While issuers in Malaysia, Bahrain, the UAE and Saudi Arabia are now familiar with going to the financial markets to raise funds through sukuk for various reasons, the Kuveyt Turk issuance is the first sukuk or Islamic securities - corporate or sovereign - to come from Turkey.
And yet the issuance hardly got noticed especially by the staunchly secular section of the Turkish media. Two years ago when the Turkish undersecretariat of Treasury confirmed that it was exploring the possibility of issuing a sovereign sukuk in the international markets, there was a healthy debate in the media.
Even the right wing media, perhaps surprisingly, supported the issuance of such a sukuk in the wake of the global financial crisis and its resultant credit crunch, which had also affected Turkey albeit not as badly as the EU countries and the US. At the same time the Islamic finance sector suffered much less with only the economic effects of the crisis impacting on the sector, especially the real estate bubble in the West, Bahrain, Kuwait, Dubai and Qatar and allied commodity price hikes.
Perhaps it is the fact that the Kuveyt Turk debut sukuk is an international issuance - the sukuk could neither be sold in Turkey nor the Cayman Islands - where it is registered. Perhaps the fact that Citigroup, an American banking major, is a joint mandated lead arranger of the issuance, which gave some comfort to its potential detractors.
Turkey with a population of some 70 million people and with a strong industrial base and private sector, should be a natural market for sukuk, which could be an important avenue to attract foreign investors into the Turkish capital market. Indeed, the opportunity cost as a result of years of delay in getting the sukuk regulations in place and government dithering over the question of a debut sovereign international issuance, has piled up over the last three years.
In fact, the regulations and legal framework facilitating the issuance of sukuk out of Turkey by local corporates were only introduced by the Capital Markets Board (SPK) in April earlier this year. In fact, the government of Prime Minister Recep Tayyip Erdogan is in the process of revamping and modernizing the current Capital Markets Law, which will give greater independence and powers to the SPK.
Turkey also has ambitions for Istanbul and the country to become an international financial hub. In a recent report, Vedat Akgiray, SPK chairman, predicted that Turkey would become an international finance hub within the next five years following the introduction of the new Capital Market Law.
After the economic crisis that shook Turkey in 2001, the country restructured the banking system, which stood the country's banking sector in good stead during the 2008/2009 global financial crisis. Despite talk about economic doom and gloom, usually exacerbated by the anti ruling AK (Justice) Party factions in the media and the establishment, Turkey according to Foreign Trade Minister Zafer Çaglayan, managed to secure a GDP growth rate of 6 percent in the last quarter of 2009, and 11.7 percent in the first quarter of 2010. Ankara, perhaps unusually, has also refused to sign another stand-by deal with the International Monetary Fund as part of its annual external borrowing requirement.
The Kuveyt Turk Sukuk on Aug. 23 should also now pave the way for a possible sovereign Turkish issuance later this year or in early 2011. Kuveyt Turk is a well-established Turkish Islamic bank that has led the sector through several product innovations over the last few years. It is one of four Turkish participation banks, the authorized title given to Islamic banks licensed in Turkey. The other three include Turkey Finans, which is majority owned by Saudi Arabia's National Commercial Bank; Albaraka Turk Participation Bank, a member of the Bahrain-incorporated but Saudi-owned Albaraka Banking Group; and Asya Bank.
Rizwan Kanji, senior debt capital markets attorney at Norton Rose LLP, which reviewed the deal, said the issue would set a benchmark for future sukuk issuances and demonstrated that Turkey was open to Islamic finance structures. "It is hoped this will generate interest within the wider Turkish corporate community to consider raising finance through sukuk issuances in the international markets," Kanji said.
The three-year $100 million sukuk was launched in Istanbul at a ceremony attended by Turkish minister of finance, Mehmet Simsek, KFH CEO Mohammed Al-Omar and Kuveyt Turk Participation Bank CEO, Ufuk Unan. Citigroup Global Markets and Liquidity House, a subsidiary of KFH, were appointed the joint lead-arrangers for the issuance. The sukuk is issued by KT Turkey Sukuk Limited, a special purpose vehicle incorporated in the Cayman Islands. It has a yield of 5.25 percent fixed and is rated BBB- by international rating agency, Fitch Ratings.
The sukuk, which was over-subscribed 45 percent, has an asset pool comprising a mixture of Murabaha and Ijara (leasing) receivables, with not less than 51 percent derived from Ijara contracts. The sukuk is issued under English law as the governing law and will be listed on the London Stock Exchange.
