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Moody's Investors Service has today assigned a Baa2 local-currency senior unsecured debt rating to the Turkish lira-denominated Eurobond (the notes) issued by Turkiye Garanti Bankasi AS (Garanti). The outlook on the rating is stable.
The debt issuance is being offered under Rule 144A, Regulation S. The terms and conditions of the notes include (amongst other things) a negative pledge and a cross-default clause. The notes constitute unconditional, unsubordinated and unsecured obligations, and will rank pari-passu with all of Garanti's other senior unsecured obligations. The rating of the notes is in line with Garanti's senior unsecured local-currency debt rating.
The Turkish lira-denominated Eurobond is issued with the accrual of the interest and principal all payable by Garanti in such currency without a variable obligation in foreign currency or the payment obligations being indexed to a foreign currency. At the same time, the noteholders have the option to request repayment in US dollars from the Fiscal Agency subject the certain conditions, whereby these payments will be simply the net US dollar equivalent amount of the underlying Turkish lira payments made by Garanti to the Fiscal Agency. As a result, Garanti's payment obligations are fulfilled when payments to the Fiscal Agent have been made in Turkish lira, and the bank is not liable for their convertibility into foreign currency or the exchange rate used.
Based on the aforesaid, Moody's considers that Garanti's Eurobond is not subject to any foreign currency risk and therefore assigns a Baa2 local currency senior unsecured debt rating to the notes.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Moody's says there is currently no upwards pressure on the assigned rating, as reflected by the stable outlook which is in line with the stable outlook on Garanti's global local currency (GLC) deposit rating.
An improvement of the bank's standalone credit strength in combination with an improvement in the credit risk profile of the national government could positively influence Garanti's local-currency ratings. Nonetheless, the rating agency expects that any further improvements in the creditworthiness of the Turkish sovereign would have only a muted impact on the support-driven uplift factored into the bank's ratings, as government support assumptions will converge towards the sovereign rating because Moody's believes that the Turkish banking system and its financial obligations will continue to grow strongly relative to the country's economy and the government's own financial resources in the coming year. This view is reflected in the stable outlook on the ratings.
Downwards pressure could be exerted on Garanti's long-term GLC ratings in the event of (1) a weakening in its intrinsic standalone financial strength; (2) weakening creditworthiness of the Turkish sovereign; and (3) any adverse changes in the systemic support assumptions currently factored into Garanti's ratings.
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