Gulf investors dominate Turkish sukuks’ flood

DUBAI - Reuters

Turkey expects to finance its $350-billion transport and other infrastructure projects with sales of Islamic bonds.

$500 million sukuk from Türkiye Finans this week was just the latest in a flood of international debt issues from Turkey. But the identity of the arranging banks, and the investors who bought the issue, pointed to a shift in capital markets.

Middle Eastern investors dominated buying of the sukuk, taking 51 percent of the deal, which received just under $2 billion in orders. And of the four banks arranging the deal for Türkiye Finans, an Islamic bank majority-owned by Saudi Arabia’s National Commercial Bank, two were based in the Gulf: NCB Capital and Dubai’s Noor Islamic Bank.

In the past, European arrangers and investors dominated issuance of international bonds from Turkey. But in recent months the Gulf has started to play a major role, for commercial and possibly even political reasons.

“You will find more demand from investors in this region, in particular banks which are fairly liquid and sovereign wealth funds, to invest in financing in Turkey, be it through private placements, new issuances, or the public debt capital markets space,” said Georges Elhedery, head of global markets in the Middle East and North Africa (MENA) for HSBC.

“These investment flows are a developing trend as Turkey, which has a low savings rate, looks to tap the deep and liquid capital pools in MENA to fund its 2023 Vision, which includes investing some $350 billion in transport and other infrastructure.”

Turkish companies have issued about $9.5 billion of U.S. dollar-denominated bonds so far this year, compared to a total of $16.5 billion for the whole of 2012, accoding to John Bates, corporate fixed income analyst for emerging markets at PineBridge Investments.

Boost to Islamic finance

About $10 billion of last year’s Turkish issuance came in the final four months of the year, and was dominated by banks.

Another Turkish bank, AlBaraka Turk is expected to price a bond early next week.

One reason for the shift is Turkey’s move into Islamic finance.Turkey issued its first sovereign sukuk last September. One of the other factors is Turkey’s increasing emphasis on developing political and economic ties with the Gulf as the country seeks to play a more active diplomatic role in the Middle East and diversify its trade.Pricing is also a factor.

Sales of Turkish sukuk to Gulf investors may increase further as Turkey expands its offerings; Istanbul is working on new regulations to allow use of a wider range of sukuk structures, which could see bonds used for finance and infrastructure development.