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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.