November 17, 2014 / 11:28 AM / in 4 years

UPDATE 1-Turkey offers limited premium on new US dollar sukuk

(Adds background, comment)

By Abhinav Ramnarayan

LONDON, Nov 17 (IFR) - Turkey opened books on a US dollar benchmark 10-year sukuk trade this morning, in what is becoming an annual excursion into the Islamic bond market.

The sovereign, rated Baa3/BBB- by Moody’s/Fitch, set initial profit thoughts of 220bp area over mid-swaps on the note.

It is the sovereign’s first 10-year tenor in the sukuk market, having issued a 2.803% 5.5-year note in its debut transaction in 2012 and a 4.557% five-year Islamic bond last year.

“Two years ago, Islamic investors were not comfortable with going far beyond the five-year mark, but this market has been maturing rapidly as you saw with Indonesia,” said a banker familiar with the transaction.

Indonesia issued a US$1bn 4.35% 10-year sukuk in September, a deal that recorded an order book of US$10bn.

Initial profit thoughts on Turkey’s sukuk appear to offer only a small premium to the sovereign’s curve.

Both outstanding sukuk are trading at a Z-spread of around +174bp, according to Tradeweb. This is about 9bp wide of Turkey’s conventional 6.75% April 2018 bond, which was trading at a Z-spread of 165bp pre-announcement.

Turkey also has a 5.75% March 2024 note, which is trading at plus 199bp, according to Tradeweb.

Applying a similar differential, fair value would be 208bp over, suggesting that Turkey is offering a 12bp premium at the IPT stage.

“That is super tight, but this is a perfect time for Turkey to come to market when oil prices are so low and Turkey being a net importer of oil,” said one bond trader who covers Middle East and Turkey.

“Everyone wants to get a bit of Turkey at the moment,” he added, pointing to recent trading in the sovereign’s conventional curve.

For example, Turkey’s long-dated 6.625% 2045 has risen 10 points to 121.1 since the start of September, according to Tradeweb data.

The new Reg S/144A deal is expected to price on Tuesday.

Citigroup, CIMB Islamic and HSBC are arranging the transaction. (Reporting By Abhinav Ramnarayan; editing by Sudip Roy, Julian Baker)

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