Turkey to hold debt swap for at least $2.6 billion

Published June 14th, 2001 - 02:00 GMT

The Turkish government will take bids on Friday, June 15, for a debt-swap operation of at least 3,000 trillion Turkish lira (about $2.6 billion, 3.0 billion euros) in a move to postpone debt payments, the treasury announced on Tuesday. 

 

The statement said the treasury reserved the option to cancel the tender if the bids fell under 3,000 trillion lira, without specifying a maximum target. The debt swap is supported by the International Monetary Fund (IMF).  

 

Under the operation, banks will be able to exchange two thirds of their unprofitable lira-denominated bonds, due to mature by June 2002, for three- and five-year dollar-indexed bonds with an interest rate of the LIBOR (London interbank offer rate), plus 2.85 percent. Another third will be converted to one- or two-year bonds in Turkish lira with an interest rate of 27.8 percent for the first six months. 

 

For the second six-month period, the interest rate will vary in line with yields of bonds having a maturity of over three months. The rate of the dollar for the operation was set at 1,160,000 Turkish lira. 

 

While easing the treasury's debt burden, the swap will also help banks cover foreign exchange positions. 

Turkish banks, already shaken by a cash crunch in November, have suffered significant losses on lira-based paper after fresh financial turmoil in February caused the currency to lose about 40 percent of its value against the dollar. 

 

The results of the swap will be announced on Sunday and the exchange of the paper will be finalized on Monday, the statement said. The swap plan has already received support from the head of IMF's Turkey section. 

 

"We think that if the swap is implemented successfully it would help lengthen maturities of government debt and in that way it would help to reduce the rollover problem," Juha Kahkonen said here on Monday. 

 

But a foreign expert told AFP that the terms of the swap operation were less attractive than expected with regards to the interest rate and the maturities of dollar-indexed bonds. 

 

”If the treasury fails in the plan, it could trigger a new crisis," cautioned the expert, who asked not to be named. To escape such a mishap, the treasury may have already pre-booked participation from some banks, he added. 

 

Turkey put into force a program of tough economic reforms to remedy its battered economy after a government decision in February to float the lira caused the currency to sink and disrupted an IMF-backed anti-inflation plan. 

 

The program has received a multi-billion-dollar emergency aid package from the IMF and the World Bank, in return for assurances from Ankara it will fully implement the reforms. — (AFP) 

 

© Agence France Presse 

© 2001 Mena Report (www.menareport.com)

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