Billionaire Seeks Sukuk for Istanbul Finance Hub: Turkey Credit

Agaoglu Group, a Turkish company with interests in the building industry, energy and tourism, plans to raise $2 billion in Islamic debt to finance the construction of Istanbul’s financial district.

The company hired investment bank Aktif Bank to manage the sale in April, Agaoglu Chairman Ali Agaoglu said in an interview yesterday in Dubai, where he opened an office to lure Persian Gulf wealth to Turkey’s construction industry. The fundraising would also include Murabaha facilities, he said.

The sale seeks to tap demand for Shariah-compliant debt in the six-nation Gulf Cooperation Council, where borrowers raised a record $21 billion last year as yields dropped, according to data compiled by Bloomberg. The Turkish government raised $1.5 billion from its debut Sukuk sale last year, setting a benchmark for corporate issuers to follow.

“In order for us to issue those financial instruments we need again to turn our eyes to the Gulf market because this is where we will market those instruments,” Agaoglu said through an interpreter.

The yield on the 2.803 percent government notes due 2018 fell 13 basis points, or 0.13 percentage point, last week to 2.91 percent, data compiled by Bloomberg show. That compares with a five basis-point drop on GCC notes to 2.94 percent, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index.

Regional Status

The Istanbul International Financial Center is part of Prime Minister Recep Tayyip Erdogan’s plan to boost Turkey’s regional status and make the economy one of the world’s 10 biggest by 2023. Construction has already begun on the Asian coast of Istanbul, a city of 13 million, in the Atasehir district. Agaoglu said in November it made the highest bid to build the center.

The company plans to build infrastructure, excavation, roads, parks, a metro station and landscaping, according to a statement on Nov. 2. Construction also includes a 2,500-person conference center, shopping mall and a hotel.

Mizuho Financial Group Inc. and Mitsubishi Corp. of Japan, OAO Sberbank of Russia and Kuwait’s Burgan Bank SAK bought Turkish firms or opened offices in the city last year, joining such powerhouses as Citigroup Inc. and HSBC Holdings Plc.

‘Old Friends’

Agaoglu, with a $2.1 billion fortune according to Forbes magazine, said his company aims to capitalize on Erdogan’s policies that seek warmer ties with the Arab world as the country’s aspirations to join the European Union fade. Through the Dubai office, Agaoglu aims to attract investors to Turkey after the government eased restrictions on foreigners buying property.

“Thanks to the policies of the new government, we have turned our eyes to our old allies, our old friends with whom we have historical and religious relations, instead of turning our face to the West,” he said.

Turkey’s economy, the biggest in eastern Europe and the Middle East after Russia, may expand 4 percent this year after growing 2.7 percent in 2012, according to the median estimate of 28 economists on Bloomberg. The country is rated BBB- at Fitch Ratings, the lowest investment grade.

Yields on Turkey’s two-year benchmark lira debt have dropped 43 basis points this year to 5.75 percent, extending their 12-month decline to 350 basis points, the biggest in emerging markets. The cost of insuring Turkey’s dollar debt for five years fell four basis points last week to 138 March 1, according to data compiled by Bloomberg.

The extra yield investors demand to hold Turkey’s dollar debt over U.S. Treasuries rose one basis point to 206 at 10:55 a.m. in Istanbul, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index. Turkey’s spread is 79 basis points below the average for emerging markets, and 229 basis points below the average for countries in the Middle East, according to JPMorgan’s indexes.

‘Same Religion’

Gulf nationals from countries including Kuwait, Saudi Arabia and Yemen bought more than 1,000 residential units in Turkey since May, Agaoglu said. “The prices are quite affordable,” he said.

The Dubai office will also seek partnerships with funds in the region for development projects in Istanbul, including a tunnel under the Bosphorus. Rail projects in the city, excluding the $4.1 billion tunnel, will cost about $5 billion through 2016, Dursun Balcioglu, head of municipal rail systems, said in November.

“The Arabs in the Gulf countries have high interest in Turkey,” Agaoglu said. “We share the same culture, same cuisine, same entertainment culture. Most importantly we share the same religion.”