KFH CEO, Mohammed Al-Omar, emphasized at the launch ceremony that interest in sukuk, which has recently gained popularity as a way for many governments, financial institutions and companies, from Europe to the Far East, to raise funds from international markets, had risen rapidly all over the world in the last ten years.
"We're now watching these instruments gain more ground once again. A total of $120 billion sukuk were issued in the last ten years. Issuing Sukuk has been on Turkey's agenda for many years. We hope that this new issuance serves as a model to encourage other financial institutions and corporations in their efforts to launch new sukuk. In this respect, a new financial product with all its benefits and advantages will be added to the Turkish economy. This issuance is considered a highly significant development for foreign investors looking to purchase interest-free products. Consequently, if this product attracts wider foreign investments, more funds from global markets will flow into Turkey, as the Gulf region takes the lead," he added.
Kuveyt Türk's CEO Ufuk Uyan believes that raising finance through sukuk issuance can be a key contributor toward Turkey's long-term funding requirements. He is confident that Kuveyt Turk will go to the market with further issuances. "We are issuing a sukuk of $100 million initially. We are considering increasing this amount in the future depending on the results and assets obtained. In line with our vision for the future, our aim is to sustain our innovative approach and provide our customers with new products and services in interest-free banking," he added.
The Kuveyt Turk Sukuk, according to Norton Rose, the international law firm that advised Kuveyt Turk Participation bank on the issuance, sets a benchmark for future sukuk issuances from Turkey especially from potential corporate issuers seeking to raise funds from the international markets. It also highlights the fact that Turkish legislation is conducive to certain Islamic finance structures and can facilitate the issuance of sukuk by Turkish entities.
Sovereign Turkey has been working toward issuing a sukuk for the last two years. The credit crunch and the global financial crisis have affected the Turkish economy like any other. Traditionally, Ankara usually signs a regular stand-by facility with the International Monetary Fund (IMF) to meet its annual external borrowing requirements. Last year, Minister Simsek confirmed that the government was looking at alternative sources of financing and is in the process of drafting enabling legislation to facilitate such financing instruments which, according to the minister "will meet the demands of investors in parts of the world where liquidity is high."
Turkish bankers such as Meliksah Utku, chief economist of Albaraka Turk Participation Bank, and Avsar Sungurlu, assistant managing director of BMD Securities, which in 2006 launched the first Islamic exchange-traded fund (ETF) in the world off the Dow Jones Islamic Marker (DJIM) Index, are confident that Islamic capital market instruments will take off in Turkey as soon as the government or a Turkish corporate issues a benchmark sukuk. They also stress that a sukuk issuance makes sense given that Turkey's direction of trade has changed over the last two decades. Today, a staggering 44 percent of Turkish trade is with its neighboring countries, mostly IDB-member countries such as the GCC, Iraq, Iran, Syria and the Central Asian republics.
Source : http://arabnews.com/economy/islamicfinance/article127435.ece - Sept 6, 2010
And yet the issuance hardly got noticed especially by the staunchly secular section of the Turkish media. Two years ago when the Turkish undersecretariat of Treasury confirmed that it was exploring the possibility of issuing a sovereign sukuk in the international markets, there was a healthy debate in the media.
Even the right wing media, perhaps surprisingly, supported the issuance of such a sukuk in the wake of the global financial crisis and its resultant credit crunch, which had also affected Turkey albeit not as badly as the EU countries and the US. At the same time the Islamic finance sector suffered much less with only the economic effects of the crisis impacting on the sector, especially the real estate bubble in the West, Bahrain, Kuwait, Dubai and Qatar and allied commodity price hikes.
Perhaps it is the fact that the Kuveyt Turk debut sukuk is an international issuance - the sukuk could neither be sold in Turkey nor the Cayman Islands - where it is registered. Perhaps the fact that Citigroup, an American banking major, is a joint mandated lead arranger of the issuance, which gave some comfort to its potential detractors.
Turkey with a population of some 70 million people and with a strong industrial base and private sector, should be a natural market for sukuk, which could be an important avenue to attract foreign investors into the Turkish capital market. Indeed, the opportunity cost as a result of years of delay in getting the sukuk regulations in place and government dithering over the question of a debut sovereign international issuance, has piled up over the last three years.
In fact, the regulations and legal framework facilitating the issuance of sukuk out of Turkey by local corporates were only introduced by the Capital Markets Board (SPK) in April earlier this year. In fact, the government of Prime Minister Recep Tayyip Erdogan is in the process of revamping and modernizing the current Capital Markets Law, which will give greater independence and powers to the SPK.
