bakri Goktan, chairman of Sekerbank, the issues priced between 200bp–250bp over Euribor/Libor. 

“Our banks now have a new, remarkable [funding] product,” said Goktan. “We are building a financial bridge between Anatolian SMEs and the international financial community.”

The bonds have a final legal maturity of 2019 but have differing repayment schedules. Unicredit’s euro has a one-year maturity and priced at 200bp over Euribor. The IFC and FMO’s tranches have five-year maturities and priced at 250bp over.

According to the terms of Turkey’s covered bond law should Sekerbank default, the asset pool will repay investors directly for up to three-years until 2019.

Moody’s assigned a provisional A3 rating to the issue today. In a statement, the rating agency said the covered bonds benefited from “a promise from the issuer to pay interest and principal on the covered bonds; and if the issuer defaults – or certain triggers are hit – the economic benefit from the cover pool.” 

The initial three-part offering has been swapped into Turkish Lira from euros and dollars. It provided Sekerbank with TKY230m. The total size of the first tranche of the programme will be TKY450m. The remaining TKY220m is to be sold to other development agencies after the summer. 

Once the first tranche is completely sold, the bank will sell a further TKY350m in a second tranche. Sekerbank is keen to market this to private sector investors in a more conventional public issue structure. This is likely to happen in the fourth quarter of this year.

The transaction is backed by a pool consisting of 15,000 SME loans mainly from the Asian side of Turkey. 

Although Turkish law has allowed covered bond to be issued for the past four years this is the first lender to successfully issue a covered bond. 

This is the first sizeable covered bond from an emerging market country. So far only Azerbaijan Mortgage Fund and Ukraine’s Bank Kreschatyk have successfully tapped the market. Their deals were US$69m and €9.6m respectively.

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