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Middle East

CASE STUDY: Kuveyt Türk Limits Execution Risk with First Sukuk of 2016

Kuveyt Türk, the leading Islamic bank in Turkey, launched a capital boosting sukuk in what became the first international sukuk to emerge from the country since the start of 2016. The deal priced amid high volatility surrounding the emerging market sphere.

Nov 17, 2016 // 12:59PM

Deal At A Glance

Deal Type: Tier II Sukuk

Deal Structure: Reg S

Location: Turkey

Borrower: Kuveyt Türk Katilim Bankasi A.Ş

Listing: Irish Stock Exchange

Bookrunners: ADIB, DIB, Emirates NDB Capital, HSBC, Noor Bank, KAMCO, KFH Capital, QInvest

Legal Advisors: Clifford Chance, King & Spalding

Size: US$350mn

Tenor: 10 years, callable in 5

Coupon: 7.90%

Spread: MS+675bp

Date of Issue: February 2016

Use of Proceeds: To increase the company’s capital

Background

Kuveyt Türk’s sukuk offered investors a relatively high yield on an Islamic instrument from an investment grade company.

Following a comprehensive roadshow that took place at the end of last year, which covered Hong Kong, Singapore, Dubai, Abu Dhabi and London, the company was able to issue a Tier II Basel III dollar denominated sukuk.

Transaction Breakdown

The turmoil experienced by the international markets, and especially emerging markets, at the beginning of the year created a tough backdrop for the issuer.

Kuveyt Türk was keen to limit the execution risk that was prevalent at the time of issuance, which was successfully achieved by securing anchor orders ahead of pricing guidance and by minimizing the execution timeline. This helped insulate the company from some of the volatility seen in the region’s markets and EMs more broadly.

“Investors search for reputable and credible obligors to invest in during turbulent markets. Kuveyt Turk stands out from its competition as a solid credit and was able to attract the attention of the investors searching for such companies,” said Bariş Baydar, Senior Associate, Investment Banking, QInvest, one of the joint lead managers and bookrunners on the transaction.

The 10 year transaction due in February 2026, which priced on February 8 with initial price thoughts of 8%, issued on February 17 with a coupon of 7.90%, or 670bp over 5 year midswap rates.

The sukuk was awarded a BBB- rating by Fitch, and benefitted from the strong credit rating of the company.

“As the leading Islamic bank in Turkey, Kuveyt Türk carries a strong rating of BBB from Fitch. Considering the solid financial status of Kuveyt Türk  along with the bank’s market leadership, the sukuk was a sound credit from an investment perspective,”  Baydar noted.

He added that as a result, there was a considerable demand in the market for this transaction, which enabled the pricing to be tightened.

The majority of the demand for the bond, 94%, originated from the MENA region, and included dedicated Islamic accounts and anchor orders. The remainder of the orderbook was made up of European accounts. Both Islamic and conventional banks and fund managers made up the orderbook.

Middle East CEE & Turkey

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