IslamicFinance.de

Turkey is issuing $1 billion dollar-denominated sukuk after a 18-month absence from the Islamic finance market. The government is offering five-year notes at 290 basis points above the midswap rate, aiming to sell debt before the Federal Reserve acts on its stated intention to increase interest rates. Turkey has already raised $3 billion in capital markets this year, completing two-thirds of its planned borrowing program for 2016. Turkish government debt is rated Baa3 at Moody’s Investors Service, the lowest investment grade.

In the USD sukuk pipeline, DP World and Noor Bank have selected banks for a possible benchmark issuance. Turkey’s Deputy Prime Minister Mehmet Simsek mentioned plans of an issuance within 1H16. Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) indices closed lower at 103.55 (-0.26%) and 159.18 (-0.44%) respectively. Malaysia’s revenue fell slightly to MYR1.54bn (-0.7%) in 2015 while income tax revenue increased by 7.8%. Turkey's unemployment rate declined to 10.9% and its government budget balance improved to TRY5.36bn in April. Indonesia’s trade balance rose to USD667m in April mainly due to the larger than expected decline in imports.

The Savings Deposit Insurance Fund (TMSF) announced the sale of Bank Asya shares for June 24. The TMSF will sell 183.6 million of the total 360 million preference shares, pricing each share for TL 0.70 ($0.23). This represents 51% of the total preference shares, that is the controlling power of the bank. According to the Banking Regulation and Supervision Agency (BDDK) the troubles in Bank Asya's financial structure, administration and operations pose risks to depositors as well as the security and stability of the financial system.

Turkish participation bank Kuveyt Turk has raised 300 million lira ($101.5 million) of Islamic bonds, and plans to regularly use public sales in the future. The 6-month deal is the largest local currency sukuk issued by Kuveyt Turk. The bank opted for a public sale to further widen its funding sources, in contrast to most other sukuk deals which are sold via private placements. Last week, the Turkish treasury mandated banks for a sovereign sukuk deal in the international markets. First, Turkiye Finans Katilim Bankasi applied to raise as much as 17 million euros via sukuk, followed by Aktif Bank who has also applied to raise up to 100 million lira via sukuk.

Kuwait Finance House Turkey has realized a sukuk issuance of 300 million TL with tenure of 179 days, exceeding its own previous record breaking sukuk issuance of TL 200 million on Nov 13, 2015. According to CEO Ufuk Uyan the bank will continue similar public offerings in the future. The first lease yield shall be made on Aug 11, 2016, while the second on Nov 8, 2016 at the end of the maturity, together with principal sums. So far, KFH-Turkey has issued lease certificates of a total of TL 7,2 billion in domestic and overseas markets.

The Islamic Development Bank (IDB) is planning to establish the Islamic Infrastructure Bank, which would be led by Indonesia and Turkey. Indonesia plans to spend US$300 mn on equity participation in the project. However, Turkey has committed to surpass Indonesia’s capital in a bid to bring the new bank’s headquarters to Ankara. Indonesian Vice President Jusuf Kalla expressed his support for the Islamic Infrastructure Bank. The IDB has recently elected Bandar bin Mohammed bin Hamza Asaad Al Hajjar as its new president, following the retirement of Ahmad Mohamed Ali. Bandar will hold the position for a five-year term.

Deputy prime minister in charge of the economy, Mehmet Simsek, has said Turkey will hold meetings to increase sukuk exports in the first half of 2016. The country is preparing a draft law which would bring balance to the taxation of Islamic financial contracts and encourage long-term loans. Simsek said that the Ministry wants this system but implementation depends on investor interest. Regarding the establishment of a megabank in collaboration with the Islamic Development Bank (IDB), Simsek said the probable scenario includes two megabanks, one in Indonesia and the second in Turkey.

On May 15 representatives of 56 muslim countries came together at the 41st IDB annual meeting in Jakarta. In 2015, the IDB Group recorded approvals worth $1.83 bn, representing 21% of the total since the bank’s inception. In Turkey Islamic banking comprises 5% of the total banking system, but the government aims to increase this figure to 15% by 2023. IDB's president, Ahmad Mohamed Ali, said the bank also fully supported Turkey’s plans to develop Istanbul as an international financial center.

The head of the Savings and Deposits Insurance Fund said the deadline for the sale of Bank Asya is May 29. If a buyer cannot be found, the bank will be liquidated. The bank started reporting huge losses throughout 2015, while its shares were suspended from trading in Borsa Istanbul. Later it was taken over by the Savings Deposit Insurance Fund. According to the audit report on Bank Asya the bank's shareholders signed blank transfer contracts and a large number of dubious transactions were carried out.

