The syndicated Murabaha and Islamic revolving credit market continues to be an attractive option for Turkey’s participation banks as a fund raising instrument in addition to Sukuk, both of which are now firmly entrenched as part of a diversified fund-raising strategy.
Ziraat Katilim Bankasi (Ziraat Participation Bank), the first state owned participation bank in Turkey and a wholly-owned subsidiary of Ziraat Bankasi (itself the largest state-owned bank and one of the largest in the country in terms of assets), successfully closed a US$250 million equivalent Syndicated Dual Currency Murabaha financing facility on 10 April 2019 – its third such facility in the last two years.
Ziraat Katilim mandated Bank ABC, Dubai Islamic Bank, Emirates NBD Capital Limited, Standard Chartered Bank and Warba Bank as Mandated Lead Arrangers and Bookrunners in February 2019 to arrange a one-year Syndicated Dual Currency Murabaha financing facility, which was launched at US$150 million in the market. Bank ABC acted as the Coordinator and Warba Bank as the Investment Agent on the Facility.
Due to the significant oversubscription through 17 regional and international participants, Ziraat Katilim increased the facility size to US$250 million (equivalent). The dual currency facility comprised a US$118 million tranche and an EUR121 million tranche.
“The transaction was structured as a Sharia’a-compliant commodity Murabaha facility with a one-year and two- days’ tenor with a green-shoe option to increase the Facility size. The Facility has given Ziraat Participation Bank the opportunity to broaden its funding base and develop new bank relationships. The proceeds will be used to expand its balance sheet financing activities in Turkey,” said Ziraat in a statement.
Ziraat Katilim was founded by the Banking Regulation and Supervision Agency (BRSA) in October 2014 with an initial capital of TL675 million fully paid by the Turkish Treasury, which by the end of 2018 had reached TL1,750 million. The Bank started operations on 29 May 2015 with its first branch in Istanbul.
Today the Bank has 80 branches across the country and managed to increase its assets from TL14,350 million in 31 December 2017, to TL22,189 million as of 31 December 2018. The bank is projecting asset growth to reach TL45 billion by end 2020.
It’s vision, says Ziraat Katilim, is to become a leading participation bank in Turkey through expanding its branch network, using alternative distribution channels, diversifying its credit risk together with its funding base and enhanced service quality. Turkey is rated Ba3 by Moody’s Investor Services, B+ by S&P and BB by Fitch Ratings.
The transaction coincides with the pledge given by Finance Minister Berat Albayrak in April 2019 to boost the capital of Turkish state-owned banks and relieve bad debts in a sector left reeling by last year’s currency crisis, partly precipitated by high inflation, recession, speculation in the Turkish Lira and as a result of tariffs imposed by the Trump administration.
According to Turkish Treasury reports, the government aims to recapitalize Turkish banks to the tune of TL28 billion (US$4.9 billion). While the move is primarily aimed at state-owned banks, private sector banks could also participate in the recapitalization process, the first move in a wider four-year bank restructuring strategy, which also includes a temporary moratorium on dividends and bonus payments, tax adjustments such as lowering of corporation tax, and the government promising measures to boost exports.