UPDATE 1-Turkey's first Islamic bond sale oversubscribed

* Kuveyt Turk bond is first sukuk in Turkey

* $100 mln sukuk bond paid a 5.25 percent coupon

* Sukuk seen paving way for more Turkish issuances (Adds details, background)

DUBAI, Aug 25 (Reuters) - Turkey’s first Islamic bond, from lender Kuveyt Turk, will pay a coupon of 5.25 percent and was 45 percent oversubscribed by investors, sources familiar with the matter said on Wednesday.

Kuveyt Turk, which is majority-owned by Kuwait Finance House KFIN.KW, launched the three-year $100 million sukuk on Aug. 17, paving the way for other Turkish companies to tap the growing Islamic finance market.

The subscribers were a diverse group, with demand from the Middle East, Europe and Asia, one of the sources said. Islamic banks made up 50 percent of the investor allocations.

Rizwan Kanji, senior debt capital markets attorney at law firm Norton Rose, which advised on the deal, said the issue would set a benchmark for future sukuk issuances and demonstrated that Turkey was open to Islamic finance structures.

“It is hoped this will generate interest within the wider Turkish corporate community to consider raising finance through sukuk issuances in the international markets,” Kanji said.

Sukuk are called as participation certificates and Islamic banks are participation banks in Turkey, which has been careful to maintain its policy of remaining secular in political and financial matters.

The Islamic finance industry, which is expected to hit $1 trillion by the end of 2010, has been an increasingly attractive proposition for institutions.

Turkey’s ruling AK Party has stressed the development of Islamic finance as a means of strengthening financial and trade ties to Islamic countries, particularly in the oil-rich Gulf.

In April, the Capital Markets Board of Turkey (SPK), the regulatory and supervisory authority in charge of the securities markets, published a statement laying down the legal groundwork for sukuk issues by Turkish companies.

Kuwait’s Liquidity Management House and Citibank are lead arrangers for Kuveyt Turk’s deal. Ratings agency Fitch assigned Kuveyt Turk a final rating of BBB- on Aug. 20.

On Sunday, Bahraini Islamic lender Al Baraka's BARKA.BH Chief Executive Adnan Yousif said the company's Turkish subsidiary has mandated banks for a $250 million sharia-compliant facility. [ID:nLDE67L0CR] (Reporting by Shaheen Pasha; Editing by Dinesh Nair and Karen Foster)