Turkey steps up sukuk push

Turkey steps up sukuk push
Updated 31 May 2013

Turkey steps up sukuk push

Turkey steps up sukuk push

ISTANBUL: When Turkish Prime Minister Tayyip Erdogan came to power a decade ago it would have been almost unthinkable for his government to issue a sukuk, given accusations it was seeking to erode Turkey’s secular status.
Now, as it seeks to boost political and commercial ties with the Gulf and diversify its borrowing, one of the Muslim world’s most dynamic economies is developing an Islamic finance industry which could rival current volumes in Malaysia — the world’s top sukuk issuer — within 10 years.
Turkey has a strong secular identity. Its Islamic banks are known locally as participation banks, in part reflecting public sensitivities.
But nervousness about Islamic finance has eased in recent years, helped by growth of the sector in Western economies.
Just over a year after its debut dollar-denominated sukuk issue, Turkey’s Capital Markets Board is finalyzing regulations on five new types of sukuk as the country aims to become a major issuer of Islamic debt.
The new rules, which were sent to Erdogan’s office for approval this week, will allow Turkish corporates and banks, as well as the Treasury, to issue the world’s most widely used types of sukuk, giving them access to a wider pool of investors via a global market estimated at more than $ 100 billion.
“Islamic finance is just like halal food, there may be two reasons to choose it,” said Mustafa Cetin, head of financial institutions at the Turkish arm of Bahrain-based Islamic lender Al-Baraka.
“Either you prefer interest-free products or you find the cost of borrowing, the taste, attractive.”
Unlike the economies of the Gulf, whose Islamic debt issuance is primarily sovereign, Turkey has a powerful private sector which is increasingly eager to finance international projects using sharia-compliant products.
As part of plans to celebrate the 100th anniversary of the founding of the modern republic in 2023, Turkey aims to turn its economic and cultural capital Istanbul into a major financial center. It foresees $ 350 billion of infrastructure spending on the project, with Islamic finance expected to be one of the major sources.
Construction company Agaoglu, which will build the Istanbul Finance Center, has said it plans to borrow $ 2 billion through Shariah-compliant instruments, topping the total value of Turkey’s existing sovereign dollar sukuk issuance.
Turkey’s Islamic lenders have enjoyed rapid growth in recent years but remain a small part of the banking system.
The share of participation banks has risen to 6 percent of total banking assets from 2 percent a decade ago, when Erdogan’s Justice and Development (AK) Party first came to power.
As part of efforts to develop the sector, the government wants to see that share increase to 15 percent over the next decade and is determined to support this through regulation, as well as by encouraging unbanked rural residents to open accounts with Islamic lenders.
“Turkey’s 2023 financial services vision could see the Islamic banking industry tripling in size to more than $ 100 billion, approximately where Malaysia is today,” accounting firm Ernst & Young said in its latest World Islamic Bank report.
Turkey’s two largest state-run banks, Ziraat and Halkbank, look set to help achieve that target, with both about to establish their own participation banks.
Turkey’s Islamic banking sector may be small given the country’s population of 76 million is 99 percent Muslim, but its conventional capital markets are much more developed than many other Muslim nations.
“In Malaysia, whose population is 75 percent Muslim, the Islamic banking share ... is 35 percent while in Turkey it is only a 6 percent share,” Albaraka Turk’s Cetin said.
“Albaraka Turk is growing 20 percent yearly in assets and branches. That means we are doubling in size every 4-5 years.”
The bank will be one of eight primary dealers for a debut sukuk issue, set for June, by the Malaysia-based International Islamic Liquidity Management Corp. (IILM), formed to boost global liquidity in Islamic instruments. Turkey’s support for the IILM is seen as further evidence of its commitment to the sector.
Turkey’s new regulations, which will allow the use of more instruments including Istisna, Murabaha, Mudaraba, Musharaka and Wakala bonds, and stronger local Islamic banks should help the country attract more funding from the Gulf, where appetite for Islamic products far outstrips supply.
The country’s recent upgrade to investment grade status by major rating agencies Fitch and Moody’s will also make international borrowing easier for Turkey.
Kuveyt Turk, a subsidiary of Kuwait Finance House, was the first Turkish company to issue a sukuk when it borrowed $100 million in 2010. It then tapped the market in 2011 for a $350 million sharia-compliant issue.
The Turkish government entered the market in September 2012 with a $ 1.5 billion Ijarah sukuk — an asset-backed leasing structure in line with Islamic principles — followed by two more domestic issues totalling more than 3 billion liras ($ 1.6 billion).
The Treasury aims to issue lira-denominated Ijarah sukuk at least twice a year, one each February and the other each August or September, to build a healthy lira-denominated sukuk curve. Each issue is expected to be around 1.5 billion lira.
Turkey was technically ready to take part in Islamic finance a decade ago but chose not to for political reasons.
In March 2008, a state prosecutor asked Turkey’s top court to shut down the ruling AK Party for anti-secular activities, even though it had won two successive elections with large majorities. He also sought to ban Erdogan from politics.
“The main reason we are behind the curve is political. There was no room in the late 2000s for Shariah-compliant government borrowing while the AK Party was being charged with being anti-secular,” said one senior banker who declined to be named because of the sensitivity of the topic.
The AK Party has always denied any secret religious agenda and has vigorously promoted market reforms.
The banker said government efforts to boost Islamic finance were important, although he questioned whether Turkey had already left it too late to catch up with the rest of the world.


