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FINANCE > Turkey hopes new sukuk will become benchmark

ISTANBUL - Reuters

Turkey’s Sept 18 sovereign sukuk issue could be a benchmark for future issuances and attract investors from the Middle East, says Deputy Prime Minister Babacan. The Islamic paper was five times oversubscribed

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Some 58 percent of Turkey’s first-ever sovereign sukuk issue was sold to Middle Eastern investors as the paper also saw a large interest from Asia and Europe. REUTERS photo

Some 58 percent of Turkey’s first-ever sovereign sukuk issue was sold to Middle Eastern investors as the paper also saw a large interest from Asia and Europe. REUTERS photo

Turkey could see a flurry of Islamic bonds in the coming years, as the country’s landmark $1.5 billion sovereign sukuk on Sept. 18 set a benchmark for future issuances.

The issue was oversubscribed by more than five times, with a yield of 2.8 percent and maturing in 2019, bringing in more than $8 billion. It was rated BB by Standard & Poor’s. Following the issue, bankers noted that $8 billion in demand was highly impressive for a first-time issue.

The money received from the issue is expected to enter the Turkish Treasury’s coffers on Sept. 26. Some 58 percent of the issue was sold to Middle Eastern investors, 13 percent to European investors, 12 percent to Asian, 9 percent to Turkish and 8 percent to U.S. investors, according to Deputy Prime Minister Ali Babacan.

“We believe this is going to set a benchmark for the government and private sector. For this issuance, we have prepared the [adequate] legal framework and tax regime,” Babacan said in an address to the Global Islamic Finance Forum (GIFF) yesterday.

This marked the first sukuk issuance by the country and the first issuance outside of the Gulf Cooperation Council (GCC) and Southeast Asia.

The Treasury issued the sukuk with the mediation of Citigroup, HSBC and Kuwait Finance House. Kuwait Finance House’s subsidiary Kuwait Türk, meanwhile, has two sukuk issues worth $100 million and $350 million, which are trading on the London Stock Exchange.

“There is good room for growth in this sector, and I definitely believe it is something that will be utilized by the participation of both [Islamic] and conventional banks,” Babacan said.

Islamic banking assets
Babacan said the country’s four Islamic banks now accounted for 5.6 percent of Islamic banking assets, a growth of over five times since Islamic banking laws were introduced in 2005.

Turkey completed road shows for the issuance on Sept. 16, attracting investors from the Middle East, Asia, the United States and Europe.

The Treasury’s dollar sukuk and the Turkish Lira sukuk within the next few weeks are both expected to trigger the private sector as well as provide Turkey with the opportunity to receive millions of dollars in funds from the Islamic world, a first for the country. Turkey, which has made a late but speedy entry into the $100 billion sukuk market is expected to be a key player in the near-future.

Garanti Invest Strategist Tufan Cömert said that the Treasury was able to finance its external debt within the first six months of 2012 and would use the sukuk to finance its 2013 needs, translating to a lower Eurobond supply in 2013.

September/20/2012

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Brian Irlanda

9/20/2012 2:01:53 PM

Islamic banking is commercial banking making the same profits as commercial banks. It only has different nomenclature. It is highly dishonest to say that Islamic banking is somehow more moral than other banking systems. The fact is if banks are profitably it is because they charge you interest! Charging interest is not wrong. What is wrong is pretending it is something else entirely! This is a sin against God and man!

Tayyar Abi

9/20/2012 1:21:26 PM

@KK; Yes, now I see. A not really all that clever shell game.

Köksüz Kosmopolit

9/20/2012 12:10:14 PM

DD, Islamic financial instruments are structured so they do not violate the law against usury. Example: instead of lending you money for 20 years at 7% to buy a house, a bank buys the house, then sells it to you in instalments over 20 years at a somewhat higher total price (and if the amount by which that price is higher happens to equal 20 years of interest at 7%, why, that is mere coincidence). If I were the Almighty, I'd be annoyed that my believers think it so easy to fool me...

Faruk Beisser

9/20/2012 11:48:54 AM

Hooray, hooray, hooray, another way for the banks to rip off customers!

Tayyar Abi

9/20/2012 5:37:26 AM

Escuse me but I thought usury (the use of interest) was against Koranic law. I realise people are investing but if one invests then someone else is borrowing and paying interest.
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