However, the Turkish corporate debt securities market has not prospered due to inconveniences created by the high inflation and high interest rates arising out of local macroeconomic instability, political instability and legal obstacles until recently.In the last couple of years, the inflation rate dramatically decreased down to single digits, which led financial actors to lower their interest rates. This downward move of the inflation rate and the stable political environment triggered the task of building a financial “safe harbor,” and issuing debt securities become a hot topic.
Globally speaking, the only sound market which did not fully dry up even in the harshest days of the recent financial turmoil was the bond market and this fact alone proves the great importance of having a sound bond market in Turkey.
Today I will be giving details about the innovative features brought by two communiqués which amended the communiqué regarding issuing debt securities published by the Capital Markets Board (SPK) at the beginning of 2009.
First of all, only the development and investment banks, which cannot accept deposits, could issue debt securities before the amendments. Now this discrimination has been abolished and every single bank can issue debt securities. The first communiqué had many exceptions regarding the bank bills which have been erased by the amending communiqués. Now the general provisions shall also apply to bank bills. However, we should note that the Banking Regulation and Supervision Agency (BDDK) has expressly shown its reluctance about the issuance of bank bills on the ground that these bills will weaken the deposit structures within the banking system.
One may argue that the most important innovation in Turkish banking and finance law is the one on leverage. The first communiqué referred to a decree passed in 1993 which only allowed corporations to issue debt securities up to six times their paid-in capital plus appreciated surplus. The new communiqués, however, refer to a newer decree which was passed in 2009 that allows a tenfold leverage on the paid-in capital plus appreciated surplus. Furthermore, the two amending communiqués also abolished the provision which stipulated that only half of the aforementioned leverage could be used. By doing so, the limiting obstacles to issuing debt securities have been removed quite successfully.
I also believe that it should be noted as a technical detail that restrictions in relation to terms have been softened (such as increasing the 15-day selling period to 30 days or asking for the financial reports of the last two years instead of three) or fully abolished (for instance, allowing the issuance of commercial papers with a maturity of less than 60 days) by the amendments in order to enable a better environment for issuing debt securities.
In the first communiqué, the SPK registration fee for commercial papers had to be paid before the registration while it can now be deducted as stoppage during the sale, which means that the fee can be reflected directly on the bond investors.
The last communiqué also defined the term “qualified investors,” which was mentioned in the first communiqué without going into further detail, and brought up new areas where this exception can be used.
It is now also possible to re-offer debt securities which have not been sold within a year of them being registered, provided that the assent of the SPK on the issue has been given. Thus, the offering party is saved from some additional cumbersome procedures and costs.
NOTE: Berk Çektir is a licensed attorney at law and available to answer questions on the legal aspects of living in Turkey. Send enquiries to b.cektir@todayszaman.com The names of the readers are disclosed only upon written approval of the sender.DISCLAIMER: The information provided here is intended to give basic legal information. You should get legal assistance from a licensed attorney at law while conducting legal transactions and not just rely on the information in this column.
