Turkish lira nears record low on S&P downgrade and weak PMI

Finance Minister Naci Agbal on Wednesday suggested the timing of the downgrade was rooted in politics, citing next month's elections.

"When there is the June 24 process ahead of us, S&P unexpectedly making a statement, which also doesn't fit in with its previous statements, (it) gives the impression that it was made with political aims," he told private broadcaster NTV.

Also weighing on the lira was data showing that the Purchasing Managers' Index (PMI), a gauge of manufacturing activity, had fallen to 48.9 in April, dropping below the 50-point line that separates expansion from contraction for the first time after 13 months of consecutive growth.

"The PMI dropped particularly sharply in Turkey, suggesting that a fairly marked slowdown in growth is on the horizon," Capital Economics said in a note to clients.

DEBT CONCERNS

S&P sounded particular alarm on Turkey's debt burden - both corporate and government.

"The rating action also reflects fiscal weakening as the government continues to stimulate the economy amid growing concerns over distress in Turkey's highly externally leveraged private sector," it said, adding that the weakening exchange rate was driving up the cost of government debt - 40 percent of which is denominated in foreign currencies.

A number of large Turkish companies have sought to restructure their debt. Reuters reported in April that food giant Yildiz Holding would restructure $6.5 billion of its $8.5 billion in debt.

Another big firm, Dogus Holding, with outstanding loans that stood at $5.73 billion at the end of 2017, is also in talks with banks on debt restructuring, sources have said.

Separately, data from the customs ministry showed the trade deficit had surged 32.8 percent year-on-year in April to $6.65 billion.

(Additional reporting by Daren Butler Editing by Gareth Jones and Jon Boyle)