Recent Amendments to the Debt Securities Communiqué

December 2017 Cansu Özsan
% 0

The Debt Securities Communiqué (II-31.1) that has been in force since July 7, 2013, was amended with the Communiqué numbered II-31.1a published in the Official Gazette dated February 18, 2017, and the Communiqué numbered VII-128.7c published in the Official Gazette dated March 8, 2017. Along with the amendment, the name of the Communiqué has also been changed to Debt Securities Communiqué (VII-128.8) (“Communiqué”). This article examines the various amendments to the Communiqué.

Issuance of Debt Securities

The word, “bill” in the Communiqué has been amended to “financing bill.” Prior to the amendment, the financing bills’ and bonds’ nominal values had to be paid on the maturity date; now, it is possible to pay the nominal values in installments prior to the maturity date. In this manner, the issuer, who has sufficient financial resources and liquidity, shall be able to return the capital before it matures.

Debt securities may be issued to be sold domestically, through or without public offering, or to be sold internationally. Sales without public offering may only be in the form of private placement with a minimum nominal amount of 100.000 TRY, or through sales to qualified investors. Along with the amendment, a minimum amount for domestically issued debt instruments sold via private placement is introduced.

The Capital Markets Board (“Board”) may require that the issuer with payment obligations with respect to debt securities be guaranteed by a bank or a third party legal entity, or that the sale was to be made only to qualified investors. The Board may also determine the qualifications of the persons to whom the sale is directed, and/or conditions of sale, and may shorten the validity period of the issuance certificate. Thus, the Board’s authority to intervene in the sale and determine the conditions of sale has been expanded.

The issuer, who has an effective issuance limit approved by the Board, may also apply to the Board for the approval of a new issuance limit. In this case, all or part of the debt securities that have not yet been sold within the previous issuance limit, may be cancelled upon the request of the issuer and approval by the Board.

In accordance with the new obligation placed upon the issuer through the amendment, if the debt securities are issued to be sold without public offering, and are planned to be traded at the exchange, the latest financial statements of the issuer that have undergone an independent audit/examination shall be announced in the Public Disclosure Platform (“PDP”) together with the application form and the issuance certificate. Repeating the announcement is unnecessary if the financial statements have already been announced in the PDP.

Authorized Body Decision

The general assembly, or the board of directors authorized by the general assembly or through the articles of association, may take a resolution for the issuance of debt securities.

The maximum amount of debt securities intended to be issued, and whether the sale will be held domestically through or without public offering, or internationally, must be resolved in the respective authorized body resolution. If the debt instruments are intended to be issued as convertible bonds, exchangeable bonds, or according to the provisions of Article 34 of the Communiqué (this Article contains provisions on debt instruments which are acknowledged by the Board as debt securities due to its nature), the type of the debt security must also be clearly stated in the respective authorized body resolution. If only the wording of “debt instrument” is used in the respective authorized body resolution, the Board assumes that the application is made for issuance of bonds and financing bills, only.

Application to the Board and Required Documents

Annexes to the Communiqué regulating the documents required for approval of the prospectus on debt securities to be sold domestically, through or without public offering, or internationally, are updated, as well.

In addition, the obligation to apply to the Board for the approval of issue documents before each tranche of cross-border issuances has been abolished, the issuers should apply to the Board by using secure electronic signatures within the framework of the procedures and principles of the Board, following the granting of the issuance certificate approved by the Board, prior to the sale of each tranche of cross-border issuances.

Registration of Debt Securities and Notification to the Central Registry Agency

Previously, domestic and cross-border issuances of debt securities must have been registered electronically with the Central Registry Agency (“CRA”), and the respective rights relating to those securities must have been tracked. However, upon the issuer’s request, the Board might have given exemption to the registration requirement for cross-border issuances. The recent regulation has abolished this requirement; thereby, the issuer must only submit the issuance amount, issuance date, ISIN code, the commencement date of the term, maturity date, interest rate, custodian, information regarding the currency and country where the issuance is conducted, to the CRA, within three business days following the issuance date. Any changes to such information, including early redemption of debt securities, should be reported to the CRA within three business days following the date of change.

