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Main restrictions on offering and selling debt securities
There are certain restrictions on offering and selling debt securities in Turkey. Debt securities offerings must be registered with the Capital Markets Board of Turkey (CMB) within one year from the date of the issuer’s authorised body resolution approving the debt securities.
Before debt securities can be offered to the public or admitted to trading, an approved prospectus or issue certificate must be made available to the public, unless an exemption applies (see Question 14).
Issues through a public offering in Turkey require a prospectus. An issue certificate is required for both:
The offer, sale and trade of debt securities are mainly regulated by the following legislation:
Under the Debt Securities Communiqué, debt securities are defined as “bonds, notes, convertible bonds, exchangeable bonds, precious metal bonds and commercial papers”. Other debt securities, such as covered bonds, are regulated under separate communiqués issued by the CMB.
Debt securities can be offered in Turkey or abroad through any of the following methods:
Debt securities listed on Borsa Istanbul A.Ş. (BIST) (that is, the Istanbul Stock Exchange) are subject to the rules and requirements of this exchange, as set out by the BIST Listing Directive. Debt securities offered either through a public offering or through sales to qualified investors can be listed and traded on the relevant markets of BIST. The offering must comply with the rules and requirements of BIST’s relevant markets.
Debt securities issued in Turkey must be issued electronically via the Central Registry Agency (CRA). Additionally, the rights relating to the debt securities must be reserved to the beneficiary. For debt securities issued abroad, information on the issuance must be notified to the CRA within three business days following the date of issue (for example, issue amount, date of issue, international securities identification number, maturity date, term, interest rate, custodian, information on the currency and the country of issue).
Announcements, advertisements and statements relating to an offering must:
Restrictions for offers to the public or professional investors
The Sales Communiqué distinguishes between individual investors, institutional investors and qualified investors:
The following restrictions apply to the sale of debt securities to the categories of investors defined above (Sales Communiqué):
The trading value of the debt securities market reached US$3,751 billion in 2015, representing a 7.3% increase compared to 2014. The daily average trading value increased at the rate of 6.4% in 2015, reaching a total of US$14.8 billion. Transactions on the Interbank Repo-Reverse Repo Market represented 68.8% of transactions.
In 2015, the daily average trading value of transactions that were not performed in the exchange, but were registered with the exchange, was TRY1.27 billion. In the last quarter of 2015, the maximum daily average trading value on BIST was TRY16.7 billion. There has been a decrease in off-exchange daily average trading value in the second half of 2015.
According to the Annual Report of the Capital Markets Board for 2015, capital markets activities relating to debt securities can be summarised as follows:
Under the applicable legislation, it is not mandatory to obtain the credit rating of any debt securities and/or the issuer before an issue.
In 2016, the main debt securities offerings on Turkish capital markets were as follows:
Debt securities issues to the public (retail issues) and issues to professional investors (wholesale issues) can be structured either on a standalone basis or under a note programme. Both types of issues require the disclosure of a prospectus or an issue certificate and approval by the Capital Markets Board (CMB). However, under the Communiqué on Prospectus and Issue Document No II-5.1 (Prospectus Communiqué), the prospectus requirements are heavier than those for issue certificates in terms of principles, documentation and scope of information to be included.
Companies can offer debt securities to individual and institutional investors by way of a public offering to finance their needs. These offerings are subject to stricter requirements, such as continuous public disclosure obligations. The public offering process involves offer periods that can vary, depending on whether the offering is conducted with or without a bookbuilding process. Generally, large firms offer debt securities through public offerings.
Companies can offer debt securities to qualified investors only (without a public offering) through a call addressed to these investors or through pre-determination of these investors. There is no restriction on the number of investors. A qualified investor must:
Most qualified investors are members of the CRA. Institutional investors can also be automatically included in the qualified investors group of the CRA by CRA members, without any further requirement (such as the statement mentioned above).
Companies can offer debt securities through a private placement to a number of investors that must not exceed 150. These investors can be individual, institutional or qualified investors. Qualified investors are not counted in the 150-threshold. If the number of investors holding the debt securities exceeds 150, this information will be notified by the CRA to the issuer and the CMB. This will be deemed to be a public offering and the issuer will need to prepare a prospectus within 20 days from the notification, and apply to the CMB and Borsa Istanbul for listing and trading.
A private placement is a simpler process, as there is no listing requirement, an issue certificate is prepared and public disclosure is limited.
Banks usually finance their operations by offering debt securities (such as covered bonds) on a continuous basis (at least two issuances during a 12-month period) to any type of investors under a public offering programme (such as a note programme), and issue a base prospectus subject to the CMB’s approval. The provisions of the Prospectus Communiqué relating to prospectuses apply by analogy to the preparation of a base prospectus. Before each issue, a final terms circular must be prepared and submitted to the CMB for approval.
