July 6, 2012
Ankara is finally set to help open the way for Turkish banks and companies to access Islamic funding by issuing a debut sukuk sovereign bond, according to reports. The move is partly motivated by recent difficulties investors have met in raising funds to take part in infrastructure projects and privatisations.
According to Reuters, which cites unnamed banking sources speaking on July 5, Turkey is set to mandate HSBC, Citi and Deutsche Bank to manage the sale of its first sukuk. The issue would set a benchmark for Turkish borrowers looking to tap a global sukuk market estimated at more than $100bn, allowing the Muslim, but secular, economy to diversify its fixed income investor base.
The newswire reports one source saying a $1bn issue is in the pipeline, although a final decision on the size of the issue is unclear. "The Treasury is about to finalise meetings about its first sukuk issue, and their choice (for the mandate) will be HSBC, Citi and Deutsche," said one senior banking source in London.
As the crisis in Western financial markets persists, Turkish borrowers have found it tricky to find financing. A lack of funding has been blamed for Ankara's difficulties in attracting investors for infrastructure projects such as the beleaguered North Marmara Project to build a Third Bosphoros Bridge and surrounding highways, whilst recent failed attempts to sell off state companies have been blamed on similar difficulties.
Deputy Prime Minister Ali Babacan has been predicting a sukuk sovereign issue since early in the year, and has overseen work to put the necessary legislation into place for several Islamic financial instruments. "We find [developing the sukuk market] important in terms of the diversification of financial sources and investment options for both national and international investors," Babacan told reporters in April. "Market conditions will determine the amount of the issue, and the sukuk may be lira-, dollar- or euro-denominated and will attract investors from both Turkey and abroad."
The deputy PM added that the sovereign issue is also intended to encourage Turkish companies to tap funding from Muslim investors, many of them cash rich thanks to booming oil prices. "The Treasury's sukuk issues will pave the way for those of the private sector," he said.
He also insisted that that deepening the sukuk market is important for Istanbul's bid to become an international financial centre. "We think it will not be only a national market, but a regional and global market. These certificates will be traded on the Istanbul Stock Exchange every day," he claimed.
Despite espousing Islamic values, Turkish Prime Minister Tayyip Erdogan's government has shied away from launching a sukuk issue before, fearing that it would offer ammunition to critics who accuse his ruling AK Party of seeking to roll back state secularism by stealth. However, tight liquidity and lending conditions, and the current risk aversion in Western markets, makes Islamic financing more and more tempting, despite a likely "sukuk premium" of as much as 1 percentage point, according to some analysts.