Weekly energy recap: February 26, 2021

Weekly energy recap: February 26, 2021
Updated 28 February 2021

Weekly energy recap: February 26, 2021

Weekly energy recap: February 26, 2021
  • The market is still assessing the resumption of US crude oil output after the fallout from the big freeze across Texas

RIYADH: Oil prices made another big weekly gain, as WTI rose above $60 per barrel and the Brent crude price settled above $65 per barrel, amid a sharp drop in US output due to the weather crisis in Texas. The week closed with Brent crude at $66.13 per barrel and WTI at $61.50.

The market is still assessing the resumption of US crude oil output after the fallout from the big freeze across Texas. The impact on US crude production is still unclear. Some American producers reported production losses of about four million barrels per day (bpd) during the cold blast, but the Energy Information Administration (EIA) reported a drop of only one million bpd.

US commercial crude stocks climbed by 1.28 million barrels to 463.04 million last week as the Texas freeze pushed refinery demand to 12-year lows. Global Platts S&P has reported the total U.S. refinery net crude input plunged 2.59 million bpd to 12.23 million bpd, the lowest since the week ended September 2008, as refinery utilization fell 14.5 percent to 68.6 percent of capacity.

Even before the striking impact of the Texas snowstorm on the US energy industry, output had fallen greatly. The EIA reported that US oil production has decreased to 9.7 million bpd, down 1.1 million from the week before and 3.4 million lower than the US peak of 13.1 million bpd a year ago. Coming in addition to the 8.2 million bpd output cuts from OPEC+ (including Saudi Arabia’s additional 1 million bpd voluntary cut), this has reduced global supplies by about 11.6 million bpd, which has so far kept the market intact and helped oil prices to head for their fourth monthly gain.

There has been bullish talk that prices might reach $100. This is completely false, despite the upcoming spring refineries maintenance season in Asia, where China is getting ready with lower crude oil imports. Continuing fears over the coronavirus may even push Asian refineries to make deeper run cuts until oil prices advance into the $70s in coming months.

Ironically, ahead of the OPEC+ meeting in early March, market participants and major shale oil producers are giving OPEC+ bullish signs to consider a modest production boost. These signals show the declining influence of US shale on OPEC and suggest that the organisation no longer needs to worry about the threat posed by the sector.


UK to allocate $17bn for new infrastructure bank

UK to allocate $17bn for new infrastructure bank
Updated 27 February 2021

UK to allocate $17bn for new infrastructure bank

UK to allocate $17bn for new infrastructure bank
  • Sunak to use budget to expand apprenticeships and extra funds for traineeships

LONDON: Britain is to launch a new infrastructure bank with £12 billion ($17 billion) in capital and £10 billion in government guarantees, the treasury said on Saturday, aimed at supporting the economy.

British Finance Minister Rishi Sunak, is expected to announce the initial funding at Wednesday’s budget and the bank will launch in spring, the ministry said.

“Britain’s businesses and the Great British public deserve world-class infrastructure and that is exactly what this new bank will help us deliver for them,” Sunak was quoted as saying.

The bank is set to finance private sector projects in the green economy, focusing on areas such as carbon capture and renewable energy.

It will also provide loans to local authorities at low interest rates to support “complex infrastructure projects.”

The Finance Ministry said the bank would unlock billions more in private finance to support a £40 billion infrastructure investment to “fire up the economy” and help reach commitments on net zero emissions and reducing regional deprivation.

The announcement comes as Britain’s economy has been hit hard by pandemic lockdowns.

Analysts expect unemployment to surge when the UK government’s furlough scheme paying the bulk of wages for millions in the private sector ends — as currently planned — at the end of April.

Sunak last week hinted he would announce further employment support in the coming months.

He first announced the planned bank in November last year, saying its headquarters would be in northern England rather than in the financial hub of London.

Apprenticeships

The minister will also announce more funding for apprenticeships in England.

Employers taking part in the Apprenticeship Initiative Scheme will from April 1 receive £3,000 for each apprentice hired, regardless of age — an increase on current grants of between £1,500 and £2,000 depending on age.

The scheme will be extended by six months until the end of September, the Finance Ministry said.

Sunak will also announce an extra £126 million for traineeships for up to 43,000 placements.

‘Enormous strains’

Sunak will use the budget next week to level with the public over the “enormous strains” in the country’s finances, warning that a bill will have to be paid after further coronavirus support, according to an interview with the Financial Times.

Sunak told the newspaper there was an immediate need to spend more to protect jobs as the UK emerged from COVID-19, but warned that Britain’s finances were now “exposed.”

