The impact of Turkey's fund crisis is spreading from redemptions to corporate financing. To address outflows, funds are prioritizing the sale of liquid assets, causing an involuntary increase in the proportion of corporate bonds in their portfolios. Facing a corporate bond market exceeding 1 trillion Turkish lira, funds' willingness to continue increasing holdings in the short term is declining.
Bloomberg reported on Friday that investors believe redemption pressures following Turkey’s fund crisis are limiting the market’s capacity to absorb corporate bonds, potentially impacting financing for smaller companies more severely. According to data from brokerage Ak Yatirim, the size of the lira-denominated corporate bond market reached over one trillion lira by the end of September, with funds holding approximately one-third of that amount.
Redemption alters the fund's asset structure.
Following last month’s failure to honor redemption requests on Tera Portfolio Management and Pusula Portfolio Management, funds continued to exit the industry. According to official data cited by Bloomberg, the total value of industry portfolios decreased by 1.5 trillion lira; this change in asset value is not merely due to net redemptions.
Altan Aydin, portfolio manager at Perform Portfoy, stated that managers, in meeting redemptions, first sell more liquid assets, causing the proportion of corporate bonds in the portfolio to rise. He expects the fund to remain cautious about further increasing its holdings of corporate bonds in the short term.
Omer Gencal, Managing Partner at Pixis Capital, believes the issue lies in whether the bonds can be sold. He stated that fund outflows are affecting bond prices and issuers’ ability to roll over debt, and the market lacks market-making and bond buyback mechanisms to act as buffers.
The central bank has increased repurchase financing and accelerated bond purchases.
According to Reuters, Central Bank of Turkey Governor Fatih Karahan explained previous support measures to a parliamentary committee last Tuesday, noting that the central bank had raised repurchase financing to 300 billion lira and increased banks’ borrowing limits to ten times their previous level.
The central bank also reduced collateral haircuts and the proportion of lira reserves that banks must lock up, while accelerating bond purchases. Karahan stated that these measures aim to support liquidity and prevent issues from spreading beyond the clearing scope to money market funds.
At the time, Callahan stated that the data showed the issue had not yet affected the entire financial system, and that the central bank would intervene again if necessary. He also noted that a significant portion of the fund outflows had been transferred to bank deposits, which increased by 800 billion lira during the same period.
The liquidity of fund holdings remained a key focus in Friday’s report. Bloomberg cited a report from brokerage Gedik Yatirim stating that assets with limited liquidity accounted for 58.6%, or approximately 334 billion Turkish lira, in the portfolios of funds that have been liquidated; this statistic applies only to liquidated funds, not the entire industry.
Large issuers can still raise funds.
Aiden expects smaller companies to face greater pressure, while creditworthy issuers can still access the market. This month, corporate entities under Garanti BBVA issued lira-denominated bonds, and Turkcell and Akbank also raised funds through private bond offerings.
Altug Ozaslan, founder of Fortuna Capital, believes that the recent pullback may be only temporary. He expects some small and medium-sized enterprises to be affected, but not enough to cause a substantial impact on the overall market or industry.
Certain linked bonds have already experienced payment defaults. Tera Yatirim Bankasi failed to make a payment of 6.05 billion Turkish lira in principal and interest last Monday; according to Bloomberg, the outstanding volume of bonds issued by crisis-affected companies is approximately 35 billion Turkish lira, though this figure does not represent the full amount that has defaulted.
On Thursday, regulators withdrew Tera Yatirim Menkul’s application for a 69 billion Turkish lira bond issuance and its capital increase application, citing the current conditions and uncertainties.