A good start for no-interest bonds
Güncelleme Tarihi:
Daily News with wires
Oluşturulma Tarihi: Ocak 31, 2009 00:00
ISTANBUL - The demand for the revenue-indexed bonds should not be belittled, according to the chief of the Capital Markets Board, or SPK. ’For a start, it's a good figure,’ says Turan Erol, adding that the SPK is currently working on establishing a secondary market for trading revenue-linked bonds.
Turkey’s market regulator is working to set up a secondary market for trading revenue-linked bonds that were sold by the Treasury for the first time this week, the head of the Capital Markets Board, or SPK, said Friday.
The Treasury sold 420.7 million Turkish Liras, or $257 million, in lira-denominated bonds and an additional $49.1 million in dollar bonds on Jan. 28, less than the planned sale of 1.9 billion liras.
The offering was a "success for a first try," SPK Chairman Turan Erol said at a conference in Ankara. "There will be more interest with the establishment of a secondary market," Bloomberg reported Erol as saying.
This was Turkey’s first sale of debt that avoids interest payments as the Treasury tries to reach out to new borrowers in the Islamic world amid the global credit crunch.
"The demand for the revenue-indexed bonds should not be belittled. For a start, it's a good figure," Reuters quoted Erol. The bonds are indexed to the revenue of several state-owned companies instead of interest rates and are designed to attract Gulf-area investment as Turkey turns toward the oil-rich region for funds during the global credit crunch, analysts say. Islamic finance is derived from Shariah, or Islamic, law and avoids interest-based financing. Turkey's Justice and Development Party, or AKP, which has roots in political Islam, has tried to strengthen ties with the Arab Gulf countries. President Abdullah Gül is expected to travel to Saudi Arabia with a contingent of Turkish businessmen next Tuesday.
The bonds are linked to revenue of the Turkish Petroleum Corporation, or TPAO, the State Airport Authority and other state bodies. The bonds have a maturity of three years.
The Capital Markets Board is also working on new regulations to allow a public offering of bonds linked to revenue from the metro train network in Istanbul, Erol said, without giving details. Rating measure is no longer an obligation for companies, reported Anatolia news agency, citing Erol. "We will introduce volunteerism. Those that want it can have a rating evaluation. Ratings will not be removed in an instant, however, it is no longer a necessity."
Excessive borrowing
The global crisis has stemmed from excessive borrowing as a result of low interest rates, earning money easily, greed and rating issues, he said. "Conducting ratings very properly played a role in the growth of problematic notes." Rating will not be a priority issue, he said. "It will be substituted by the International Financial Reporting Standards (IFRS)."
Financial risk management will loom large for both the real economy companies and financial companies from now on, he said, adding that organizations will prepare reports on financial risk assessment. Financial risk assessment will be a separate section in companies’ financial statements and be announced to investors and the market periodically.
There are over 100 independent supervisory companies that have obtained licenses from the SPK, Erol said. "These companies has been established with our permission and are monitored by us. We cannot audit rate companies, but we closely monitor the independent supervisory companies. We are among the rare companies that audit independent supervisory companies. Even with the slightest error, we delay a company’s license and exclude it from the system."
Regarding financial risk management, the foreign exchange open position is important for SPK, said Erol."There are three sub-groups in line with our country’s demand. The first is how they manage risk concerning the foreign exchange open position, the second is the loan situation and the third constitutes the measures taken to control and get rid of risk. The foreign exchange open position is the top issue for us."
As to the credibility of the new practice, considering demand for rating agencies stems from international conditions, Erol said. "I suppose this is a way we might be a model for the world."
The Treasury sold 420.7 million Turkish Liras, or $257 million, in lira-denominated bonds and an additional $49.1 million in dollar bonds on Jan. 28, less than the planned sale of 1.9 billion liras.
The offering was a "success for a first try," SPK Chairman Turan Erol said at a conference in Ankara. "There will be more interest with the establishment of a secondary market," Bloomberg reported Erol as saying.
This was Turkey’s first sale of debt that avoids interest payments as the Treasury tries to reach out to new borrowers in the Islamic world amid the global credit crunch.
"The demand for the revenue-indexed bonds should not be belittled. For a start, it's a good figure," Reuters quoted Erol. The bonds are indexed to the revenue of several state-owned companies instead of interest rates and are designed to attract Gulf-area investment as Turkey turns toward the oil-rich region for funds during the global credit crunch, analysts say. Islamic finance is derived from Shariah, or Islamic, law and avoids interest-based financing. Turkey's Justice and Development Party, or AKP, which has roots in political Islam, has tried to strengthen ties with the Arab Gulf countries. President Abdullah Gül is expected to travel to Saudi Arabia with a contingent of Turkish businessmen next Tuesday.
The bonds are linked to revenue of the Turkish Petroleum Corporation, or TPAO, the State Airport Authority and other state bodies. The bonds have a maturity of three years.
The Capital Markets Board is also working on new regulations to allow a public offering of bonds linked to revenue from the metro train network in Istanbul, Erol said, without giving details. Rating measure is no longer an obligation for companies, reported Anatolia news agency, citing Erol. "We will introduce volunteerism. Those that want it can have a rating evaluation. Ratings will not be removed in an instant, however, it is no longer a necessity."
Excessive borrowing
The global crisis has stemmed from excessive borrowing as a result of low interest rates, earning money easily, greed and rating issues, he said. "Conducting ratings very properly played a role in the growth of problematic notes." Rating will not be a priority issue, he said. "It will be substituted by the International Financial Reporting Standards (IFRS)."
Financial risk management will loom large for both the real economy companies and financial companies from now on, he said, adding that organizations will prepare reports on financial risk assessment. Financial risk assessment will be a separate section in companies’ financial statements and be announced to investors and the market periodically.
There are over 100 independent supervisory companies that have obtained licenses from the SPK, Erol said. "These companies has been established with our permission and are monitored by us. We cannot audit rate companies, but we closely monitor the independent supervisory companies. We are among the rare companies that audit independent supervisory companies. Even with the slightest error, we delay a company’s license and exclude it from the system."
Regarding financial risk management, the foreign exchange open position is important for SPK, said Erol."There are three sub-groups in line with our country’s demand. The first is how they manage risk concerning the foreign exchange open position, the second is the loan situation and the third constitutes the measures taken to control and get rid of risk. The foreign exchange open position is the top issue for us."
As to the credibility of the new practice, considering demand for rating agencies stems from international conditions, Erol said. "I suppose this is a way we might be a model for the world."