Issuance Limit

The date of application to the Board for approval of a prospectus or issue document shall be taken into consideration in the calculation of issue limits for debt securities. On the other hand, the financial statements that are taken into consideration while calculating the issuance limit for debt instruments should be prepared within the framework of the Board regulations regarding financial statement and reporting standards for listed corporations and are determined, below:

Date of Application - The financial statements which are subject to audit/limited review while calculating the issuance limit

January 1 – March 15 - Latest annual financial statements or last year’s interim financial statements for the six-month period

March 16 – August 15 - Latest annual financial statements

August 16 – December 31 - Current year’s interim financial statements for the six-month period

Companies with special accounting periods shall adjust such financial statements according to their accounting periods. To take into consideration the following periods’ financial statements in the calculation of issue limits instead of the above-mentioned financial statements, the below provisions shall apply:

      (i) In the calculation of the issue limit upon the issuer’s request, it is possible to take into consideration the following period’s financial statements that have been subject to independent audit/review, and prepared within the framework of the Board regulations regarding financial statement and reporting standards for listed corporations.

      (ii) If the issuer has the following period’s financial statements prepared within the framework of the Board regulations regarding financial statement and reporting standards for listed corporations, and which indicate that there is a decrease in equity capital shown in the financial statements taken into consideration in the calculation of the issue limit, these financial statements shall be taken into consideration without fulfilling the independent audit/review requirement.

Although this option is no longer available for financial leasing, factoring, and financing companies, calculated issue limits may be increased by one hundred percent for banks that have a long-term rating, subject to request, and corresponding to the highest three investment-grade levels. If the issuer’s investment-grade levels fall below this level, the issuer must notify the Board of the upgrade of the issue limit.

The provision that regulates the additional issue limit equivalent of fifty percent may be granted in cross-border issuances of banks, financial institutions, financial leasing, factoring, and financing companies upon the request of the issuer, and approval of the Board has also been abolished without any distinction.

Following the amendment, the nominal amount of the issuer’s (i) debt securities that are outstanding or unsold within the issue limit, (ii) collateralized securities and (iii) lease certificates based on trading or outstanding management agreement in which the payments are not guaranteed, and the issuer is the fund-user, shall be taken into consideration as a discount item in the calculation of issue limits, including cross-border issuances. Discount amounts in cross-border issuances fulfilled over foreign currencies shall be calculated over the indicative exchange selling rate, as well as relevant cross rate or informative exchange rates of selected currencies that are not subject to transaction announced by the Central Bank of the Republic of Turkey (“CBRT”) on the date of application to the Board regarding the issue limit.

In addition, the provision regulating that debt securities shall not be sold domestically through public offering or private placement if half or more of the capital and legal reserves are eroded in financial statements that are taken into consideration while calculating the issue limit has been abolished to provide flexibility to the issuers.

Finally, provisions of this Communiqué regarding issue limits shall not apply in respect of debt securities issued for cross-border sales with the purpose to ensure the financing or re-financing of the relevant project or business within the scope of the Law on Construction of Facilities, Renovation of Existing Facilities and Purchasing Service by the Ministry of Health by Public Private Partnership Model dated 21.02.2013 and numbered 6428.

The Board Fee

The Board fee is reduced from 0.2% to 0.15% of the issuance value for maturities greater than 730 days in a way to support the issuers’ long-term debt issuance. No change, however, has been made for other maturities.

As for the cross-border issuance of the debt securities, the fee shall be deposited to record as income on the Board’s budget, prior to the sale of each tranche following the delivery of the tenor issue document to the issuer. If the issue is to be made in foreign currency, the amount that is the calculation basis of the Board fee shall be calculated according to its equivalent of Turkish currency, calculated over the relevant indicative exchange selling rate or informative exchange rates of selected currencies that are not subject to transactions announced by the CBRT on the previous business day before the date of application to the Board. This provision shall also apply in cases where the cross-border issuance is to be made over a currency other than the currency of the issue limit.

Principles on Bonds

It is essential to not make amendments on principles regarding payment conditions and interest rate to be paid for bonds; however, the legal obligations and de facto impossibilities are reserved. Making amendments on the interest rate and maturity of the debt securities issued domestically to be sold without public offering is only possible when the investors grant written consent to such amendments. The Board is entitled to determine the principles regarding the amendment requests on the conditions of debt securities issued domestically to be sold through public offering.

