In 2020, every country was affected by and felt the impact of the economic and social effects of the COVID-19 epidemic. The economic effects of the epidemic inevitably overflowed into capital markets. During this unorthodox time, several crucial amendments were introduced to Turkish capital markets laws to reduce the impact of the epidemic on capital markets and carry Turkish capital markets into more modern level.

This newsletter provides a brief summary of the new regulations and amendments affecting public companies and capital market institutions, in particular the amendments introduced by the Capital Markets Board and Borsa İstanbul A.Ş. ("Borsa İstanbul") since the beginning of 2020.

I. Innovations and Amendments Concerning All Capital Markets Actors

The amendments to the Capital Markets Law No. 6362 ("Capital Markets Law") entered into force on February 25, 2020. The amendments introduced universal institutions to Turkish capital markets laws, strengthened the use and structure of funds, and modernized the structure of Turkish capital markets laws.

The amendments introduced establishments such as the noteholders' meeting and security agent and project bonds. Other amendments included the expansion of the scope of crowdfunding, the limitation of the scope of significant transactions of public companies, exit rights, and tender offer bidders.

For more information, see our legal alert regarding the new amendments0 here.

Central Registry Agency's vital role in crowdfunding transactions

The first change within the scope of the abovementioned amendments was introduced in relation to the crowdfunding transactions. The Central Bank of the Republic of Turkey issued a decision on March 12, 2020 setting forth that the "operation of crowdfunding systems" will be considered one of the activities of the Merkezi Kayıt Kuruluşu A.Ş. (in English, the Central Registry Agency, "CRA"). The measure provides that crowdfunding systems will be included among the CRA's payment and securities settlement activities.

For more information, see our legal alert regarding the new amendments here.

Noteholders' meetings

The Capital Markets Board presented the Draft Communiqué on Noteholders' Meetings No. II-31/A.1 for public opinion on April 22, 2020, which introduced the concept and regulation of noteholders' meetings into the Turkish capital markets laws.

The draft communiqué was revised in accordance with the amendments to the Capital Markets Law and market actors' input, and the Communiqué on Noteholders' Meetings No. II-31/A.1 entered into force on September 11, 2020

A revolutionary change was introduced to capital markets practices with the communiqué, which regulates details such as the structure and procedures of noteholders' meetings, as well as the determination of noteholders' representatives.

For more information, see our legal alert regarding the new amendments here.

Changes regarding mortgage financing institutions facilitated the issuance of covered bonds

The amendments to the Covered Bonds Communiqué No. III-59.1 ("CB Communiqué") entered into force on May 14, 2020. The amendments removed the restriction setting forth that the nominal value of covered bonds ("CBs") in circulation issued by a mortgage finance institution ("MFI") cannot exceed five times the MFI's equity amount stated in its audited financial statements for the last accounting period. In addition, the fees to be paid to the Capital Markets Board during the issuance of CBs were also amended.

The Capital Markets Board continued to facilitate MFIs' issuances with the amendments to the Communiqué on Debt Securities No. VII-128.8 ("Debt Securities Communiqué") and the Communiqué on Asset-Backed and Mortgage-Backed Securities No. III-58.1 ("ABS Communiqué"), effective as of June 13, 2020. The amendments, which are in line with the amendments in the CB Communiqué, reflected the approach set forth by the 11th Development Plan for the years 2019-2023 and the Presidency Annual Program for 2020 with respect to MFIs' issuances.

Considering the potential economic effects of the COVID-19 epidemic, the Capital Markets Board reduced the MFIs' issuance costs and lifted the ceiling to further incentivize their issuances. In this respect, while the Capital Markets Board encourages MFIs to take a more active role in vulnerable economic conditions, it also provides them with a functional support mechanism through the exemptions introduced by the amendments.

For more information, see our legal alert regarding the covered bonds here and the debt securities here.

Project based securities

The Draft Communiqué on Project Bonds shed light on the regulations for project bonds, the concept of which was first introduced in the amendments to the Capital Markets Law.

The draft communiqué paved the way for project bonds to finance public services projects such as transportation, infrastructure, energy, industry, technology, communication or health to be pooled in a special fund and to be traded in capital markets. Project bonds will be issued based on project income and other rights arising from the financing of a project or receivables arising from secured loans provided for financing various projects and the refinancing of those loans.

For more information, see our legal alert regarding the new amendments here. The draft communiqué is expected to enter into force at the beginning of 2021.

Concept of security agent legally regulated

One of the most important innovations in Capital Markets Law was the introduction of the legal concept of security agent into Turkish laws, which was already used in practice for financing transactions. The Capital Markets Board presented the Draft Communiqué on the Procedures and Principles Regarding the Issuance of Security Backed Capital Market Instruments on September 10, 2020 for public opinion.

The draft communiqué aimed to secure the fulfillment of obligations arising from the issuance of security backed capital market instruments and to protect investors' assets subject to collateral by transferring the assets subject to collateral to the security agent in the manner set forth under the draft communiqué.

