Turkish banks bond with new investors

By bne IntelliNews September 30, 2010

Guy Norton in Moscow -

Turkish banks have long been regular participants in the international syndicated loan markets, but in recent months they have begun to explore other avenues in the global debt markets.

Among the recent highlights has been the first ever sukuk issue by one of the country's Islamic banks, while leading conventional lender Akbank has tapped both the Eurobond and securitisation markets.

The $100m, three-year sukuk offering from Kuveyt Turk Participation Bank was the first ever Islamic bond issue by a European bank and is expected to be followed by transactions from other of Turkey's other Islamic finance institutions, dubbed participation banks.

Lead managed by Citibank and Liquidity Management House, the landmark offering was more than 1-1/2 times oversubscribed, with roughly half sold to Islamic banks and the balance going to a mix of conventional commercial and private banks. Geographic placement was split 48.5% Middle East, 46.5% Europe and 5% Asia.

A sukuk is a financial certificate similar to bonds that complies with sharia religious law. Because sharia prohibits the payment of interest, the issuer of a sukuk security sells the certificate to investors who then rent it back to the issuer for a predetermined rental fee.

Kuveyt Turk's move was warmly welcomed by Turkish Finance Minister Mehmet Simsek, who commented: "This is a turning point. As an alternative financial tool, sukuk will make important contributions to the development of the country. Turkey is in need of serious financing and capital, and it is searching for ways to rapidly close the gap with the advanced economies. The step Kuveyt Turk took will be needed to a greater extent. The Gulf and other regional countries do not only export oil or natural gas to the world, there is also a serious amount of capital and savings in these countries."

Simsek hopes that given the passage of appropriate legislation in Turkeu, there will also be follow-on issuance from public sector borrowers as well. "Turkey should introduce new instruments, either sukuk or something else, to finance its own growth."

In the last 10 years, global sukuk issuance has passed the $120bn mark, but Turkey has hitherto failed to tap into that trend, says Kuveyt Turk's chairman, Mohammed Alomar. "I believe sukuk will draw the anticipated interest from investors and have an important place among other financial tools."

Kuveyt Turk was established in 1989 and numbers Kuwait Finance House (62%), Kuwait Social Security Institution (9%) and Islamic Development Bank (9%) among its main shareholders.

Ak attack

Meanwhile, leading commercial lender Akbank had earlier broken new ground for the Turkish financial sector when it launched the first direct bond issue by a private sector borrower. Previously, Turkish banks had issued loan participation note issues through offshore registered issuance vehicles.

The $1bn, five-year transaction via lead managers Bank of America Merrill Lynch, Citi, JPMorgan and Standard Chartered was also notable for being the largest ever non-sovereign bond from Turkey and also featured the lowest ever coupon for a non-sovereign Turkish borrower at 5.25%.

In August, Akbank then became the first issuer from emerging Europe to tap the securitisation markets for over two years, launching a Diversified Payment Rights (DPR) issue. The $860m transaction consisted of $300m of new funding and $560m of existing debt. The $300m of new funding with an average maturity of 5.8 years was obtained from Standard Chartered, WestLB, Wells Fargo, European Investment Bank (EIB) and the International Finance Corporation (IFC). "Extending the maturity of our liabilities to achieve a healthier balance sheet structure is critical in terms of effective risk management. We are glad to tap funding instruments of longer maturity which the Turkish banking sector could benefit from," says Hulya Kefeli, head of international banking at Akbank.

The deal marked the first time that the IFC had participated in a securistisation from emerging Europe, Commenting on the transaction, Dimitris Tsistsiragos, IFC director for the Middle East, North Africa and Southern Europe, says: "The structure of this securitisation transaction demonstrates IFC's important role as a multilateral institution to help mobilizing additional long-term financing from other private sector resources. We hope this will set an example for further similar transactions in the Turkish banking sector."

Finally, Akbank completed a hat trick of fundraisings with the signing of a €1bn equivalent syndicated loan"The success of this transaction is a reflection of Akbank's ceaseless efforts to cultivate a loyal and committed global investor base as well as a testament to not only the strength of these relationships but also an acknowledgement by the international financial community of the sound and prudent way in which Akbank has been, and continues to be, managed in a difficult global economic environment," says David Pepper, a director at WestLB, which coordinated the deal.

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