Moody’s 'cautiously optimistic' for Turkey

Tuesday, April 01, 2014

Foreign currency income along with healthy liquidity and debt maturity will help offset effect of a weaker lira for Turkish firms, Moody’s says.

Foreign currency income along with healthy liquidity and debt maturity will help offset effect of a weaker lira for Turkish firms, Moody’s says.

LONDON – Turkish companies generally have strong liquidity buffers and long-term debt maturity profiles that will help moderate the effects of the lira’s devaluation of their credit ratings, credit rating agency Standard and Poor's has said.

A report from Moody’s also stressed the effect of the lira’s 26 percent devaluation against the US dollar and 31 percent devaluation against the euro in last nine months was negative for Turkish non-financial corporates, adding that they will now face “higher funding costs owing to higher interest rates and servicing costs for US-denominated debt”.

Despite pointing out the difficulties companies would face in near term, the report also emphasized their advantages such as “good liquidity buffers” and “ long-term debt maturity profiles”.

“While the depreciation of the Turkish lira and subsequent increases in key domestic interest rates have credit-negative implications, rated Turkish corporates generally have good liquidity buffers, long-term debt maturity profiles and some revenues denominated in foreign currency,” said Martin Kohlhase, the co-author of the report and a Moody's vice president-senior analyst.

The Central Bank of Turkey recently increased its overnight lending rate to 12 percent from 7.75 percent and its weekly repo rate to 10 percent from 4.5 percent, which exposes companies to higher funding costs, especially for near-term outstanding debts, according to the agency.

“Conversely, Moody's expects that liquidity, longer-term debt maturities and foreign currency revenues will help offset the effect of a weaker lira. All rated Turkish corporates hold cash and deposits in hard currencies, which helps mitigate currency risk,” Moody’s said.

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