Dubai: The Turkish unit of Al-Baraka Banking Group is restoring contacts with investors as borrowing costs have hit the record low level after nine months of cancelling its debut sale of Islamic bonds because yields were too high.
The group’s CEO, Adnan Yousif, informed that Al-Baraka Turk Katilim Bankasi AS will offer as much as $250 million of seven-year dollar-denominated Sukuk this year.
According to the HSBC/NASDAQ Dubai US Dollar Sukuk Index, The average sukuk yield globally has fallen 91 basis points this year to an all-time low of 3.09 percent. The premium to own Islamic debt rather than US Treasuries has narrowed 81 basis points to 204.
Al-Baraka Turk would be only the second borrower from Turkey to sell sukuk after Kuveyt Turk Katilim Bankasi AS, a unit of Kuwait Finance House. Parliament passed legislation in June allowing Turkish President Erdogan’s government to sell its first Islamic bonds, setting a benchmark for the country. Demand for Shariah-compliant financing is rising as companies have arranged $747 million in syndicated murabaha facilities this year, 65 percent more than the amount for all of 2011, as per complied data.
“As a new sukuk coming out of Turkey, and as one of the first Turkish banks to penetrate the Islamic bond market, there will be interest in Al-Baraka Turk’s sale,” Apostolos Bantis, a credit analyst at Commerzbank AG in London, said.
He said, “Al-Baraka is among the few Islamic banks in Turkey and that by itself should support their new sukuk sale.”
Yousif said that Al-Baraka Turk pulled a $200 million offering of three-year sukuk in December because the rate was too high. The deal was priced at a yield of about 6.5 percent, two people familiar with the matter said last year.
Al-Baraka will need to “offer a very high rate to make this interesting,” Turki Al Hoshan, a fixed-income dealer at Arab National Bank in Riyadh, said.
“I’m not interested in investing in Turkey because of the country’s exposure to the problems in Europe,” he added.
According to data, the Turkish bank has a $346 million murabaha facility maturing on September 22. The bank is planning to raise between $400-$500 million through the facility this month, CEO Yousif said.
Al-Baraka is offering to pay 200 basis points more than interbank benchmark rates for deals in dollars and euros. For a dollar facility, that’s equivalent to a rate of 2.42 percent, based on the current three-month London interbank offered rate.
The yield spread on Turkish murabaha facilities over benchmark rates has climbed to an average 207 basis points this year, from 150 in 2011.
Sukuk sales worldwide have jumped to $33.4 billion so far this year, almost double the $17.5 billion raised by this time last year.
Al-Baraka is one of four lenders in Turkey that comply with Shariah law.
“It’s possible the bank is using this to have a presence in the sukuk market,” said Can Demir, an equity analyst at Renaissance Capital.“It may also help bring down its borrowing costs for syndicated facilities because it now has an alternative,” he added.