Launch Partners

Monday, December 5, 2022

Launch Partners

Case study: Tarfin’s second agricultural Sukuk

Agritech platform Tarfin has on the 9th November 2022 completed its second Sukuk offering worth TRY50 million (US$2.68 million) with a 210-day maturity. The Sukuk Wakalah offering was priced at a profit rate of 34% with a single payment at maturity.

The private placement facility follows Tarfin’s first Sukuk offering on the 7th July 2022 worth TRY40 million (US$2.14 million), which was also issued through its Kalkinma Yatirim Varlik Kiralama SPV.

In contrast to its first Sukuk issuance with a maturity of 61 days, which was used to finance crop purchases from farmers and pre-season inventory purchases for its partner retailers, the second Sukuk issuance will finance input purchases of farmers. As such, the maturity of the second issuance is longer than the first Sukuk to match farmers’ cash flows.

Tarfin relies on frequent capital market issuances to finance its business along the agricultural supply chain. It is looking to further tap the Turkish Islamic capital market with multiple issuances to raise TRY310 million (US$16.63 million) in the next three months under its existing Sukuk issuance limit, Kerimcan Aycibin, CFO of Tarfin, told ISFI.

The company will apply for a new issuance limit at the beginning of 2023 for further issuances.

Tarfin has issued Sukuk to provide end-to-end Shariah compliance for its balance sheet. According to Kerimcan, receivable assets generated through Tarfin’s business model are confirmed to be Shariah compliant and the Sukuk allow funding of the business model.

However, in addition to Sukuk, Tarfin has also raised funds through asset-backed securities (ABS) issuances, which are not Shariah compliant. It has concluded ABS issuances worth TRY100 million (US$5.36 million) with average maturities of 245 days.

Under the ABS issuances, the asset pool is generated prior to the issuance, which means the assets need to be bridge-financed until the issuance. Alternatively, under Sukuk financing, the assets are generated following the issuance and Sukuk funds are used to pay for procurements needed to generate the assets.

As such, Sukuk financing is more convenient to manage liquidity without having to rely on short-term bridge facilities. It also creates a natural hedge between the risk profiles of the two capital market products, Kerimcan noted.

The agritech platform has pursued private placement issuances consistently in its Sukuk issuances as well as in its ABS issuances, citing the dominance of private placement issuances in the Turkish debt market driven primarily by regulatory constraints.

“These [private placement issuances] are usually offered to a large pool of qualified investors, which has been the case in both of our ABS issuances. We have not chosen to do public issuances due to additional regulatory and operational burdens,” Kerimcan shared.

However, Kerimcan told ISFI that public issuances are an option Tarfin will consider moving forward if there are benefits to expanding its investor reach.

Tarfin 2nd Agricultural Sukuk

TRY50 million (US$2.68 million)


9th November 2022
Summary of terms and conditions
Issuer
Kalkinma Yatirim Varlik Kiralama (Development and Investment Asset Leasing Company)
Obligor
Tarfin
Size of issue
TRY50 million (US$2.68 million)
Mode of issue
Private placement
Purpose
Funding agricultural crop offtakes and sales of agricultural inputs for the new agricultural season.
Tenor
210 days
Profit rate
34%
Payment
Single payment at maturity
Currency
Turkish lira
Maturity date
7th June 2023
Lead manager(s)
Ziraat Yatirim Menkul Degerler (Ziraat Securities)
Principal advisor(s)
Turkiye Kalkinma ve Yatirim Bankasi (Development and Investment Bank of Türkiye)
Bookrunner(s)
Ziraat Yatirim Menkul Degerler (Ziraat Securities)
Governing law
Turkish law
Legal advisor(s)/council
Ozmen Yalcin Law
Islamic structure
Wakalah
Listing
Istanbul Stock Exchange
Rating
‘TR A2’ by TurkRating (for Tarfin)
Shariah advisor(s)
Isfa – Islami Finans Danismanlik
Tradability
Yes
Face value/minimum investment
TRY1,000 (US$53.64)
Investor breakdown
100% Turkish institutional investors
  • Companies in the Article
  • Tarfin

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