By Massoud A. Derhally
Agaoglu Group, one of Turkey's largest construction and real estate companies, plans to issue US$2bn in sukuk
Agaoglu Group, one of Turkey's largest construction and real estate companies, plans to issue US$2bn in sukuk, or Islamic bonds, to help with the financing of Istanbul's international Financial Centre, the company's president Ali Agaoglu said.
"For Istanbul Financial Centre, only we will be issuing a sukuk of US$2bn starting by next month on a gradual basis in tranches with the first one for US$250m," Agaoglu, who is ranked as Turkey's tenth richest man by Forbes magazine with a fortune of US$2.1bn, said in an interview with Arabian Business on Sunday.
The company "has been undertaking construction work of the financial centre and we will be issuing some new financial instruments such as murabaha, sukuk and real estate certificates," he added. "We have been carrying out the preparation work for all of those instruments. With these new set of financial instruments we will be offering more to the Gulf region."
Agaoglu said his company was being advised by Aktiv Bank and that technical details are being finalised. Turkey issued its first ever Islamic bond, for US$1.5bn, in September which saw strong demand from the oil-rich Gulf. Last year about US$144bn of sukuk were issued, according to Islamic Finance Information Service.
The government of Prime Minister Recep Tayyip Erdogan wants to position Istanbul as an international financial hub by 2023, marking the country’s 100th anniversary as a republic. Turkey’s economy today, in stark contrast to its economic woes of the late 1990s and early 2000s, is booming. Unemployment is declining and industries are expanding.
The country's economy is estimated to have grown 3 percent last year due to the debt crisis in Europe and contracting economies there. In 2011 Turkey recorded GDP growth of about 8.5 percent and 9.2 percent the year before.
The country, which is the 16th largest economy in the world, attracted about US$16bn in foreign direct investment in 2011, according to the United Nations Conference on Trade and Development. That is more than inflows to countries like South Korea, Malaysia, Argentina, Peru, Belgium, Denmark and Portugal.
Agaoglu, founded in 1981, is expanding its development projects as it seeks to capitalise on new legislation that allows foreigners to buy property in the country and tap the wealth of investors from the Gulf in projects like its 322,000 sqm Maslak 1453 development. The housing market in Turkey, particularly in Istanbul, is booming on the back of a growing population, high domestic demand and higher income level of households, said Alp Sen of consultancy Ernst & Young.
"Having a very young-aged population leads to increasing number of newly opened universities," said Sen. "The more students that travel from all over the country the more housing units are required."
The existing stock of housing in the country, much of it old with weak design against earthquakes, is also contributing to an increase in construction activity. Earthquake prone Turkey sits on two fault lines.
"We have a very strong track record of financial stability as a group of companies and we have a very high sales capability," Agaoglu said when asked how the company is financing its projects. "We are selling more than 4,000 units a year. One of the factors that contribute to this financial strength is that we build most of our projects on our own land. We also cooperate with the real estate investment partnership that is directly affiliated to the mass housing administration of Turkey that is directly affiliated with the prime ministry of Turkey. We work on turnover sharing basis and we share the financing of the projects with the real estate investment partnership."
The property market in Turkey is booming and ranked among Europe's top five markets according to studies by PricewaterhouseCoopers and Ernst & Young.