Demands from the investors for the recent Sukuk issuance carried out by Turkish participant bank Kuveyt Turk has exceeded expectations. Kuveyt Turk, owned by Kuwait Finance House (KFH), mandated banks for the Sukuk issue. The bank has mandated KFH Investment as global coordinator and Citigroup, Emirates NBD Capital, HSBC, KFH Investment Company and Standard Chartered Bank as joint lead managers and joint bookrunners to the deal. The Sukuk will use ljarah and Wakalah structures together and the funds generated from the issuance will be used for general corporate purposes.
Kuveyt Turk has set a final pricing guidance ahead of issuing a five-year benchmark-sized Sukuk, a document from lead arrangers indicates. Final guidance has been given at 350bps, plus or minus 10bps, over mid-swaps. This is tighter than the initial pricing thoughts in the area of 375bps over the same benchmark. The bank has collected orders worth more than US$2.25 billion so far. Benchmark sized is traditionally understood to mean in excess of US$500 million.
It is mentioned by the bankers that the current instability in Iraq is affecting the pricing of Turkish bank deals. For instance, Turkish conventional banks Halkbank and Vakifbank recently issued conventional bonds and these issuances showed the effects occurred since the beginning of the instability in Iraq.
Meanwhile, Turkish Central Bank’s Monetary Policy Committee (MPC) held its monthly meeting on the 24th June 2014 and decided to decrease the one-week repurchase rate, used by commercial banks for short-term funding, from 9.5% to 8.75%. MPC kept the borrowing rate of interest at 0% and lending rate of interest at 13.5%. Previously, MPC dramatically increased the one-week repurchase rate from 4.5% to 10% in its interim meeting held on the 28th January 2014.
The central bank, which increased rates in January to defend the dropping Turkish lira value, cut them for the first time in a year in May despite persistent inflation, weeks after prime minister Recep Tayyip Erdoğan called for such a move. The 10% interest rate was decreased to 9.5% at the MPC’s May meeting.
Ali Ceylan is a partner at Baspinar & Partners Law Firm. He can be contacted at
[email protected]
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