The republic of Turkey successfully auctioned a US$1 billion Sukuk Ijarah on the 25th November 2014. The sovereign’s 10-year paper was priced at 4.49%, attracting an orderbook of more than three times the actual size, from 140 accounts. Speaking to sources close to the deal, NABILAH ANNUAR analyses the complexities of this fundraising exercise.
Engineered based on the principles of Ijarah, the Sukuk was offered for general financing purposes. The particular structure was chosen due to the wide acceptance among core international Sukuk investors and because it was also used for the government’s previous Sukuk offering. “These issuances helped us diversify our tool-kit of financial instruments, gain access to new markets and a new group of investors, reduce overall funding costs, and set a pricing benchmark for corporate Sukuk issuances,” a senior treasury official of the Turkish government told IFN.
The global market background was a factor determining the success of the issuance. Speaking to IFN, Mohamad Safri Shahul Hamid, the deputy CEO of CIMB Islamic, lead manager and bookrunner on the deal, explained that: “This deal was launched amidst a challenging economic landscape whereby the US Federal Reserve had recently tapered its bonds repurchase program and continued expectations of a hike in the US policy rates as early as the first quarter of 2015.” He further elaborated that despite the market volatility, the deal was a huge success with an orderbook of more than US$3.4 billion, which allowed the issuer to price its Sukuk offering well inside the initial price guidance at mid swaps plus 205bps.
The treasury official, who declined to be named, highlighted that this particular issuance was the country’s longest-tenor US dollar-denominated Sukuk offering that the government was able to price in line with its conventional dollar curve. “A 10-year maturity is not something you come across frequently in sovereign Sukuk issuances. We believe this helped further build the perception for the existence of opportunities in the Islamic finance world,” said the source. Turkey’s Sukuk offering is expected to create more depth for the global Sukuk market and encourage more long-tenor global Sukuk offerings in the future. Echoing this sentiment, Safri believes that more Turkish corporates and other sovereigns could come to tap the Sukuk market following this successful transaction.
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The Republic of Turkey
US$1 billion lease certificates
 25th November 2024
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| Issuer | Hazine Müsteşarlığı Varlık Kiralama Anonim Şirketi |
| Obligor | The Republic of Turkey |
| Issuance price | 100 |
| Purpose of issuance | General financing purposes |
| Trustee | Citibank, London branch (as the Representative) |
| Tenor | 10 years |
| Coupon rate | 4.49% per annum |
| Payment | Semi-annually |
| Currency | US dollar |
| Maturity date | 25th November 2024 |
| Lead managers and bookrunners | CIMB Investment Bank, Citigroup Global Markets and HSBC Bank |
| Governing law | English/Turkish law |
| Legal advisors |
Arnold & Porter (US law) and Paksoy Ortak Avukat Bürosu (Turkish law) to the Republic of Turkey.
Clifford Chance (US law) and Yegin Ciftci Attorney Partnership (Turkish law) to the joint lead managers.
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| Listing | Irish Stock Exchange |
| Underlying assets | Real estate |
| Rating | ‘Baa3’ by Moody’s ‘BBB-‘ by Fitch |
| Shariah advisors | CIMB Islamic Bank, HSBC Saudi Arabia and Shaikh Nedham Mohamed Saleh Abdulrahman Yaqoobi |
| Structure | Ijarah |
| Investor breakdown | Middle East 37%, Turkey 17%, UK 16%, US 14%, Europe 9% and Asia & Others 7% |
| Face value/minimum investment | Minimum denominations of US$200,000 and in integral multiples of US$1,000 in excess thereof |