What happened
Turkish telco Turkcell Iletisim Hizmetleri (TKC 1.20%) closed up 11.6% on Thursday after the country's central bank announced a big boost to interest rates -- 24%, or 6.25 percentage points more than previously -- boosting the Turkish lira's value against the U.S. dollar for the third straight day.
Turkey's central bank "called" an end to the sell-off in Turkcell stock today. Image source: Getty Images.
So what
They say the definition of insanity is "doing the same thing over and over, hoping for a different result." If that's the case, then insanity seems to be working out pretty well for Turkey. When Argentina's central bank tried a similar gambit last month -- hiking interest rates 15 percentage points to 60% -- the Argentine peso actually declined, rather than rose.
But what does any of this have to do with Turkcell stock? Why would a higher interest rate, or a more valuable Turkish lira, be good news for Turkcell?
Simply for this reason: Turkcell carries $2.5 billion in long-term debt on its balance sheet. Relative to cash reserves of just $1.5 billion, that means the company has net debt of $1 billion, most of which is foreign currency debt . The weaker Turkey's currency, the more lira Turkcell must spend to pay interest on (and pay back) its debts. The stronger the currency, though -- and the Turkish lira did get a bit stronger today -- the cheaper everything is for Turkcell.
Now what
Admittedly, there's still a question of whether a mere 4% strengthening in the Turkish lira (that's about how much the currency gained today) justifies a near-12% increase in the value of Turkcell stock. Personally, I think that might be a bit of an overreaction.
That being said, with Turkcell stock valued at only 6.4 times earnings today, the stock was probably oversold and due for a relief rally on any good news. Today's news fit the bill, and that's why Turkcell stock popped.
