Turkey's Bosphorus bridge to be sukuked?

By bne IntelliNews February 3, 2012

bne -

The Turkish treasury has launched a study on issuing a sukuk bond, or Islamic debt certificate, to be linked to the toll revenues of a planned third bridge over the Bosphorus, claims a local media report, as the country increasingly looks east for investment capital amidst disenchantment with western investors.

The bridge is part of the beleaguered North Marmara Project, which failed to attract bidders in a tender held last month. A new tender date has been set for April 5 after the government divided the project into two parts: the bridge and 60km of link roads, and then the rest of the highway.

The bridge and its link roads will be constructed in a build-operate-transfer scheme. The remaining parts of the highway will be financed by the public budget. The cost for the privately-funded part of the project therefore will now equal $2.5bn, compared with the $6bn suggested by the last tender.

Details of the supposed study were not provided by the Vatan newspaper which made the reports, although it alluded to the buyers of the sukuk bond, who would in effect become the financiers of the project, taking their profit from the bridge toll fees.

This would indeed be a creative new way to seek financing for the project, as it would be the first instance of using Sukuk to finance projects in Turkey. It would also suggest that Turkey is giving up to a certain extent on western finance for the project to seek cash from the east, where investors are more accustomed to working with sukuk bonds.

As anyone who has visited Dubai knows, Arab investors love grandiose projects. The bridge, which will be the third over Istanbul's Bosphorus Strait, certainly is a project to stir those sentiments. With European and Turkish investors failing to place bids, or even missing payments, on projects - as recently witnessed during the sale of the electricity distribution grid covering the European side of Istanbul - investors further east are increasingly attractive to Turkey.

At the same time, concrete evidence that a sukuk bond may be linked to the bridge is scant. Vatan does not quote sources on the supposed treasury study, but instead settles for pointing to comments from Turkish Deputy PM Ali Babacan at a January 30 meeting of the country's Capital Markets Board in Istanbul.

Turkey may issue is first sukuk this year, Babacan reportedly said. "The financing of the investment [for the bridge] will be provided somehow," he also told Turkish CNBC-e at the Davos Summit.

Despite its shaky economic situation, Turkey is moving full speed ahead with its impressive roster of infrastructure and privatisation projects, such as the privatisation of the country's power grids and building a new financial district in Istanbul. No matter the global economic picture, the Turkish government's race to remake the country by 2023, the centennial anniversary of the country's founding, will not be slowed.

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