A new regulation of the Capital Markets Board – Company Law/Commercial Law

Turkey: A new regulation of the Capital Markets Council

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The concept of issuing secured capital market instruments was introduced into Turkish legislation by a new article of the Turkish Capital Markets Law (the “Law“) through the promulgation of Law No. 7222 in February 2020. As such, the power to determine the procedures and principles relating to the implementation of this concept was granted to the Capital Markets Board (“CMB“).

The CMB has recently published its Communiqué on the procedures and principles relating to the issuance of guaranteed capital market instruments number II-31/B.1 (the “Communicated“), which entered into force on the day of its publication.

The Communiqué regulates the concept of collateral agent and its responsibilities, as well as the general principles of issuing secured capital market instruments.

Below we summarize some of the key concepts and principles set out in the Communiqué.

The concept of secure issue is introduced

The capital market instruments to be determined by the CMB will be guaranteed by the assets listed in the CMB announcement, and thus it will be ensured that the issuer fulfills its obligations arising from the instruments concerned in due time. Secure issuance is generally optional. An issuer establishes a secured issue by (i) transferring ownership of the assets subject to security to a security agent, or (ii) constituting a security interest in them in favor of a security agent. The release also clarifies that there shall be no encumbrance or other restriction on such transfer or establishment of a right in rem. Without the realization of one of the above transaction options, the sale of the relevant capital market instrument cannot be initiated.

Framework of secured assets

Assets detailed in the relevant article of the Communiqué – including, but not limited to, cash, foreign currency bonds issued by the Ministry of Treasury and Finance, local government bonds, shares of public companies listed on Borsa Istanbul Star Market and mutual fund equity shares may be bonded. CMB has the right to request the issuer to diversify and modify its security, as well as to determine the percentage of the relevant assets to be accepted as collateral.

Assets subject to collateral will be segregated from security guard assets and monitored separately. That said, secured assets may not be seized, pledged, included in the bankruptcy estate or be the subject of any summary proceedings or provisional seizure, even for public claims of debts of the security agent. .

Security Management Contract Framework

The collateral management agreement must be signed before issuance and must incorporate the basic information as determined by the Communiqué, such as the issuance, the assets subject to the security and the liabilities of the parties, in order to determine the conditions of the relationship between the issuer and the security agent.

In accordance with the Communiqué, the securities management agreement may be terminated unilaterally by the issuer, at the request of CMB, or ipso facto.

Default events and actions to be taken in the event of a default are clarified

Non-payment of principal, interest and similar payments of the capital market instrument within the period indicated in the prospectus or the certificate of issue will be considered an event of default. The Communiqué allows the issuer to cover unpaid debts with the securities specified in the securities management contract. The press release also details how the security will be liquidated in the event of default and other situations having the same consequences as a default. If all claims cannot be covered following the liquidation of the security, the security agent is obliged to pay the investors on a pro rata basis.

The security officer is defined and his missions listed

The securities agent is defined as the investment institution having a general custody authorization of the title in accordance with the Turkish capital market legislation. The security agent has powers such as the protection and management of the assets subject to the security, the application of legal remedies for the security, as well as the liquidation of the security in order to settle the claims on the security and distribute the proceeds among the investors without fulfilling any preconditions, after the signing of the security management contract.

Within the framework of the Communiqué, the security officer is required to comply with the following main obligations:

  • Independence;

  • Guarantee the confidentiality of information relating to the encumbered assets and the issuer;

  • Prepare a safety report within ten days for the issues listed in the Communiqué;

  • Make a material event report in the cases specified in the Announcement (such as a decrease in the value of the assets subject to the guarantee, an event of default of the issuer, etc.);

  • Maintain a separate passbook for the collateralized assets for each issue; and

  • Fulfill the obligation to archive documents.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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