Case study: Ekovar’s waste management green Sukuk

Ankara-based Ekovar Cevre Grup Geri Donusum Atik Depolama Insaat Taahhut Sanayi Ve Ticaret has issued a TRY50 million (US$2.7 million) green Sukuk facility on the 14^th September 2022. The proceeds from the issuance, arranged by Emlak Participation Bank, will be channeled to waste management company Ekovar to procure, sort and recycle waste products.

The offering is the first issuance under the Capital Markets Board of Turkiye (CMB)’s Guidelines on Green Debt Instruments, Sustainable Debt Instruments, Green Lease Certificates and Sustainable Lease Certificates which were published earlier this year on the 24^th February.

The facility has a tenor of 177 days, is set to mature on the 10^th March 2023 and has a 27% profit rate. Based on the Islamic principle of Wakalah, the Sukuk facility provides periodic payments with the principal amount of TRY50 million (US$2.7 million).

The Sukuk facility was 2.2 times oversubscribed with Islamic funds representing 50% of investors, corporate investors representing 30% of investors and insurance and pension companies representing 20% of the total investors.

Ekovar has been appointed as the agent of the participation bank under the Wakalah agreement. It will utilize the Sukuk proceeds to purchase waste products as underlying assets on behalf of the bank. The outputs of the recycling process will be sold to third parties with the profit from the sale of the underlying assets to be distributed to Sukukholders on the maturity date.

As the agent, Ekovar is eligible to receive an incentive fee from the profits generated in excess of the agreed-upon profit.

To issue the Sukuk under the new guidelines, the participation bank assisted in preparing the green Sukuk framework while Metsims Sustainability Consulting provided the second party opinion (SPO) for the framework. As the first Sukuk issued under the guideline, it faced several challenges.

“The SPO increased the company’s total cost of the transaction despite the 50% reduction in listing and issuance fees by regulatory authorities. In addition, there is a shortage of domestic ESG-focused investors in Turkey.

“We need much more incentives (such as tax incentives, covering expenses of external reviews) for both issuers and investors in order to make the green/sustainable Sukuk market [a] more attractive financing option in Turkiye,” Esma Karabulut, the head of investment banking and investor relations at Emlak Participation Bank, told ISFI.

Esma told ISFI that the participation bank has applied to the CMB to issue a sustainable/green Sukuk program worth TRY2 billion (US$107.54 million) under the new guidelines with plans to issue thematic Sukuk before the end of the year.

The bank hopes to continuously issue and develop sustainable and green Sukuk in the local and international markets.

Ekovar Green Sukuk Wakalah TRY50 million (US$2.7 million) 14th September 2022
Summary of terms and conditions
Issuer	Emlak Varlık Kiralama (100% subsidiary of Turkiye Emlak Katilim Bankasi)
Obligor	Ekovar Cevre Grup Geri Donusum Atik Depolama Insaat Taahut Sanayi Ve Ticaret (EKOVAR)
Size of issue	TRY50 million (US$2.7 million)
Mode of issue	Sale to qualified investor
Purpose	To purchase specific scraps to be recycled
Tenor	177 Days
Issuance Date	14th September 2022
Maturity date	10th March 2023
Profit rate	27%
Payment	Periodic payment and principal amount will be paid at maturity
Currency	Turkish lira
Lead manager(s)	Turkiye Emlak Katilim Bankasi
Bookrunner(s)	Turkiye Emlak Katilim Bankasi
Governing law	Turkish law
Legal advisor(s)/council	Mutlu Avukatlik Ortakligi
Islamic structure	Green Sukuk Wakalah
Listing	BIST – Istanbul Stock Exchange
Underlying asset	Non-hazardous waste to be recycled
Rating	‘TR BBB+/Pozitif’ by DRC Ratings
Shariah advisor(s)	Turkiye Emlak Katilim Bankasi’s Shariah committee
Tradability	Yes
Face value/minimum investment	TRY10,000 (US$537.73)
Investor breakdown	– Islamic funds 50% – Corporate investors 30% – Insurance and pension companies 20%