“Sukuk” issuance in Turkey has great potential as it is still considered to be in the initial stage, especially in the private sector. Considering Turkey’s potential, it can be said that the private sector in our country is more advantageous in terms of development and diversity than its counterparts in countries that have more experience in sukuk issuance when. To maximize this opportunity, several factors need to be considered: the issuance procedures must be better understood by companies, the primary and secondary markets must be expanded, the number of issuance to be included in the public sector must be increased as an indicator of private sector issues, indices for this area must be established, costs must be reduced, and international certification should be obtained.

As a case study, the lease certificate belonging to a small and medium-sized manufacturing industry company in 2013 was examined. In the framework of the approval of the Capital Markets Board for the sale of qualified investors residing abroad, a total of 5 million Euros worth of 12 million Euros nominal value, with 5-year maturity lease certificates and monthly rent payable was issued. An SPV Joint Stock Company was also established for such issuance.

The Company with about 300 employees is preferred by major projects, large industrial enterprises, and main suppliers in Turkey. Furthermore, almost 80% of the sales of the company production are delivered to the most technically demanding markets of Germany, Austria, France, Britain, and other Western Europe countries. This is a Company that has succeeded in realizing such an achievement through its distributors in these countries. The sukuk issuer company is among the top 300 exporters in Turkey and the second out of 500 large firms in industrial companies based on the annual list published by the Industrial Chamber of Istanbul.

Despite the high growth rate achieved in 2010 and 2011, the financing institutions’ failure to achieve expected finance resources in Turkey has affected the Company’s profitability negatively; thus, it failed to meet increasing demand. Under these circumstances, the Company has started to seek international financing in 2012. A German financial service investment firm was convinced that long-term financing would facilitate both the profitability of the company and future growth with increasing demand. 

In the case of findings obtained from the Case Study, we observed that the sale process of the international qualified investors in the issuance of the lease certificate included several important issues listed below. 

• In addition to the existing alternative channels for the manufacturing industry companies, there are various advantages in employing sukukbased financing. The first one is that the manufacturing industry companies must acquire new long-term financing opportunities against their current fixed assets. 

• Sukuk issuances provide a cash flow and financing model for producers with fixed assets, which does not only generate income through production, but also cash flow and financing for the asset pool within the protective shield provided by the sukuk model through the asset leasing companies.

• The protection of assets transferred to the SPV by law is important both for the issuers and for the investors in terms of projects and production continuity. In Turkey, this protection is available with the regulations introduced under the Capital Market Law.

• As the conditions are determined from the beginning during the legal period of the transaction, there is no risk of encountering unexpected credit cost changes.

• As seen in the example of the case study, tangible assets have accumulated in the international sukuk issuance. Thus, Turkish producers competing in the global market have more advantages and can make large-scale investments if they use this model effectively to secure long-term financing.

• Requests like full guarantee for insured assets and insured transactions that are similar to insured assets during the international sukuk issuances, especially for the first-time issues, may come into the agenda. • The establishment of the SPV did not take a long time, but the business plans and the five years’ worth of worst case scenario estimates were required.

• The compliance of the Company’s financial statements with IFRS will speed up the process.

• Financial and legal due diligence processes will be carried out before the issuance.

• Although it may be changed according to the agreement made with the issuing company, it may be important to put a limit on profit distributions for as long as the sukuk maturity arrives. • The financial statements, especially the annual financial statements after the issuance, may need to be audited.

• In case of changes in partnership after issuance, there may be requests for the independent auditing of large-scale investments with the approval of new investors.

• Part of the amount obtained from the issuance may be allocated for repayment advances (25% in our case) to sukuk investors and qualified investors. This ratio may/may not be reduced depending on the issuer company and the project.