The ownership of the assets subject to collateral must be transferred to the security agent or limited rights in rem (pledge, mortgage, etc., depending on the type of the asset subject to collateral) on the assets subject to collateral must be established in favor of the collateral manager in order for the collateral manager to maintain and manage the collateral.

For more information, see our legal alert regarding the draft communiqué here. The draft communiqué is expected to enter into force at the beginning of 2021

II. Innovations and Amendments Concerning All Capital Markets Actors

Privileges on public companies incurring losses

The Capital Markets Board issued the Communiqué on the Principles of Abolishing Voting Rights and Representation of Board of Directors' Privileges in the beginning of 2020. The Capital Markets Board issued a communiqué on the revocation of preferred voting rights and the right of representation in the board of directors of public companies.

The communiqué sets forth the rules and procedures for the revocation of the aforementioned preferred rights. The communiqué allows the Capital Markets Board to remove the preferred rights regarding voting and representation in the board of directors of public companies that showed losses per their financial statements (except for losses that had to be reasonably incurred for the furtherance of the business) for five consecutive years. The communiqué ceases the majority shareholder's control over the public company that suffers consecutive annual losses, ensuring the effective protection of small investors with stakes in public companies.

For more information, see our legal alert regarding the draft communiqué here.

COVID-19 precautions for capital markets

The Capital Markets Board and Borsa Istanbul also took important measures regarding the COVID-19 epidemic.

In addition to previous precautions taken by other authorities, new arrangements for the markets, public companies and investors were taken in order to mitigate the effects of the COVID-19 epidemic.

For more information, see our legal alert regarding taken precautions here.

You can also see our legal alert on the topics and issues we believe are important for public companies during the COVID-19 epidemic here.

Scope of material transactions granting exit rights narrowed

The draft communiqué prepared by the Capital Markets Board and offered for public opinion on March 16, 2020 was revised in accordance with the amendments to the Capital Markets Law and the market actors' revision demands. The new Communiqué on Material Transactions and Exit Right No. II-23.3 ("Material Transactions Communiqué") entered into force on June 27, 2020.

The Material Transactions Communiqué removed certain transactions triggering exit rights under the former communiqué, such as the dissolution of public companies, the complete or material alteration of the field of activity, and the de-listing from the exchange.

Further, the Capital Markets Board is able to classify transactions as material transactions outside of those listed in the Material Transactions Communiqué, if these transaction(s) alter the business objective or ordinary course of business of public companies and affect investors' investment decisions.

For more information, see our legal alert regarding the communiqué here.

Amendments to the Share Communiqué

The amendments to Article 27 of the Share Communiqué No. VII-128.1 ("Share Communiqué") entered into force on July 25, 2020.

The Capital Markets Board must approve the information form to be drafted by the selling shareholder prior to the proposed transfer of shares if the transfer of the company's shares listed on the exchange exceeds 10% of their share capital in total in any 12-month period, and if the transfer is made on the Borsa Istanbul by a shareholder (or shareholders acting in concert) that directly holds more than 20% of the company's share capital or shareholders holding privileged shares that entitles them to elect or nominate at least one of the members of the board of directors

Wholesales, sales through private orders and sales within the scope of market making activity and secondary public offerings will be exempt from this obligation.

For more information, see our legal alert regarding the amendments here.

New steps towards sustainability and ESG

Public companies that are subject to the Corporate Governance Principles set out under the Corporate Governance Communiqué No. II-17.1 will now also be subject to the principles set out in the Sustainability Principles Compliance Framework, pursuant to the amendments passed on October 2, 2020. The sustainability principles set out by the Capital Markets Board are built upon three pillars: (i) Environmental Principles, (ii) Social Principles, and (iii) Principles of Corporate Governance.

While there is no obligation for public companies to follow these principles, they must issue publicly available annual reports as to whether they comply with these principles or the reasons for failing to comply on a "Comply or Explain" basis, starting from the year 2021 (and including information for the year 2020). Public companies must report any changes regarding these matters in their interim reports

For more information, see our legal alert regarding taken precautions here.

Draft communiqué on squeeze-out and sell-out rights published

With the draft communiqué presented for public opinion on October 28, 2020, the Capital Markets Board proposed the decrease of the squeeze-out threshold from 98% to 95% and the equalization of the prices applicable to squeeze-out and sell-out rights.

For more information, see our legal alert regarding the draft communiqué here.

New Market Structure of Borsa Istanbul

As of October 1, 2020, the Borsa İstanbul market structure was regrouped as follows:

  • The new market structure abolished the existing classifications of the BIST Star Group 1 – Group 2, and BIST Main Group 1 – Group 2.
  • The BIST Star Group 1 and BIST Star Group 2 merged into a single group, the BIST Star.
  • The BIST Main replaced the BIST Main Group 1.
  • The BIST Submarket replaced BIST Main Group 2.

Moreover, the Emerging Companies Market became a part of the BIST Submarket. Accordingly, shares trading in the Emerging Companies Market were quoted on the BIST Submarket

For more information, see our legal alert regarding the new market structure here.

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.