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Turkey mandates banks for first-ever sovereign sukuk sale
September 06, 2012
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ISTANBUL: Turkey has mandated Citigroup, HSBC and Kuwait’s Liquidity House to manage the sale of its first-ever sovereign sukuk, or Islamic bond, as it seeks to tap a rich pool of investors flush with oil money.

Banks will explore opportunities for a possible lease certificate issuance in a series of investor meetings between Sept.10-13 in Asia and the Middle East, the treasury said in an emailed statement on Wednesday.

Banking sources told Reuters the dollar-denominated sukuk would be issued in the week of Sept.17, but gave no further details.

“It’s positive because this will widen the treasury’s borrowing base,” said Tufan Comert, a strategist at Garanti Securities.

“The treasury completed its target for Eurobond issuance this year in the first half. Therefore an issuance abroad in the rest of the year will be like pre-financing for 2013.”

The treasury raised a total of $4.6 billion this year by selling Eurobonds, in line with its external borrowing target of $4.5 billion in 2012.

“We expect the Treasury to undertake $1 billion of lease certificate issuance in 2012,” Is Investment fixed income strategist Ugur Kucuk said.

The move by the Treasury, overcoming sensitivities about Islamic finance in the secular republic, should give Turkey access to a wider pool of investors via a global sukuk market estimated at more than $100 billion.

The sovereign sukuk from an economy regarded as one of the Muslim world’s most progressive and successful signals an intent on Turkey’s part to play a bigger role in Islamic finance.

It will also set a benchmark for future sukuk issues by banks and companies.

Because Islamic law bans the payment of interest, investors in a sharia-compliant sukuk acquire partial ownership of an underlying asset and share in its returns rather than receiving a stream of coupon payments.

Turkey’s Prime Minister Tayyip Erdogan’s government, which espouses Islamic values, shied away from a sovereign sukuk during its first decade in power, for fear of giving ammunition to critics who accuse it of seeking to roll back state secularism.

Because of the sensitivities, Islamic banks are called ‘participation banks’ in Turkey and sukuk are referred to as ‘participation certificates’.

The country has used Islamic finance methods since the late 1980s through private financial institutions that were recognised as participation banks in 2006.


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