After the economic crisis that shook Turkey in 2001, the country restructured the banking system, which stood the country's banking sector in good stead during the 2008/2009 global financial crisis. Despite talk about economic doom and gloom, usually exacerbated by the anti ruling AK (Justice) Party factions in the media and the establishment, Turkey according to Foreign Trade Minister Zafer Çaglayan, managed to secure a GDP growth rate of 6 percent in the last quarter of 2009, and 11.7 percent in the first quarter of 2010. Ankara, perhaps unusually, has also refused to sign another stand-by deal with the International Monetary Fund as part of its annual external borrowing requirement.
The Kuveyt Turk Sukuk on Aug. 23 should also now pave the way for a possible sovereign Turkish issuance later this year or in early 2011. Kuveyt Turk is a well-established Turkish Islamic bank that has led the sector through several product innovations over the last few years. It is one of four Turkish participation banks, the authorized title given to Islamic banks licensed in Turkey. The other three include Turkey Finans, which is majority owned by Saudi Arabia's National Commercial Bank; Albaraka Turk Participation Bank, a member of the Bahrain-incorporated but Saudi-owned Albaraka Banking Group; and Asya Bank.
Rizwan Kanji, senior debt capital markets attorney at Norton Rose LLP, which reviewed the deal, said the issue would set a benchmark for future sukuk issuances and demonstrated that Turkey was open to Islamic finance structures. "It is hoped this will generate interest within the wider Turkish corporate community to consider raising finance through sukuk issuances in the international markets," Kanji said.
The three-year $100 million sukuk was launched in Istanbul at a ceremony attended by Turkish minister of finance, Mehmet Simsek, KFH CEO Mohammed Al-Omar and Kuveyt Turk Participation Bank CEO, Ufuk Unan. Citigroup Global Markets and Liquidity House, a subsidiary of KFH, were appointed the joint lead-arrangers for the issuance. The sukuk is issued by KT Turkey Sukuk Limited, a special purpose vehicle incorporated in the Cayman Islands. It has a yield of 5.25 percent fixed and is rated BBB- by international rating agency, Fitch Ratings.
The sukuk, which was over-subscribed 45 percent, has an asset pool comprising a mixture of Murabaha and Ijara (leasing) receivables, with not less than 51 percent derived from Ijara contracts. The sukuk is issued under English law as the governing law and will be listed on the London Stock Exchange.
"We're now watching these instruments gain more ground once again. A total of $120 billion sukuk were issued in the last ten years. Issuing Sukuk has been on Turkey's agenda for many years. We hope that this new issuance serves as a model to encourage other financial institutions and corporations in their efforts to launch new sukuk. In this respect, a new financial product with all its benefits and advantages will be added to the Turkish economy. This issuance is considered a highly significant development for foreign investors looking to purchase interest-free products. Consequently, if this product attracts wider foreign investments, more funds from global markets will flow into Turkey, as the Gulf region takes the lead," he added.
The Kuveyt Turk Sukuk, according to Norton Rose, the international law firm that advised Kuveyt Turk Participation bank on the issuance, sets a benchmark for future sukuk issuances from Turkey especially from potential corporate issuers seeking to raise funds from the international markets. It also highlights the fact that Turkish legislation is conducive to certain Islamic finance structures and can facilitate the issuance of sukuk by Turkish entities.
Sovereign Turkey has been working toward issuing a sukuk for the last two years. The credit crunch and the global financial crisis have affected the Turkish economy like any other. Traditionally, Ankara usually signs a regular stand-by facility with the International Monetary Fund (IMF) to meet its annual external borrowing requirements. Last year, Minister Simsek confirmed that the government was looking at alternative sources of financing and is in the process of drafting enabling legislation to facilitate such financing instruments which, according to the minister "will meet the demands of investors in parts of the world where liquidity is high."
Turkish bankers such as Meliksah Utku, chief economist of Albaraka Turk Participation Bank, and Avsar Sungurlu, assistant managing director of BMD Securities, which in 2006 launched the first Islamic exchange-traded fund (ETF) in the world off the Dow Jones Islamic Marker (DJIM) Index, are confident that Islamic capital market instruments will take off in Turkey as soon as the government or a Turkish corporate issues a benchmark sukuk. They also stress that a sukuk issuance makes sense given that Turkey's direction of trade has changed over the last two decades. Today, a staggering 44 percent of Turkish trade is with its neighboring countries, mostly IDB-member countries such as the GCC, Iraq, Iran, Syria and the Central Asian republics.Source : http://arabnews.com/economy/islamicfinance/article127435.ece - Sept 6, 2010
