(Bloomberg) -- Turkey put an $8.5 billion sukuk deal with the United Arab Emirates on hold as it looks to explore cheaper options in the global bond markets. 

Ankara views the yield demanded by Abu Dhabi Development Holding Co PJSC, the fund owned by the United Arab Emirates, as unfavorable, according to people familiar with the discussions, who asked not to be named because the talks over potential debt sales are private.

Investor expectations of interest-rate cuts by major central banks later this year are fueling appetite for emerging-market debt, a shift in sentiment that Turkish corporates and the government are eager to capitalize on. 

In November, Turkish Treasury and Finance Minister Mehmet Simsek told Bloomberg that the inaugural bond sale to the Abu Dhabi sovereign wealth fund would begin by the end of 2023. The amount was expected to be in tranches. 

Turkey Nears First Bond Sale to UAE Fund in Landmark Deal

The sukuk deal was announced as part of funding for rebuilding efforts in Turkey following twin earthquakes that hit 11 cities in the southern region last year and claimed more than 50,000 lives. The Turkish government estimated damage exceeding $100 billion. 

The Turkish government is also not rushing into the deal as earthquake-related expenditures are progressing slower than anticipated, the people said. 

Turkey’s Treasury and Finance Ministry and ADQ each declined to comment.

President Recep Tayyip Erdogan appointed Simsek with the goal of steering Turkey toward a more conventional path after years of unorthodox economic policies led to runaway inflation and depleted the central bank’s foreign-exchange reserves.

Simsek selected the UAE as the first stop in his initial official trip abroad. While the UAE committed to investing over $50 billion in Turkey’s economy, providing much-needed external financing, no major official deal or funding announcement has been made in the past eight months.

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Under the guidance of the new economic team, Turkey has raised the central bank’s policy rate to 45% from 8.5%, attracting renewed attention from foreign investors. Turkey’s credit-default swaps have declined sharply, reducing borrowing costs and making it easier for Turkey to secure funding from international markets. 

The extra yield investors demand to hold Turkey dollar bonds rather than US Treasuries has narrowed sharply to 303 basis points, lower than its emerging-market peers, according to data compiled by Bloomberg.  

Two weeks ago, Turkey sold a 10-year Eurobond at an interest rate of 7.875%, lower than the previous year’s issuances. In November, the government sold $2.5 billion in five-year sukuk at a yield of 8.5%, with the issuance oversubscribed by three times the offering amount.

The debt deal has not been ruled out entirely and Turkey may choose to use the facility at some point, the people said.

--With assistance from Nicolas Parasie.

(Updates with chart and Turkey credit market performance)

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