October 3, 2022
bne IntelliNews - Moody’s downgrades Turkey to six notches below investment grade


[*Editor’s Note: Please scroll past blank section where extensive table should be. Technical issue being fixed].

Moody’s Investors Service has downgraded Turkey’s sovereign rating by one notch to B3 with a stable outlook, taking it to six notches below investment grade, the rating agency said on August 12 (Chart: Turkey’s rating history by Moody’s).

Pressure on the balance of payments has risen and the increasingly unorthodox policies from the Erdogan administration are unlikely to restore macroeconomic stability, Moody’s said.

Looking at other credit rating agencies’ assessments on Turkey, Fitch Ratings rates Turkey at B/Negative, five notches below investment grade, while Standard & Poor’s has Turkey at B+/Negative, four notches below investment grade.

More downgrades are on the way.








TURKEY 

Aug-18

Jun-19

Jul-19

Nov-19

Aug-20

Sep-20

Feb-21

Dec-21

Feb-22

Jul-22

Aug-22

Moody’s

Ba3 (N)

B1 (N)

B1 (N)

B1 (N)

B1 (N)

B2 (N)

B2 (N)

B2 (N)

B2 (N)

B2 (N)

B3 (S)

Fitch

BB (N)

BB (N)

BB- (N)

BB- (S)

BB- (N)

BB- (N)

BB- (S)

BB- (N)

B+ (N)

B (N)

B (N)

S&P

B+ (S)

B+ (S)

B+ (S)

B+ (S)

B+ (S)

B+ (S)

B+ (S)

B+ (N)

B+ (N)

B+ (N)

B+ (N)

Table: Turkey’s sovereign ratings.















































  Moody’s S&P Fitch

Seven notches above investment

Aa3

Positive  

AA-

Positive  

AA-

Positive  
Stable   Stable Slovenia Stable  
Negative   Negative   Negative  

Six notches above investment

A1

Positive  

A+

Positive  

A+

Positive  
Stable   Stable   Stable  
Negative   Negative   Negative  

Five notches above investment

A2

Positive  

A

Positive  

A

Positive  
Stable   Stable   Stable Slovenia
Negative   Negative   Negative  

Four notches above investment

A3

Positive  

A-

Positive  

A-

Positive  
Stable Slovenia Stable   Stable  
Negative   Negative   Negative  

Three notches above investment

Baa1

Positive  

BBB+

Positive  

BBB+

Positive  
Stable Hyundai Assan, Croatia Stable   Stable Croatia
Negative   Negative   Negative  

Two notches above investment

Baa2

Positive  

BBB

Positive  

BBB

Positive  
Stable   Stable   Stable  
Negative   Negative   Negative  

Lowest investment grade

Baa3

Positive  

BBB-

Positive  

BBB-

Positive CCOLA
Stable Romania Stable Romania, Croatia Stable  
Negative   Negative AEFES, CCOLA Negative Romania

One notch below investment

Ba1

Positive  

BB+

Positive  

BB+

Positive  
Stable   Stable   Stable  
Negative   Negative Arcelik (ARCLK) Negative AEFES

Two notches below investment

Ba2

Positive  

BB

Positive  

BB

Positive  
Stable Georgia Stable   Stable Georgia
Negative   Negative Georgia Negative  

Three notches below investment

Ba3

Positive  

BB-

Positive  

BB-

Positive  
Stable   Stable Uzbekistan Stable Uzbekistan
Negative   Negative   Negative ARCLK

Four notches below investment

B1

Positive Uzbekistan

B+

Positive  

B+

Positive  
Stable   Stable ULKER Stable  
Negative   Negative Turkey Negative PGSUS

Five notches below investment

B2

Positive  

B

Positive  

B

Positive  
Stable   Stable Aydem Stable  
Negative AKBNK, EXIMB, VAKBN, Istanbul Municipality Negative ISCTR Negative ULKER, Turkey, Mersin Port, Limak Port, Istanbul Municipality, SISE, TTKOM, TCELL, AYDEM

Six notches below investment

B3

Positive  

B-

Positive  

B-

Positive  
Stable Turkey Stable   Stable Zorlu
Negative ISCTR, TSKB Negative Ukraine, ALBRK Negative AKBNK, VAKBN, GARAN, ISCTR, YKBNK, EXIMB, QNBFB, TSKB, ALBRK, Kuveyt Turk

Almost default

Caa1   Ronesans REIT CCC+    

CCC

 

Ukraine

Caa2   Ukraine CCC      
Caa3     CCC-    

 

Table: Rating scale and ratings.

 

Prior to the Moody’s hit, speculation on President Recep Tayyip Erdogan’s search for a way out of Turkey’s economic mess (by now a most pressing matter for Erdogan with elections due by June 2023 at the latest) was again rife. Some media coverage in the wake of Erdogan’s recent Sochi summit with Vladimir Putin focused on incoming capital from Russia. Analysis suggesting Turkey’s credit default swaps (CDS) were recovering thanks to the Russian money followed. Such articles did not mention the fact that emerging markets CDS were simultaneously in recovery in general.

Image: Tweet by Doc. Dr. Hakki Ozturk (@hakkiozt6), Aug 11, 2022, 2:24 PM: “Turkey’s CDS Risk Premium stood at 895bp on July 14 and it has decreased to 652bp, down 27%. Emerging markets CDS average stood at 387bp on July 14, now at 276bp, down 27%. In other words, the reason for the last 1-month decrease in Turkey’s risk premium is mostly global, there is nothing specific to Turkey.”

The month of August usually brings about shaky markets as liquidity dries up during the vacation period. However, for the financial industry, August this year has so far proceeded in an extremely positive fashion (as positive as possible amid the global tightening).

There is no guarantee, however, that the second half of August will continue in the same fashion. The mood could change. On September 21, the Fed’s open market committee is currently expected to deliver another 50bp rate hike.

Since 2016, Qatar has been seen coming to the rescue amid Turkey’s economic collapse. Since last November, the United Arab Emirates (UAE) has joined Qatar in the mission. Saudi Arabia, last month, and Vladimir Vladimirovich Putin are now said to have signed up to provide economic assistance. Current press coverage suggests Putin is supposed to send $15bn and Saudi Arabia $20bn.

Previously, the word was that the UAE was poised to send hundreds of billions of dollars (No joke. This was written. Some reports referred to “hundreds of billions of dollars”.) Qatar has occasionally been said to be willing to send billions and billions.

On August 3, Erdogan’s finance minister Nurettin Nebati, said that some FDI was incoming and that the central bank would release its reserve figures in the upcoming week.

Prior to Nebati’s comments, some “unnamed sources” told Bloomberg that Russia would send $15bn in instalments.

Amid the stories of Russian capital, the Turkish central bank’s gross international reserves rose from $98bn as of July 22 to $101bn as of July 29 and to $109bn as of August 5.

In the same period, the gross FX reserves rose from $60bn to $61bn to $68bn while the gross gold reserves rose from $39bn to $40bn and $41bn.

Some more stories on financial rescues will definitely go into circulation in the coming days, but there is no certainty that the figures on the reserves will go up in line with said events.





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