Turkey’s Sekerbank has inaugurated a TL800m ($473m/Eu327m) covered bond programme by selling covered bonds totalling around $125m equivalent to three international investors, and is aiming to follow up with a second tranche of issuance in the autumn, an official at the bank told The Covered Bond Report.

Ali Küçükcan, Sekerbank

The covered bonds were sold to three investors, with each series featuring different terms although the main structuring elements are the same, said Ali Küçükcan, vice president in the financial institutions department at Sekerbank.

The bonds were priced at between 200bp and 250bp over Libor/Euribor and the maturity varied from one to five years, depending on the investor, he said, adding that the issuance had been in the pipeline for more than 16 months.

Küçükcan said the trade had gone as expected.

“It was parallel to our plans,” he said. “We are happy to sign the issuance for the first tranche as planned.”

According to Moody’s the covered bonds are the first to be backed exclusively by a pool of loans to small and medium sized enterprises. The cover pool comprises a granular portfolio of such loans, with short term maturities no longer than 36 months.

The covered bonds are also thought to be the first from a Turkish bank.

The covered bonds were sold to arranger UniCredit, the International Finance Corporation, and Dutch development agency FMO. IFC said that it is investing up to $25m equivalent in Turkish lira in the covered bond, with UniCredit investing Eu50m equivalent and FMO Eu25m equivalent.

It noted in a statement that Sekerbank is the first Turkish bank to issue covered bonds under legislation enacted in 2009.

“Sekerbank is a key partner for IFC in addressing the financing needs of Turkish small and medium enterprises, which are crucial for economic development and job creation,” said Sybile Lazar, IFC associate director for Turkey.

Küçükcan said that Sekerbank plans to sell a second issue of around TL400m, with around three to four series, in September or October, and aims to place that trade with more international financial institutions. Separate series of bonds will be again issued for each investor under the main programme structure, he said.

Moody’s yesterday (Tuesday) announced that it has assigned Sekerbank’s covered bonds a provisional rating of A3.

Küçükcan said that this is the highest rating given to any structured transaction in Turkey.

According to Moody’s, Turkish law provides for two separate regulations, one for asset backed covered bonds (ACB) and one for mortgage backed covered bonds. The bonds issued off Sekerbank’s TL800m programme fall under the ACB legislation, it said.

The A3 rating is based on a Ba1 rating of Sekerbank’s long term local currency rating, the Turkish legislative framework, the credit quality of the collateral pool (which has a collateral score of 28%), and structural features aimed at mitigating risks such as refinancing and credit risk.

Moody’s highlighted as aspects of the ACB legislation that provide protection for bondholders the ring-fencing of cover pool assets and a stipulation that these assets must not form part of the issuer’s bankruptcy estate, and the segregation of transaction accounts and cash flows from the cover pool.

Based on the issuer rating of Ba1 and a timely payment indicator of “probable-high” the TPI leeway for this programme is two notches. A downgrade of the issuer rating to Ba3, or worse, would likely result in a covered bond downgrade, said Moody’s.