Turkiye Is Bankasi AS:Subordinated 7.85%2023update -credit positive
摘要: TurkiyeIsBankasi(Isbank/ISCTR)yesterdayannouncedthroughapublicdisclosurethatitispreparingtoapplytoco
Turkiye Is Bankasi (Isbank/ISCTR) yesterday announced through a publicdisclosure that it is preparing to apply to convert its subordinated 7.85% due2023s notes compliant with the Basel III requirements. No further details wereprovided at this stage, either with respect to terms and conditions or abouttimelines of approval. If and once approved, these notes will become eligiblefor inclusion as T2 capital as per the revised regulation. These are still earlydays, but prima facie, we view this development as credit positive for Isbankand believe it would further strengthen the bank’s capitalization and lossabsorption capacity and provide ample room for future loan growth.
Recall that pursuant to changes in regulations published in January 2016,subordinated notes issued by banks after 01/01/2013 were disqualified frominclusion in the bank’s capital calculations, unless they satisfy new conditions.
As a result, USD400m ISCTR 7.85% ‘23s, issued in Dec-2013, ceased to beeligible for inclusion in Isbank’s T2 capital from 31st March 2016. This resultedin a QoQ decline of 75bps in Isbank’s CAR (Bank only basis) in 1Q16. The CARdecline was partially offset by positive impact of currency changes (+13bps)and Mark to Market (+51bps) resulting in only 19bps overall decline in theCAR. As of 1Q16, total CAR (Bank only) was still healthy at 15.5% andremained sufficiently higher than the regulatory requirement of 9.13%.
Tactically upgrade ISCTR 7.85% 2023 to Buy from Hold
We tactically upgrade ISCTR 7.85% 2023 to Buy from Hold @USD104/580bps/7.16% Mid price/Mid Z spread/Mid yield respectively. Thesenotes look attractive from both carry and RV perspective, in our view. Atcurrent price, ISCTR ‘23s are trading 110 bps wider than T2 ISCTR 6% 2022sand more than 200 bps wider than the senior ISCTR 5% 2021s. On the back ofthis development, we believe they could potentially mean revert to theiraverage differential of ~20bps (vs. T2 ‘22s) and ~120bps (vs. 5% ‘21s) prior tothe change in regulations relating subordinated notes in early 2016 (see chart).
Downside risks: We recognize the rising domestic political risk as keydownside risks to our recommendations. More specifically, failure to receiveapproval of compliance of these notes as per Basel III requirements andworsening credit metrics (deterioration in asset quality, growing pressure onNIM and capitalization) constitute other major downside risks.
bps,85,ISCTR,2013,23