* Guidance revised to mid-swaps +190-200 bps
* Represents healthy premium to 2018 Eurobond
* Demand so far over $5 bln
* Will serve as benchmark for future issues
By Nevzat Devranoglu
ISTANBUL, Sept 17 (Reuters) - Turkey is expected to raise $1-1.5 billion through a sovereign sukuk that will mark the country's first foray into the global Islamic bond market, bankers said on Monday.
The bond, with a maturity of 5-1/2 years, is set to be finalised on Tuesday and will set a benchmark for future sukuk issues by Turkish banks and companies.
"A $1 billion issuance will be a good start for Turkey," said Osman Akyuz, secretary general of the association of "participation banks", a term used in Turkey to refer to Islamic banks.
"Costs seem at reasonable levels. I expect maturities to be longer in issuances from now on."
Bankers said demand for the bond was already more than $5 billion and was expected to rise further. Bookbuilding will continue on Tuesday because Monday was a holiday in Malaysia, where there is strong appetite for Islamic bonds.
The Turkish sukuk is also expected to attract strong interest from Gulf investors, who have traditionally focused on their own region. Globally, the Islamic bond market is estimated to be worth around $100 billion.
Bankers said guidance for the bond was revised to 190-200 basis points over mid-swaps, which equates to around 2.9 percent, from an earlier 200-210 basis points due to the strong demand. That would mark a small but healthy premium to Turkey's sovereign Eurobond maturing in 2018, which was trading at around 2.74 percent on Monday.
Turkey, rated 'BB' by Standard & Poor's, held investor meetings for the Islamic bond in several Gulf cities last week. Citigroup, HSBC and Kuwait's Liquidity House, a unit of Kuwait Finance House, are managing the sale.
Prime Minister Tayyip Erdogan's government, which espouses Islamic values, had shied away from a sovereign sukuk during its first decade in power, for fear of giving ammunition to critics who accuse it of seeking to roll back state secularism. Because of these sensitivities, sukuk are referred to as "participation certificates".
Turkey has been a frequent issuer of conventional dollar-denominated bonds so it has a well-developed yield curve. The treasury has raised a total of $4.6 billion this year by selling Eurobonds, in line with its external borrowing target of $4.5 billion in 2012. Turkey is expected to issue a lira-denominated sukuk, its second sovereign Islamic bond, by the end of September and demand for the instrument is likely to be high, the Turkish unit of Bahraini lender Al Baraka said last week. The issue was expected to be around 1.5-2.0 billion lira with a maturity of two years.