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Monday, 24 September 2012

Standard & Poor's (S&P) assigns 'BB' rating to Republic Of Turkey sukuk lease certs

Sept 21 - Standard & Poor's Ratings Services said today that it has assigned its 'BB' issue rating to the $1.5 billion Sukuk Lease Certificates due 2018, issued by Hazine Mustesarligi Varlik Kiralama Anonim Sirketi (the issuer), a special purpose vehicle (SPV) wholly owned by the Republic of Turkey (foreign currency BB/Stable/B).

The transaction raises funds of $1.5 billion in accordance with the Islamic principles of "ijara" (leasing). The assets underlying the lease are state-owned buildings and land in Turkey. Under the transaction, the state sells a pool of property assets to the issuer.

The issuer holds the assets in its own name and for the account and benefit of the certificate holders. The state is to act as servicing agent to maintain the assets. The issuer leases back the assets to the state, which will make regular rental payments to the issuer. These will be the basis for periodic distribution payments payable on the lease certificates. The rental payment obligation ranks pari passu with other unsecured and unsubordinated obligations of the state.

On maturity (dissolution), the state will purchase the lease assets from the issuer at the relevant exercise price, as specified in the purchase undertaking agreement. The purchase price in connection with this sale funds the dissolution amount that is payable to the certificate holders.

In our view, the two key rating factors underpinning the rating on the sukuk are the rental payments to be made by the state, which ensure payment of the periodic distribution amounts, and the obligation that the state has to repurchase the underlying assets, which ensures payment of the dissolution amount to certificate holders. The rating on the sukuk is equalized with our rating on the senior unsecured long-term foreign currency debt of Turkey. Standard & Poor's considers that Turkey has a strong incentive to consider the performance of the lease certificates to be as important as its conventional debt, because the rationale for the transaction is to raise funds in accordance with Islamic principles, rather than to separate the state's own obligations from those of the issuer.
(Reuters / 21 Sep 2012)
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