All issuers may repurchase issued bonds. It is possible to sell and hold these repurchased bonds to maturity, or cancel them prior to maturity, by making necessary transactions before the CRA. The Board may determine different principles for these transactions depending on the type of the issuer. In this regard, the repurchase and resale prices applicable to over-the-counter transactions shall be disclosed on the issuer’s website. The issuer is responsible for the inequality of transactions among investors. These matters may be determined freely between the issuer and the investor; however, the legislation of the country where the issuance takes place is reserved.

Conclusion

Recent amendments to the Communiqué allow more flexibility for issuers and investors, and provide improvements on the issue and sale process of the debt instruments, issue limits and the Board fee. Along with the above, the authority of the Board has been expanded, and the issuer-based approach of the Board is emphasized, instead of setting the boundaries sharply within the legislation.

All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.

Other Contents

ESMA Publishes Expected Sustainability Disclosures in Prospectuses
Newsletter Articles
ESMA Publishes Expected Sustainability Disclosures in Prospectuses

As this newsletter moves into a more sustainable future with eco-friendly Exlibris, so does the EU’s financial markets regulator and supervisor, the European Securities and Markets Authority (“ESMA”). In light of its 2023-2028 strategy , ESMA supports the Environmental, Social and Governance (ESG) transition by...

Capital Markets Law 31.08.2023
Borsa Istanbul's New Venture Capital Market
Newsletter Articles
Borsa Istanbul's New Venture Capital Market

The Communiqué on the Principles Regarding the Companies whose Shares will be Traded on the Venture Capital Market (II-16.3) ("Communiqué") has facilitated for private joint stock companies to sell their shares to qualified investors without a public offering. Thus, a new opportunity is created for joint stock...

Capital Markets Law 31.08.2023
Sustainability and Capital Markets
Newsletter Articles
Sustainability and Capital Markets

In 1987, the United Nations World Commission on Environment and Development published a report entitled “Our Common Future”. The report drew attention to the causes of global environmental problems and defined sustainable development as “development that meets the needs of the present without compromising...

Capital Markets Law 31.07.2023
Investor Protection and Transparency Principle in Light of Credit Suisse AT1 Bonds
Newsletter Articles
Investor Protection and Transparency Principle in Light of Credit Suisse AT1 Bonds

Swiss Financial Markets Supervisory Authority (“FINMA”), through its decision dated 19 March 2023, approved the merger of Credit Suisse with UBS Group AG (“UBS”) and to write down the Additional Tier 1 capital bonds (referred to as AT1) issued by Credit Suisse, with a total value of approximately CHF 17 billion...

Capital Markets Law 30.06.2023
The New Communiqué on Crowdfunding
Newsletter Articles
The New Communiqué on Crowdfunding

The Capital Markets Board’s (“Board”) long-awaited Communiqué on Crowdfunding No. III - 35/A.2 (“Communiqué”) entered into force through its publication in the Official Gazette numbered 31641 and dated 27 October 2021...

Capital Markets Law January 2022
Turkish Mortgage Covered Bonds
Newsletter Articles
Turkish Mortgage Covered Bonds

Mortgage covered bonds are one of today’s most common structured finance products. Although they have a prominent presence in the marketplace today, these bonds have historical roots in the Pfandbrief of 18th century Prussia. In the aftermath of the Seven Years War, King Frederick the Great implemented...