Trust structures are not legally recognised and regulated for debt securities offerings under Turkish law. A debt security establishes a direct contractual relationship between the issuer and bond/noteholders.
Under Turkish law, the authorised intermediary institution mainly has an administrative role, as set out in the intermediation agreement (for example, listing of debt securities on Borsa Istanbul, payment of principal and interest to the noteholders, delivery of debt securities, distribution and payments record-keeping). Authorised intermediary institutions are mandatory in public offerings, but are not required for private placements.
Foreign issuers must appoint a representative intermediary institution if foreign capital market instruments, including debt securities, are to be offered to the public in Turkey. The intermediary institution fulfils the public disclosure requirements and payment obligations on behalf of the issuer. The appointment of an intermediary institution is not required for issues to certain categories of persons and to qualified investors.
Main debt markets/exchanges
BIST is a self-regulatory entity that brings together all the exchanges operating in Turkey (www.borsaistanbul.com). The Debt Securities Market is one of the four main markets of BIST. The Debt Securities Market consists of the:
Approximate total issuance on each market
In 2015, the trading volumes for each debt market were as follows:
The Capital Markets Board (CMB) is the main regulator of debt capital markets. The CMB regulates the market through its rules and regulations. In addition, issuers and investment institutions are subject to the rules and regulations of Borsa Istanbul, Istanbul Clearing, Settlement and Custody Bank A.Ş. (Takasbank) and the Central Registry Agency (Merkezi Kayıt Kuruluşu), which all play a role in the regulation of debt securities offerings in Turkey.
See Question 1.
The main requirements for listing bonds and notes on Turkish capital markets are generally set out in the Listing Directive published by Borsa Istanbul (BIST). BIST is the main authority for approving listing.
Before a debt security can be admitted to trading on the BIST Debt Securities Market, a prospectus or issue certificate (as applicable) must be approved by the Capital Markets Board (CMB) and made available to the public, in accordance with the CMB regulations.
An application for listing of debt securities can be filed for a one-off issue covering a pre-determined amount in full, or can cover all the issues to be made in tranches within a certain period of time with a ceiling of issue to be approved by the CMB. In the latter case, an application must be filed for trading on the Debt Securities Market for each issue. The portion of capital market instruments the sale of which is completed will start trading on the Debt Securities Market following an announcement on the Public Disclosure Platform.
The listing requirements also apply to the listing of notes and bonds issued by foreign companies in Turkey and issued abroad by local companies.
Public offering. Debt securities issued through a public offering are registered with the Central Registry Agency (CRA) and can be listed and traded on the Debt Securities Market of BIST in accordance with BIST regulations.
The main listing requirements for debts securities issued through a public offering are as follows (BIST Listing Directive):
Issue to qualified investors. Debt securities issued to qualified investors without a public offering are registered with the CRA and listed on the Offering Market for Qualified Investors. They are traded among qualified investors in the Outright Purchases and Sales Market of BIST, in accordance with BIST regulations. BIST does not impose any listing requirements, provided that CMB approval is obtained and the sale process has commenced.
Private placement. Debt securities issued through a private placement are registered with the CRA, but are not listed on BIST.
Exemptions. The listing requirements do not apply in any of the following circumstances:
Minimum size requirements
The minimum size requirements was abolished by the new BIST Listing Directive in 2015.
Trading record and accounts
See above, Main requirements.
There are no minimum denomination requirements.
There are no additional or different listing requirements for other types of debt securities.
Periodic financial reporting
Annual financial reports. Issuers of debt securities must prepare and disclose to the public annual financial reports (Communiqué on Principles of Financial Reporting in Capital Markets No II-14.1). Issuers must disclose their annual financial reports to the public and their independent audit reports on the Public Disclosure Platform (PDP) within either:
Interim financial reports. Issuers must prepare interim financial reports every quarter, semi-annually and every nine months. They must disclose their interim financial reports to the public on the PDP within either:
Other disclosure obligations
The Communiqué on Material Events Disclosure No II-15.1 (Disclosure Communiqué) requires issuers to disclose insider information and continuous information to the public.
Insider, non-public information that may affect the value of securities and the decisions of investors, and must be disclosed, is not listed under the Disclosure Communiqué. However, the CMB expects companies to determine which information qualifies as insider information on a case-by-case basis, and to disclose such information to the public whenever it emerges.
Continuous information that must be disclosed to the public is as follows (Disclosure Communiqué):
The continuing obligations under Turkish legislation also apply to foreign companies that issue and list debt securities in Turkey. However, foreign companies can prepare their financial reports in accordance with the laws of their jurisdiction of incorporation.
