LONDON — Albaraka Turk Participation Bank (ABTP), which is part of the Bahrain-incorporated Albaraka Banking Group (ABG), is set to close its debut Sukuk offering this coming week after finishing a roadshow targeting a limited private investor base.
In an interview with Saudi Gazette, a senior Albaraka Turk official confirmed that the Bank hopes to raise up to US$200 million through this Tier 2 Subordinated Sukuk Al-Murabaha issuance. The Sukuk is being issued by ABT Sukuk Ltd, a Cayman Islands registerrd special purpose vehicle (SPV), owned by ABTP, which is also the obligor.
“The proceeds of this transaction will be utilized to strengthen our capital base by means of a funds injection and also to diversify our funding structure. The facility will be structured as a Sukuk Al-Murabaha and is an unsecured private placement, which is being made available only for a limited investor base. The deal most likely will be closed early in the week starting 29 April,” he added.
The Sukuk, which is jointly lead managed by Al Hilal Bank, Barwa Bank, BNP Paribas, Emirates NBD, and Nomura International, who are also the bookrunners, ranks as subordinated to any other senior debt obligations of the Bank. The governing law of the unlisted Albaraka Sukuk is English Law.
ABG is a subsidiary of the Saudi-owned Dallah Albaraka Group, which is headed by Sheikh Saleh Kamel, one of the pioneers of the contemporary Islamic banking movement.
The Albaraka Turk Sukuk will complete the cycle of issuances by all of Turkey’s four participation (Islamic) banks – Kuveyt Turk Participation bank (a subsidiary of Kuwait Finance House), Asya Bank, Turkiye Finans (which is majority owned by Saudi Arabia’s National Commercial Bank), and Albaraka Turk.
It also marks a flurry of activity in the Sukuk market – both international and domestic local currency – in Turkey in recent months, which experts such as Mohammed Dawood, Managing Director of Debt Capital markets at HSBC Amanah, regard as one of the exciting new markets for Sukuk origination, especially corporate offerings.
The Turkish Sukuk story started in 2010 when Kuveyt Turk issued its debut US$100 million Sukuk in 2010, followed by a second issuance – a US$350 million Sukuk in 2011. This was followed by the debut US$1.5 billion sovereign international Sukuk Al-Ijarah of Turkey in September 2012, and two sovereign Turkish lira domestic Sukuk Al Ijarah (Lease Certificates) totalling TL1.6 billion in October 2012 and a TL1.515 billion Sukuk Al-Ijarah in February 2013 respectively by the Turkish Underscretariat of Treasury.
Indeed, a senior Turkish Undersecretariat of Treasury official confirmed to Saudi Gazette that the Government plan for Sukuk issuances in 2013 comprise this TL1.515bn domestic issuance in February and another sovereign international Sukuk later this year, most probably in the autumn. He added that the strategy is to build a yield curve for both domestic and international Sukuk through sustainable issuances of between two to four per year.
Indeed, the last three months have been very busy for Turkish Sukuk origination. Bank Asya became the second Turkish participation bank to raise funds from the international market through a debut 10-year US$250 million Fixed Rate Resettable Tier 2 Sukuk Certificates, which according to Bank Asya, were issued by Asya Sukuk Company Limited, a wholly-owned special purpose vehicle registered in the Cayman Islands and sold to qualified investors residing outside of Turkey.
Bank Asya in February this year already became the first participation bank to raise funds through a debut domestic Turkish lira Sukuk - a TL125m 1-year Sukuk issued through its wholly-owned subsidiary, Asya Varl?k Kiralama A.S. (Asset Leasing Company).
Last week, Saudi-owned Turkiye Finans Katilim Bankasi issued a US$500 million international Sukuk, priced at 3.95 per cent per annum. The Sukuk issuance was jointly arranged by Citigroup, HSBC, NCB Capital and Noor Islamic Bank.
The Turkish Sukuk Market is expected to get further traction in 2013 into 2014 because of two further potentially important developments. The Turkish Undersecretariat of Treasury in conjunction with the Capital Markets Board of Turkey is finalizing new regulations, which would widen the type of Sukuk structures that can be used. Currently, only Sukuk Al-Ijarah originations are used onshore, in addition to Sukuk Al-Murabaha in the international market.
The new regulations would enable the use of Sukuk structures based on Istisna (construction finance, important in project finance), Murabaha (Sukuk backed by Murabaha receivables), Mudaraba (Sukuk based on trust assets), Musharaka (Sukuk based on equity participation),and Wakala (Sukuk based on agency arrangements).
The other potentially important development is that several conventional Turkish banks are considering setting up stand-alone wholly-owned or joint venture participation bank subsidiaries. They include Ziraat Bankasi, the largest Turkish state-owned bank. This would not only provide competition for the existing participation banks but will also potentially widen the issuer base in Turkey for Sukuk offerings, albeit the biggest driver could come from corporate issuances. Several participation banks have confirmed that several of their major corporate clients have indicated their strong interest in raising funds through Sukuk issuances.
In a low interest rate environment, Sukuk are also holding their own in terms of pricing and yields. The final pricing for the latest Albaraka Turk Sukuk Al-Murabaha is expected to be a fixed rate around 7.50 per cent per annum, which, according to Albaraka Turk, “is considered to be very attractive in the light of the existing low interest rate environment.”
The tenor of the REG S Sukuk will be 10 years, which will be callable after the initial 5 years (10NC5).
“We have more than expected demand for our issuance. It will be a successful deal for us and also for Turkey’s participation banks in general,” added the Albaraka Turk official.