Moody's Investors Service has today downgraded the Government of Turkey's long-term issuer ratings to B1 from Ba3 and has maintained the negative outlook. The senior unsecured bond ratings and senior unsecured shelf ratings have also been downgraded to B1 and (P)B1 respectively from Ba3/(P)Ba3.
Concurrently, Moody's has downgraded to B1 from Ba3 the backed senior unsecured bond ratings of Hazine Mustesarligi Varlik Kiralama A.S., a special purpose vehicle wholly owned by the Republic of Turkey from which the Turkish Treasury issues sukuk lease certificates, and has maintained the negative outlook.
Today's downgrade reflects Moody's view that the risk of a balance of payments crisis continues to rise, and with it the risk of a government default. The B1 rating balances these risks against the country's fundamental credit strengths, particularly its large, diversified economy and still-moderate levels of government indebtedness.
In a related decision, Moody's lowered Turkey's long-term country ceilings: the foreign currency bond ceiling to B1 from Ba2; its foreign currency deposit ceiling to B3 from B2; and its local currency bond and deposit ceilings to Ba2 from Ba1. The short-term foreign currency bond ceiling and short-term foreign currency deposit ceiling remain at Not Prime (NP). Ceilings generally act as the maximum ratings that can be assigned to a domestic issuer in Turkey, including structured finance securities backed by Turkish receivables. The decision to align the foreign currency bond ceiling and the government bond ratings reflects Moody's view that exposure to a single, common threat -- loss of external confidence and capital -- means that the fortunes of public and private sector entities in Turkey are, from a credit perspective, increasingly intertwined.
