Overview
Commerzbank acts as Joint Lead Manager for Turkey’s second largest sukuk transaction to date. By targeting high-quality investors across the Middle East, Asia and Europe, orders exceeded the target USD350mn issue size by 60%, allowing the client to secure competitive pricing and an unusually diverse investor base.
The Challenge
Kuveyt Turk is one of the two-largest participation banks in Turkey by assets. Majority-owned by Kuwait Finance House, it operates along strict Islamic Finance principles (Shariah law). (source)
The bank pioneered Turkey’s first-ever Sukuk in 2010 with a USD100mn three-year transaction. To support its expansion, the bank returned to the market in October 2011, seeking to place a USD350mn five-year Sukuk Al Iijara – a Shariah-compliant means of raising capital by selling then leasing back assets over an agreed term.
Commerzbank was mandated as Joint Lead Manager (JLM) on the transaction alongside the other JLMs and Bookrunners: HSBC, Standard Chartered and Liquidity House, also Abu Dhabi Islamic Bank was a further JLM. The Co-Managers on this transaction were: Bank Islam Brunei Darussalam, KFH Malaysia, Kuwait International Bank and Qatar Islamic Bank.
The Response
Given Kuveyt’s position as the only investment-grade participation bank in Turkey, its strong parentage and its track record in the sukuk market, we recognised that the transaction could attract high investor demand across international markets.
Leveraging our strong international network, the Commerzbank team supported an intensive four-day roadshow, presenting the issue to investors in Kuala Lumpur, Dubai, Abu Dhabi, London and Zurich.
Following the roadshow, books were opened with initial price guidance at 6%. Driven by strong demand from banks in the Middle East and Malaysia, orders grew rapidly to USD560mn. This enabled pricing to be tightened to 5.875% while still achieving Kuveyt Turk’s target issue of USD350mn.
Over two-thirds (69%) of orders came from Middle East buyers. In a first for the Turkish market, 19% of orders came from Asia, while Europe accounted for 12%. Banks accounted for 81% of orders.
The Result
The overwhelming success of this issue, against a backdrop of huge uncertainty in the developed fixed income markets, reflects a growing international interest in quality sukuk transactions. The decision to market to Asia and Europe, as well as to traditional Middle Eastern banks, was instrumental to the issue’s diverse investor base and the competitive pricing achieved for the client.
The deal underlines the strength of Commerzbank’s international distribution network and the growing reputation of our Financial Institutions teams among Islamic Finance clients.
