Turkey Gets Its Investment Grade Status

Posted on 07 November 2012

Turkey is has finally got the investment grade rating it has strove for for so long, as Fitch upgraded the country to the investment grade rating of BBB-.

Analysts are split as to what the effects of the upgrade will be. Some suggest, as has long been the consolation, that many investors already treat Turkey as a qausi-investment grade country anyway, and so in that sense it won’t make that much difference.

On the other hand studies like the one by Oyak Securities last month suggested that the upgrade could bring in an additional $10 billion Euros per year. It said that as a true investment grade country Turkey should bring in average investment of $75 billion per year in the decade to 2023. Turkey is currently on track for $65 billion per year, which means Turkey will make an additional $100 billion in the coming decade as a true investment grade bet according to the Oyak report.

However, in order to be a “true investment grade” country by Oyak’s definition, Turkey would need at least one more of the big 3 ratings agencies to follow Fitch’s lead. Unfortunately this does not look likelly at the moment.

Moody’s is Turkey’s best chance as it upgraded Turkey earlier this year to one level below investment grade. However it issued a report last week that emphasised the importance of Turkey structurally reducing its current account deficit and increasing its resilience to balance of payments shocks. This is negative in that it doesn’t look like an upgrade is just around the corner, but it does suggest that they are looking to upgrade Turkey if it plays ball. Lest we forget Fitch gave a set of criteria in which it would upgrade Turkey not long before this upgrade.

S&P has Turkey’s lowest rating at 2 levels below investment grade, and recently downgraded its outlook from positive to stable. This effectively closes the door to an upgrade for at least 12 months.

As for Fitch, it specifically upgraded Turkey’s long-term foreign currency Issuer Default Rating (IDR) to ‘BBB-’ from ‘BB+’ and the Long-term local currency IDR to ‘BBB’ from ‘BB+’. The outlooks on the long-term ratings are stable. The agency cited a moderate and declining government debt burden, a sound banking system, favourable medium-term growth prospects and relatively wealthy and diverse economy.

Time will tell if Turkey can impress Moody’s into following suit.

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