Turkey's participation bank, Turkiye Finans, will bring the Islamic financial tool 'Sukuk' to the energy sector, the bank's senior director told The Anadolu Agency.
The participation bank, modeled on financial practices structured in accordance with Islamic law, first tested the 'Sukuk' model in 2014 and will start to use it as soon as it has been officially approved by the Capital Market Board of Turkey, said Osman Celik, commercial banking executive vice president of Turkiye Finans.
'We provide finance to energy investors by buying their future electricity production. So the investor will be able to use that resource for their new projects,' said Celik.
'The Islamic finance tool 'Sukuk' is used mainly in the real estate sector but this will be the first time it is used in the energy sector,' he said.
Celik said that Turkiye Finans has provided nearly two billion liras to the energy sector to date.
'We really take into consideration if the investor is really committed to the energy sector and we set our sights on growth,' he said.
One of Turkiye Finans' main criteria for providing loans for energy projects is that 20 to 25 percent of the investment should be supplied by the investor's own equity capital provided the required application measures are in place, Celik said.
'We won't accept applications if the investor outsources all the needed financing,' he said.
Celik said that investors should thoroughly investigate all financing alternatives and carefully draw up the maturity date of the debt.
'It is very important for investors to start their projects when the cost of credit is low. The repayment plan of the loans used should be made with consideration for the return of the investment,' he said.
'Well-structured projects will not face any problem in finding finance,' said Celik.
He said that Turkiye Finans will invest more on solar projects in 2015 as their rates of return are very high. 'Geothermal and thermal energy projects need to be funded by consortiums as these projects need huge amounts of capital and have long-term maturity,' Celik said.
Celik also said that lower oil prices are in favor of Turkey's inflation, which will decrease the cost of finance. He said that the latest interest rate cut by Turkey's Central Bank would positively affect investors.
'If these rate cuts remain permanent and sustainable, it will encourage investors as their costs are reduced,' he said.
By Arif Hudaverdi Yaman and Nuran Erkul
Anadolu Agency
arif.yaman@aa.com.tr