Turkey wants to set up a new Islamic megabank. Deputy Prime Minister Mehmet Simsek said the prime shareholders would be Turkey's Treasury and the Islamic Development Bank. Simsek prepares for talks with Indonesia in Jakarta next week on proposals to start a Shariah-compliant megabank that will lend to companies and infrastructure projects. Indonesia and Malaysia have long tried separately to establish a Shariah-compliant lender but faced obstacles until now. Turkey is ready to commit more than $300 mn for the lender as capital.

Mehmet Ali Akben, president of the Banking Supervisory and Regulatory Authority (BRSA), said that Bank Asya will either be sold by the end of the month or its license will be canceled. The bank started reporting huge losses throughout 2015, while its shares were suspended from trading in Borsa Istanbul. Later it was taken over by the Savings Deposit Insurance Fund. The BRSA's audit report on Bank Asya said the bank's shareholders signed blank transfer contracts and a large number of dubious transactions were carried out.

The World Bank Group, the Islamic Financial Services Board and the Republic of Turkey are jointly organising a conference on "Realising the Value Proposition of Takaful Industry for a Stable and Inclusive Financial System" on May 30-31, 2016 in Istanbul, Turkey. The conference aims to provide a platform for global practitioners and stakeholders in Takaful industry. The current state of the industry will be discussed as well as the evolving nature of the related legal and regulatory requirements in various regions.

On 27 April 2016 Ziraat Participation Bank closed its first Syndicated Murabaha Financing Facility. The debut transaction received a strong response from the market. Due to the significant oversubscription, Ziraat Participation Bank increased the facility size to US$155 mn. CEO Osman Arslan said the proceeds from the facility will be used to support the funding requirements of SMEs and the financing of trade related businesses.

Turkiye Finans announced plans for a EURO denominated Sukuk. This represents the first Euro denominated Sukuk in Turkey, though a number of US Dollar Sukuk have been issued previously, most recently by Turkish subsidiary of Kuwait Finance House (Kuveyt Turk) which issued a $350 million Sukuk in February 2016. Kuveyt Turk also recently issued an innovative CPI linked Sukuk, which illustrates a maturing market in Turkey.

On 27 April 2016 Ziraat Participation Bank closed its first Syndicated Murabaha Financing Facility. The debut transaction received a strong response from the market. Due to the significant oversubscription, Ziraat Participation Bank increased the facility size to US$155 mn. CEO Osman Arslan said the proceeds from the facility will be used to support the funding requirements of SMEs and the financing of trade related businesses.

While the use of risk-sharing instruments for the funding of revenue-generating infrastructure projects is easy to understand, such instruments can also be used for the funding of non-revenue generating infrastructure. The principle of risk-sharing would require that the government's repayment of the obligation created be linked to some proxy or indicator of government revenue. Given today's conundrum with debt and the need to deleverage, GDP-linked securities are being revisited. Replacing the benchmark to LIBOR (London Interbank Offer Rate) with a benchmark to nominal GDP makes eminent sense, especially from a Shariah viewpoint.

Fitch Ratings expects Turkish banks to have continued resilience to economic shocks as they still retain reasonable capitalization and liquidity. According to Fitch Financial Institutions Director Lindsey Liddell the agency expects their performance to remain reasonable, however the banks will face some challenges given the slower growth environment and margin pressure from competition. There will be further asset quality pressures, particularly considering the sector's high level of foreign currency lending and the sharp devaluation of the local currency in 2015.

Sukuk linked to Consumer Price Index (CPI) rate will provide investors protection against rising inflation in Turkey. The short term sukuk, known as rental certificates in Turkey was issued with a maturity of 729 days. The issue was subscribed by means of a private placement at a profit rate of 3.39 % above the CPI rate.

According to Fitch Ratings the total new Sukuk issuance (with a maturity of more than 18 months) in the Gulf Cooperation Council, Malaysia, Indonesia, Turkey, Singapore and Pakistan was around US$11.1 billion (RM42.9 billion) in the first quarter of 2016. Fitch said that Sukuk issuance was up 22% from Q4’15 and 21% from a year earlier, while non-Sukuk bond issuance of US$17.1 billion was down 23% quarter-on-quarter and 45% year-on-year. Sukuk represented 39.3% of total bond and Sukuk issuance in these countries during the quarter – the highest proportion in the past eight years.

Turkey's cabinet has approved Murat Cetinkaya as the next central bank head, giving some initial relief to investors who had feared a battle between Erdogan, who equates high interest rates with treason, and Prime Minister Ahmet Davutoglu's more orthodox economic team. Despite the initial relief in markets, the 40-year-old Cetinkaya remains something of an unknown quantity, lacking the experience of his predecessor, Erdem Basci, an engineer turned economics Ph.D. whose term as governor expires next week. The new Central bank governor must now convince investors that he can tame inflation while resisting political pressure to cut rates.