The first attempt — with limited success only — by the Turkish government to issue a so-called Revenue Indexed Bond (Turkish lira- and US dollar-denominated paper with a three-year maturity, where the revenue is indexed to income-based levy payments of four real economy companies owned by the state), and partly targeting Gulf investors, confirms the obvious. The transaction was rather hastily launched (on the 22nd January) and concluded in less than one week (the 28th January) and the market apparently has been overestimated and maybe not adequately researched and solicited. Just as with conventional finance instruments, pricing, timing and marketing go hand in hand with a sound product and a solid credit rating. The reality is that money no longer is up for grabs. The turbulence in the markets has not yet calmed down, global price fixing still is rather unclear and the bid apparently was only one of the openers of the new season. A new regulation for a rent certificate (Sukuk Ijarah) has been slated to be presented in Parliament for some time now. Together with the Revenue Indexed Bond, it should enhance the competiveness of Turkey in the international finance markets.
PAUL WOUTERS
The disappointing uptake of Turkish sovereign debt offering was due to factors specific to the issuance itself and not the depressed state of the international Sukuk market. The Turkish treasury wanted to close the issuance quickly within six days rather than the usual four weeks, an unrealistic target when the aim was to raise US$1 billion. As the amount raised was US$261 million, the issuance was at least a partial success. One problem was that the issuance was not actually designated as a Sukuk, and the Shariah compliance methodology was far from clear. However, the Turkish treasury had been innovative with the pricing of the returns to investors, as these were indexed to the revenue of state-owned companies, notably the Turkish Petroleum Corporation and the State Airport Authority. Hence, investors were given the opportunity to share in market risk, in line with what Justice Taqi Usmani argued in his critique of Sukuk back in November 2007. There are good prospects of the investors being well rewarded, as lower oil prices might actually enhance profitability for the Turkish Petroleum Corporation, and prospects for Ankara and Istanbul airports are encouraging. Financial connections between Turkey and the GCC should not be underestimated in any case. The purchase by Saudi Telecom of a 35% stake in Dubai-based Oger Telecom was partly prompted by its exposure to the Turkish market, where it is a significant player. If Saudi Telcom re-finances the deal with a Sukuk issuance, as it has indicated it might, this will provide Saudi investors in the proposed Sukuk with significant indirect exposure to the Turkish market. Those structuring the Sukuk would do well to follow the returns innovation of the Turkish Treasury. PROFESSOR RODNEY WILSON Director of postgraduate studies, Durham University
Turkey’s government raised TRY420.7 million (US$49.1 million) from the government Sukuk. Although this amount is only a quarter of the original issue of TRY1.89 billion (US$1.2 billion), given the current state of the global credit markets in which hardly anyone is lending, this is still to be considered a reasonable success. DR NATALIE SCHOON Head of product management, Bank of London and the Middle East
As we all know, the global capital markets are currently very difficult. International investors are unlikely to have appetite for any emerging market risk, be it Islamic or otherwise. International Islamic institutions, too, have limited liquidity at the current time. KHALID F HOWLADAR Senior credit officer, asset backed and Sukuk finance, Moody’s Middle East
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