The sparse nature of the sukuk market is such that there are investors who put in big orders for any deal that comes to market. After all, who knows when they will next get the chance in such a supply-starved market, and what if allocations are only a fraction of what they want? It’s a vicious circle seen on every sukuk.
But occasionally a deal comes along that makes them rethink. Damac did just that at the start of April. On achieving a $2.7bn order book for a $500m deal, the eager debutant snatched another $150m on top while also ratcheting down its price from mid-300bp over mid-swaps to 310bp. That ploy brought a two-point price plunge in the secondary market from which the deal still has not recovered, despite a rally in sukuk since then.
Turkiye Finans had to face that down this week as the next sukuk issuer to come to market. Its final book size of $1.4bn was nothing to be sniffed at and the bank priced inside guidance with a secondary rally thereafter. But it was a lot less than the five to 10 times oversubscription of other deals this year, and the groggy early showing of just $750m of demand only hauled itself off the mat once those buyers with recently bloodied noses were sure that final pricing would be fair.
As elsewhere, memories in the sukuk market are short until served a stark reminder. Those who took part in the Turkey sovereign sukuk of 2012 also got stuffed after it increased its offering from $1bn to $1.5bn. That deal is still four points under par and the lesson will have been fresh in people’s minds this week after Damac.
In that sense, Damac can be seen as a healthy check on exuberant issuance. We can only hope that Turkiye Finans’s result will not prompt a quick return to type.