Islamic-style bonds made good start: Turkey's Capital Markets Board

The Treasury sold only a quarter of 1.89 billion lira it expected to sell on Wednesday in the first issue of the bonds, an attempt to attract capital from the Gulf region and broaden its range of debt instruments during the global financial crisis. 

SPK Chairman Turan Erol told reporters the board was working with the Treasury on the possiblity of trading the bonds on the secondary debt market and that relevant regulations would be created.

 "The demand for the revenue-indexed bonds should not be belittled. For a start, it's a good figure," he said.

The bonds are indexed to the revenues 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.

Turkey is in the process of negotiating a loan accord with the International Monetary Fund (IMF), but the talks have stalled due to disagreements over the terms of the deal.

The Treasury sold 420.7 million lira ($261 million) and $49.1 million of the bonds in a direct sale to banks on Wednesday, compared to Treasury expectations of 1.89 billion.

Foreign bankers said demand was nevertheless reasonable, given that the issue was not widely publicised and that the tradition of Islamic banking was only gradually developing in secular Turkey.

Islamic finance is derived from sharia, or Islamic law, and avoids interest-based financing.

Turkey's AK Party, which has roots in political Islam, has tried to strengthen ties with the Gulf Arab countries. President Abdullah Gul is expected to travel to Saudi Arabia with a contingent of Turkish businessmen next Tuesday.

The bonds are linked to revenues of Turkish Petroleum Corporation (TPAO), the State Airport Authority and other state bodies. The bonds have a maturity of three years.