Aug. 30 (Bloomberg) -- Kuveyt Turk Katilim Bankasi AS is spearheading Turkey’s five-month-old Islamic bond market, planning a second sale of Shariah-compliant debt for 2012.
Kuveyt Turk, the Istanbul-based bank owned by Kuwait Finance House KSC, may sell more than $100 million of five-year sukuk, after a similar size sale in August that was the first in the nation since regulators allowed companies to offer Islamic bonds, said Chief Executive Officer Ufuk Uyan. The government is considering selling sukuk “in the future,” Finance Minister Mehmet Simsek said in an interview with Bloomberg HT television on Aug. 25.
“We’re targeting investors from the Middle East, Europe and Asia,” Uyan said in an interview from Istanbul on Aug. 25. “Everyone was expecting a sovereign sukuk from the treasury, but we wanted to pave the way as a bank.”
Turkey, a secular nation where 99 percent of the 77 million population is Muslim, allowed companies to issue debt in accordance with Islamic finance rules in April. The government is considering changes to its taxation laws to encourage more sales, said Osman Akyuz, secretary general of the Istanbul-based Association of Participation Banks, a group of Islamic institutions.
Paving the Way
Kuveyt Turk earlier this month raised $100 million from the sale of three-year Islamic notes maturing in August 2013. Investors from the Middle East, Europe and Asia demanded 1.5 times the amount on offer for the 5.25 percent sukuk, Uyan said.
“There was also good acceptance from the Turkish public,” he said. The debt is rated BBB- by Fitch Ratings, the lowest investment grade. Turkey is rated Ba2 by Moody’s Investors Service and BB by Standard & Poor’s, the second-highest junk ratings.
Policies to promote assets that follow Islamic law are spreading to Europe from Asia. Kazakhstan, the former Soviet republic that last sold debt overseas in 2000, is planning a debut Islamic bond sale this year to broaden its investor base, Aibek Bekzhanov, head of Islamic instruments at the Regional Financial Center of Almaty, said July 27.
‘Promising Future’
The spread between the average yield for emerging-market sukuk and the London interbank offered rate narrowed 2.3 basis points to 381 on Aug. 27, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.
Islamic bonds, which are based on the exchange of asset flows rather than interest, returned 3.9 percent this quarter, according to the HSBC/NASDAQ Index. Debt in developing markets gained 6.7 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.
Secular Nation
Albaraka Turk Katilim Bankasi AS, the Istanbul-based unit of Albaraka Banking, will sign a $250 million one-year Islamic syndicated loan with about 25 banks, including Standard Chartered Plc, Yousif said. The transaction, the largest in Turkey’s Islamic finance industry, will be completed on Sept. 15, he said.
Turkey, whose constitution mandates that religion be kept out of politics, has four Islamic banks. They include Asya Katilim Bankasi AS, Turkiye Finans Katilim Bankasi AS and Albaraka Turk.
Turkey wants to expand Islamic financial services to attract investment from the Persian Gulf to its $617 billion economy, Simsek said on April 1 after meeting with Saudi Arabia’s Finance Minister Ibrahim al-Assaf, state news agency Anatolia reported. The government is also in talks to become the 27-member European Union’s first Muslim-majority nation.
The government needs to tap the international sukuk markets to help set benchmark rates for corporate bond sales, according to Exotix Ltd.
“The country has long maintained a secular image and I think a sukuk issuance program could be misinterpreted politically,” Dubai-based Naji Nabaa, associate director of fixed-income sales for the Middle East and North Africa at Exotix, said in an email on Aug. 26. “We may be a fair bit away from a sovereign sukuk.”
New Rules
New RulesRising investment may help Turkey’s economic growth exceed the government’s target of 3.5 percent in 2010, Deputy Prime Minister Ali Babacan said in an interview with NTV television Aug. 25. The economy grew 11.7 percent in the first quarter, the Finance Ministry said July 15, faster than all other countries in the Group of 20 except China.
“We don’t have an immediate plan for sukuk, but in the future we plan to develop them as an alternative instrument,” Simsek said on Aug. 25. A possible sukuk sale along with yen- denominated debt will reduce Turkey’s reliance on dollars and “diversify the risk,” Emre Balibek, the Turkish Treasury’s deputy general director for public finance, said on June 23.
More regulatory changes are needed to encourage the establishment and marketing of Shariah-compliant debt, Kuveyt Turk’s Uyan said. Under existing rules, companies selling Islamic debt are taxed twice, once when the borrowers place or lease assets backing the sukuk to a special purpose vehicle and again when the assets are bought back, he said.
“We think sukuk sales will go up tremendously when the taxation issue is resolved,” Akyuz said. “We think the ruling will come out soon.”
--Editors: Shanthy Nambiar, Susan Lerner
To contact the reporters on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net, and Ercan Ersoy in Istanbul eersoy@bloomberg.net.
To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net
Source : http://www.businessweek.com/news/2010-08-29/kuveyt-turk-plans-second-sukuk-as-market-grows-islamic-finance.html - Aug 29, 2010
