Government attracts over US$8 billion in orders for debut sovereign Sukuk sale (By IFN)

Wednesday 19^th September 2012

TURKEY: The government launched its much-anticipated debut sovereign Sukuk on the 18th September, raising US$1.5 billion in an offering that attracted more than US$8 billion-worth of orders. The Sukuk, which has a tenor of five-and-a-half years, offers a profit rate of 2.8%, equivalent to just 185 basis points over mid-swaps. The landmark sale follows the government’s announcement on the 5th September of its appointment of Citigroup, HSBC and Liquidity Management House for Investment to arrange the US dollar-denominated notes, with roadshows for the issuance held in Asia and the Middle East. The maiden offering also marks a turning point in Turkey’s Islamic finance market, which, despite rapid growth, has been on an uphill journey towards the issuance of the country’s first sovereign Sukuk, which was initially announced in 2003. Jason Kabel, the head of fixed income at the Bank of London and The Middle East (BLME), noted that: “It is encouraging that a country outside of Southeast Asia or the GCC is issuing a Sukuk of this size in US dollars. The Sukuk was significantly oversubscribed, with the book size closing at over US$8 billion despite being sub-investment grade and offering a profit rate of approximately 2.8%.” He added that the strong interest in the Sukuk demonstrates huge global demand for US dollar-denominated Islamic debt. “We expect to see more governments and institutions take advantage of this demand over the last quarter of 2012,” he said. The sovereign issuance comes after the first Turkish corporate Sukuk was issued just in 2010, by Kuveyt Türk Participation Bank. The issuance, worth US$100 million, actually preceded Turkey’s implementation of tax neutrality measures for Sukuk Ijarah, adopted by parliament in February 2011. With corporate Sukuk from Turkey remaining few and far between after Kuveyt Türk’s sale, the country’s debut sovereign Sukuk may just provide a much-needed spark to spur the further development of the local Sukuk market.