UK exposure to a rise of 1 percentage point across all interest rates was £25 billion a year to the government’s cost of servicing its debt, Sunak told FT.

Additionally, the government will also announce a new £100 million task force to crackdown on COVID-19 fraudsters exploiting government support schemes, it said.


S. Africa proposes new rules to boost economy

S. Africa proposes new rules to boost economy
Updated 27 February 2021

S. Africa proposes new rules to boost economy

S. Africa proposes new rules to boost economy
  • Africa’s most industrialized nation — the hardest-hit by the coronavirus disease (COVID-19) pandemic on the continent — has put public works in sectors

JOHANNESBURG: South Africa’s National Treasury is proposing changing rules governing pension funds to encourage investment in infrastructure projects.

Africa’s most industrialized nation — the hardest-hit by the coronavirus disease (COVID-19) pandemic on the continent — has put public works in sectors such as transport, energy and water at the heart of its economic recovery plans.

The treasury is proposing changes to Regulation 28 of the Pension Funds Act in draft amendments published for public comment on Friday. This rule sets the maximum percentage of a fund’s assets that can be invested in different asset classes and is aimed to shield savers from over-concentrated investments.

The proposed amendments do not introduce infrastructure as a new asset class alongside existing ones like equities, debt instruments and property but allow for infrastructure investments to be recognized within those asset classes.

They also say overall investment in infrastructure across all asset categories may not exceed 45 percent of domestic exposure and an additional 10 percent for the rest of Africa.

The changes should make it easier for retirement funds to invest in infrastructure and allow for better measurement of investment in projects, the Treasury said in a statement.

The changes are “informed by a number of calls for increased investment in infrastructure given the current low economic growth climate,” it said, stressing that the decision to invest in any asset class remained up to the board of trustees of each fund.

The public can comment on the amendments until late March.


G20 vows multilateral approach to tackle crises

G20 vows multilateral approach to tackle crises
Updated 28 February 2021

G20 vows multilateral approach to tackle crises

G20 vows multilateral approach to tackle crises
  • Finance chiefs agree to avoid premature withdrawal of fiscal support

ROME/BRUSSELS: The world’s financial leaders committed to a more multilateral approach to the twin coronavirus and economic crises.

“We agreed that any premature withdrawal of fiscal and monetary support should be avoided,” Daniele Franco, Italy’s finance minister, told a news conference after an online meeting held by the G20 finance ministers and central bankers on Friday.

The financial chiefs agreed to maintain expansionary policies to help economies survive the effects of coronavirus disease (COVID-19). 

The Italian presidency of the G20 group of the world’s top economies said the gathering of finance chiefs had pledged to work more closely to accelerate a still fragile and uneven recovery.

The G20 is “committed to scaling up international coordination to tackle current global challenges by adopting a stronger multilateral approach and focusing on a set of core priorities,” the Italian presidency said in a statement.

US Treasury Secretary Janet Yellen told the G20 Washington had dropped the Trump administration’s proposal to let some companies opt out of new global digital tax rules, raising hopes for an agreement by summer.

The move was hailed as a major breakthrough by Germany’s Finance Minister Olaf Scholz and his French counterpart Bruno Le Maire.

Scholz said Yellen told the G20 officials that Washington also planned to reform US minimum tax regulations in line with an Organization for Economic Co-operation Development (OECD) proposal for a global effective minimum tax.

“This is a giant step forward,” Scholz said.

 Franco said the new US stance should pave the way to an overarching deal on taxation of multinationals at a G20 meeting of finance chiefs in Venice in July.

The G20 also discussed how to help the world’s poorest countries, whose economies are being disproportionately hit by the crisis.

On this front there was broad support for boosting the capital of the International Monetary Fund (IMF) to help it provide more loans, but no concrete numbers were proposed.

To give itself more firepower, the IMF proposed last year to increase its war chest by $500 billion in its own currency called the Special Drawing Rights (SDR), but the idea was blocked by former US President Donald Trump.

“There was no discussion on specific amounts of SDRs,” Franco said, adding that the issue would be looked at again on the basis of a proposal prepared by the IMF for April.


Deal signed to stimulate Saudi private sector

Deal signed to stimulate Saudi private sector
Updated 27 February 2021

Deal signed to stimulate Saudi private sector

Deal signed to stimulate Saudi private sector

The Saudi Center for International Strategic Partnerships (SCISP) signed a memorandum of cooperation with the Council of Saudi Chambers (CSC) to boost the private sector’s role in international partnerships.

The move aims to stimulate the private sector’s participation and sustainability by providing all necessary support to achieve the objectives of the Kingdom’s international strategic partnerships.

SCISP CEO Faisal Al-Sugair said the agreement is part of the measures aimed at involving all relevant actors in the Kingdom’s economic system to achieve the strategic goals of Vision 2030.

The memorandum includes exchange of information, data and necessary reports that support the two parties’ work, Al-Sugair said.

Established in 2017, the SCISP is a government entity linked to the Council of Economic and Development Affairs.