Capital Markets Law October 2021
The Practice of Green Bonds in the World and Turkey
Newsletter Articles
The Practice of Green Bonds in the World and Turkey
Capital Markets Law October 2021
Basic Principles Regarding Public Offering
Newsletter Articles
Basic Principles Regarding Public Offering
Capital Markets Law April 2021
Portfolio Management Companies 101
Newsletter Articles
Portfolio Management Companies 101
Capital Markets Law February 2021
The Communiqué on Board of Debt Instrument Holders
Newsletter Articles
The Communiqué on Board of Debt Instrument Holders
Capital Markets Law September 2020
Communiqué on Significant Transactions and Retirement Right
Newsletter Articles
Communiqué on the Principles of Abolishing Privileges
Newsletter Articles
Contracts of Guarantee Relating to Capital Market Instruments
Newsletter Articles
Draft Communiqué on Equity Based Crowdfunding
Newsletter Articles
Draft Communiqué on Equity Based Crowdfunding
Capital Markets Law May 2019
Issuance of Shares in Registered Capital System
Newsletter Articles
Issuance of Shares in Registered Capital System
Capital Markets Law February 2019
Recent Developments on Corporate Governance Compliance Reporting
Newsletter Articles
Public Disclosure Obligation
Newsletter Articles
Public Disclosure Obligation
Capital Markets Law August 2018
Market Manipulation Offense in terms of Turkish Capital Markets Law
Newsletter Articles
Mandatory Share Purchase Offer
Newsletter Articles
Mandatory Share Purchase Offer
Capital Markets Law June 2018
MiFID II and its Eventual Impacts on Turkey
Newsletter Articles
MiFID II and its Eventual Impacts on Turkey
Capital Markets Law March 2018
Management of Information Systems
Newsletter Articles
Management of Information Systems
Capital Markets Law March 2018
Regulatory Approaches to Crowdfunding in European Union
Newsletter Articles
Important Changes in Capital Markets Legislation
Newsletter Articles
Important Changes in Capital Markets Legislation
Capital Markets Law January 2018
Crowdfunding in Turkey
Newsletter Articles
Crowdfunding in Turkey
Capital Markets Law January 2018
Activities of Foreign Investment Institutions in Turkey
Newsletter Articles
Activities of Foreign Investment Institutions in Turkey
Capital Markets Law September 2017
The Draft Law on Crowdfunding
Newsletter Articles
The Draft Law on Crowdfunding
Capital Markets Law April 2017
Property Certificates
Newsletter Articles
Property Certificates
Capital Markets Law March 2017
Amendments to the Communiqué on Disclosure of Material Events
Newsletter Articles
Recent Developments Regarding Alternative Investment Funds in Europe
Newsletter Articles
Financial Reporting Principles of Mutual Funds
Newsletter Articles
Financial Reporting Principles of Mutual Funds
Capital Markets Law December 2016
Share Buy-Back by Listed Corporations
Newsletter Articles
Share Buy-Back by Listed Corporations
Capital Markets Law December 2016
Communiqué On The Principles Regarding Security Investment Companies
Newsletter Articles
Legal Remedies For Corporate Bondholders in The Event Of Default
Newsletter Articles
Market Abuse Actions in Accordance With Capital Markets Law
Newsletter Articles
Prohibition On Hidden Income Shifting
Newsletter Articles
Prohibition On Hidden Income Shifting
Capital Markets Law January 2015
Asset-Backed And Mortgage-Backed Securities
Newsletter Articles
Asset-Backed And Mortgage-Backed Securities
Capital Markets Law November 2014
The New Era For Mutual Funds – I
Newsletter Articles
The New Era For Mutual Funds – I
Capital Markets Law November 2014
New Regulation in Turkish Capital Markets: Real Estate Investment Funds
Newsletter Articles
Squeeze-out and Sell-out Rights in Public Companies
Newsletter Articles
Squeeze-out and Sell-out Rights in Public Companies
Capital Markets Law October 2014
Renewed Communiqué And Guide For Disclosure Of Material Events
Newsletter Articles
Prominence Of Sukuk in Turkey As An Islamic Finance Instrument
Newsletter Articles
Communiqué On Corporate Governance II
Newsletter Articles
Communiqué On Corporate Governance II
Capital Markets Law May 2014
Communiqué On Corporate Governance I
Newsletter Articles
Communiqué On Corporate Governance I
Capital Markets Law February 2014
Share Purchase Offer
Newsletter Articles
Share Purchase Offer
Capital Markets Law February 2014
Independent Board Of Directors’ Members Under Corporate Governance Principles
Newsletter Articles
Communique Regarding Debt Securities
Newsletter Articles
Communique Regarding Debt Securities
Capital Markets Law July 2013
The Regulation Regarding Angel Investment Capital
Newsletter Articles
The Regulation Regarding Angel Investment Capital
Capital Markets Law February 2013
Corporate Governance
Newsletter Articles
Corporate Governance
Capital Markets Law March 2012
Share Repurchase (Buybacks) Or Pledge Of Shares
Newsletter Articles
Share Repurchase (Buybacks) Or Pledge Of Shares
Capital Markets Law August 2011
Pledging Dematerialized Shares Of Publicly Held Joint-Stock Companies
Newsletter Articles
Preparation By The Capital Market Board Of A New Draft Regarding Takeover Bids
Newsletter Articles
Distribution of Dividends in Public Companies
Newsletter Articles
Distribution of Dividends in Public Companies
Capital Markets Law December 2019

For creative legal solutions, please contact us.