The road ahead
Bolstered by its recent tax and legal reforms, Turkey is expected to reinforce its role as one of the prominent global sukuk players. Supported and incentivized by such reforms, pioneers in the Turkish corporate sukuk market will benefit from the "first-mover advantage" but will also face a number of challenges unique to "first movers".
Governmental authorities in the Turkish financial markets appear to be extremely willing to encourage growth in the sukuk and Islamic finance markets in Turkey.
The first Turkish corporate to successfully issue an international sukuk will inevitably need to overcome certain hurdles on the road to undertaking such an issuance. However accommodating regulators may be, these speed bumps create uncertainty that must be reflected in transaction timetables and cost estimates—a challenge in current global capital markets where favourable issuance windows appear and then disappear in the blink of an eye.
Being the first to structure these transactions with financial and legal advisors is likely to result in additional transactional costs being incurred that will not be faced by subsequent issuers following the same path.
The recent tax reform introduced by the Omnibus Bill of August 2016 provided clarity for both the issuers and originators in all types of sukuk issuances. Encouraged by the broadened stamp tax, VAT and duty exemptions encompassing all types of sukuk transactions, market players would likely be more willing to diversify their issuance structures, paving the way for a deeper Turkish sukuk market.
The CMB, Borsa Istanbul and other governmental authorities in the Turkish financial markets appear to be extremely willing to encourage growth in the sukuk and Islamic finance markets in Turkey. To achieve this, regulators should welcome and accommodate any commercially and legally reasonable sukuk structures, even if doing so requires legislative amendments.
As the relevant regulators have made clear, any amendment to regulations to accommodate a specific type of sukuk would first require a proposed transaction that can be presented to regulators for their review and consideration. Feedback and participation from all market players—including but not limited to banks, corporates, arrangers, law firms, other advisors and investors — will be key to shaping the future of the sukuk market in Turkey.
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