Kuveyt Türk Katilim Bankasi (Kuveyt Turk), the Turkish incorporated participation bank majority-owned by Kuwait Finance House, launched its sophomore Sukuk into turbulent market conditions on the 30th October 2011. This was the first Sukuk issuance for Kuveyt Turk since its inaugural US$100 million three-year Sukuk Wakalah in 2010.
That particular issuance was targeted solely at Kuveyt Turk’s well-established Turkish and European investors. The US$350 million follow-up to its inaugural Sukuk has taken on a more international dimension with investor meetings specifically targeting foreign jurisdictions in Asia, the Middle East and Europe alongside the usual plethora of global investors. This was to guarantee a strong orderbook in light of challenging metrics originating out of Europe as a result of sovereign debt crisis.
The issuance was ultimately oversubscribed by approximately 145%. Banks accounted for 81%, while fund managers and insurance firms took 8% and sovereigns and supranationals took 10%. 69% went to Middle East investors, while Asian investors took 19% and European investors took 12%.
The issuance was rated ‘BBB’ by Fitch Ratings in line with the long-term foreign currency default rating of Kuveyt Turk, and one level above the foreign exchange rating of Turkey.
The Sukuk was issued by KT Sukuk Varlık Kiralama, a Turkish-based special purpose company established pursuant to the recently imposed Communiqué on Lease Certificates of the Capital Markets Board of Turkey.
The joint lead managers and bookrunners of the deal were HSBC, Standard Chartered and Liquidity Management House, while Abu Dhabi Islamic Bank and Commerzbank were also lead managers. Co-managers were Bank Islam, Kuwait Finance House Malaysia, Kuwait International Bank, Qatar Islamic Bank, Bank Islam Brunei Darussalam; and the legal advisors were King & Spalding, Mutlu Halaçoğlu-Yalçin-Ayaz Avukatlik Ortakliği (Mutlu Law Firm), Allen & Overy, Paksoy Ortak Avukat Bürosu.
Under the Ijarah agreement, KT Sukuk Varlik Kiralama will use the proceeds to purchase from Kuveyt Turk a portfolio of real estate Ijarah assets, non-real estate Ijarah assets and Murabahah receivables. In accordance with the lease agreement (in relation to the real estate Ijarah assets), Kuveyt Turk will then lease back the real estate Ijarah assets and will pay rent to the issuer who will in turn pay the profit distribution to the certificate holders.
Ufuk Uyan, CEO of Kuveyt Turk, said in his assessment that: “Upon the interest shown in the first Sukuk issuance, Kuveyt Turk had reached a significant point, releasing a new issuance in line with our target to bring long-term funds into the Turkish economy whilst reinforcing their leadership in originating Turkish Sukuk”.
This is also the first Sukuk issued pursuant to the revised tax legislation that deemed the transaction tax neutral and waived all land charges providing certain conditions were met.
It is also important to note that during the time period that the transaction closed, a number of publicly announced Sukuk issuances were being postponed even after their roadshows had taken place due to in part to investor sentiment but predominantly as a result of market turmoil.
In recognition of the unique nature and groundbreaking achievements the issuance was awarded the Turkey Deal of the Year at the Islamic Finance news Awards 2011.