Green financing : Turkey’s first Sukuk issuance

On 3 June 2020, Zorlu Energy made history by becoming the first green Sukuk issuer in Turkey. Zorlu Energy, a subsidiary of Zorlu Holding, operates in electricity generation, electricity and gas distribution, wholesale and trade in the energy sector. More specifically, the company has projects in sustainable infrastructure, clean transportation and renewable energy. The green Sukuk issue, which targeted qualified investors, is part of 450 M TL issuance program. The first issue has a one-year term and quarterly variable income payment. The issue’s proceeds will be directed to finance sustainable infrastructure and clean transportation investments.

Industrial Development Bank of Turkey (TKBB), the investment bank that structured Zorlu Energy green Sukuk, applied a sustainability framework aligned with the standards of the International Capital Markets Association (ICMA). Escarus acted as the external reviewer that provided the second party opinion on Zorlu Energy’s Sustainable Sukuk Framework.

Issuance elements	Details
Program amount	450 million TL
Issuance amount	50 million TL
Nature	Domestic
Maturity	One year
Return	Corresponding Government Bond Yield + 4.5%
Structurer	TKBB
Second opinion	ESCARUS
Nature of the placement	Private
Underlying assets	Sustainable infrastructure and clean transportation
Underlying contract	Ijara

Zorlu Energy green Sukuk : Technical details

Zorlu Energy green Sukuk is definitely a good news for impact finance for the following reasons:

• Door opener to other Turkish green and social Sukuk issuances:  After this successful maiden assurance, other Turkish companies may be interested to issue Sukuk to finance their sustainability projects in the future either in local or foreign currencies. Sustainable Sukuk allow particularly issuers to broaden their investors base to include both conventional and sharia compliant investors

• Confirms Turkey’s ambition as a center for sustainable finance: It is true that the country has already issued several green bonds since 2016. However, the ambition of positioning Istanbul international center has a hub for sustainable and Islamic finance supposes first a diversity of structures (Sukuk, bonds, equity, REIT…). Second, a diversity of local and international investors and finally a variety of the underlying sustainable assets in sectors such as renewable energy, healthcare, education, water and transportation.  

• Triggers sustainable Sukuk momentum globally: The first half of 2020 has been very calm in terms of green and Sukuk issuance compared to the same period in 2019. This performance is understandable as most issuers have been busy struggling with COVID19 crisis.  Now that the economic activity is slowly kicking off, Sukuk can play an important role in closing the financing gaps of government and business to offset Covid-19 aftereffects. To illustrate, the Indonesian Government raised recently $2.5b through global Covid19 Sukuk offering to address the pandemic deficit

This article was first published in IFN Volume 17 Issue 26 dated the 1st July 2020