The following administrative fine and penalties apply for breaching the continuing obligations:
The documents produced when issuing and listing debt securities can vary, depending on the offering method selected by the issuer (for example, through a public offering or without a public offering).
Generally, the issuer must apply to the Capital Markets Board (CMB) with the following documents, unless the CMB requires additional documents from the issuer:
Generally, the following advisers are involved in the debt securities offering process:
To offer debt securities and be admitted to trading on Borsa Istanbul, an issuer must submit a prospectus or issue certificate for approval to the Capital Markets Board (CMB) and disclose the approved document to the public. The draft offering document must be filed with the CMB within one year from the date of the resolution of the issuer’s authorised body (shareholders’ general assembly or board of directors) approving the issue of debt securities in Turkey or abroad.
As a general principle, a prospectus or an issue certificate that is not approved by the CMB cannot be published. However, a prospectus prepared for a public offering and submitted to the CMB for approval, can be published on the issuer’s website, the Public Disclosure Platform (PDP) (if the issuer is a PDP member) and the intermediary institution’s website (if any) within five business days from the filing date.
In any case, the approved prospectus must be published on the issuer’s website, the PDP (if the issuer is a PDP member) and the intermediary institution’s website (if any) within 15 business days from approval by the CMB.
The place of publication of the prospectus must also be registered in the Trade Registry within ten business days from its publication, and published in the Trade Registry Gazette.
There are exemptions from the requirements for publication and delivery of a prospectus in the following circumstances:
Additionally, an issue certificate is required instead of a prospectus in the following cases:
A prospectus relating to the issue of debt securities by way of a public offering must be prepared as a multiple-page document, and include the following documents and information:
In addition, a prospectus must:
An issue certificate related to the issue of debt securities abroad or without a public offering must contain general information regarding the characteristics and conditions of sale of the debt securities, which must be easily understandable by investors.
The issuer is primarily responsible for the prospectus and is directly civilly liable for the losses arising from any inaccurate, misleading or incomplete information included in the prospectus. If these losses cannot be compensated by the issuer, the underwriters, guarantors, intermediary institution and issuer’s board members can be held liable in proportion to their fault or degree of negligence. In addition, the persons or entities that have prepared reports for the prospectus (such as independent auditors, rating and appraisal agencies and lawyers) are responsible for the losses arising from any inaccurate, misleading or incomplete information included in their reports.
The Capital Markets Law No 6362 imposes criminal liability on persons who offer capital market instruments (including debt securities) to the public without publishing an approved prospectus or who sell debt securities without an approved issue certificate. These persons can be sentenced to imprisonment for two to five years and to judicial fine ranging from 5,000 days to 10,000 days. This judicial fine is an amount payable to the State Treasury that is calculated by multiplying the full number of days subject to penalty with the amount fixed per day. The amount of the daily fine is between TRY20 and TRY100, and will be assessed in light of the private and economic conditions of the person.
The timetable for issuing and listing debt securities include the following stages:
The registration process with the Capital Markets Board (CMB) takes about four to six weeks. The listing filing with BIST must be made simultaneously, and is completed within one to two weeks following CMB registration. This timetable is based on an approximate timing and may vary on a case-by-case basis.
A private placement does not require any BIST listing, so that debt securities can be sold to selected investors off-exchange, on the open market.
Withholding tax accrues at a rate of 0% for resident and non-resident companies on capital gains and interest income derived from:
Withholding tax accrues at a rate of 10% for resident and non-resident real persons on capital gains and interest income derived from government bonds and treasury bills issued in Turkey. However, withholding tax accrues at a 0% rate for resident and non-resident real persons on capital gains and interest income derived from Eurobonds issued in Turkey.
Debt security issues are exempt from stamp tax and value added tax.
The settlement of transactions on the Debt Securities Market is performed on the same day for domestic securities and at least a day later for foreign exchange paid securities.
Settlement is performed electronically. However, settlement transactions are conducted through different methods depending on the issuer of the security.
The account of the Central Registry Agency (CRA) is used for the settlement of private sector debt instruments and Equity Repo Market transactions. The accounts of the Central Bank of Turkey are used for the settlement of public debt instruments, liquidity bills and lease certificates.
The members of the CRA must comply with their obligations by 4:30pm on the value date. Otherwise the provisions on default will apply.
The currency of debt securities must be Turkish lira for domestic issues, and Turkish lira or a foreign currency for international issues.
For issues of debt securities abroad, the issuer must provide the following information to the CRA within three business days following the issue date:
The Communiqué on Debt Securities No VII-128.8 has been extensively amended on 18 February 2017 and 8 March 2017. The amendments have completely modified the definition of debt securities and the main requirements for debt securities issues. No further regulatory reform of debt capital markets/exchanges is expected in the near future.