Bond Issuance and Its Specifications in Regulated Sectors
The CML, which regulates capital market instruments, including the bonds, is the main piece of legislation governing the legal framework of a bond issuance.
The international appetite for Turkish risk continues to rise during the past 4-5 years, and seems to keep focus on Turkish bonds issued in the Turkish market and for Turkish bonds issued in the European and/or US securities markets. Accordingly, last year has been a record year for bond issuance by Turkish banks and other private companies. Pursuant to the reports of Turkish Central Bank pertaining to the year 2014, the borrowings through bond issuance of Turkish banks within and outside of Turkey have been around USD 10 billion, while the bond issuance for the whole Turkish private sector was a little bit more than USD 27 billion. Other than banks, companies in regulated sectors, e.g. energy, telecommunication, aviation and health, preferred bond offerings instead of selecting other methods of raising money, such as bank loans or stock issues, in recent years, to gain the flexibility to refinance their debts. Therefore, as a recent and high-valued topic, this article will focus on the bond offering and its specifications in regulated sectors. To this end we will examine the following: (i) the legal framework for bond offerings regulated under the Capital Markets Law (the “CML”) and the secondary legislation issued by the Capital Markets Board (the “CMB”); (ii) the different types of bond offerings; (iii) procedures for bond offerings, and (iv) the specifications of bond offerings in regulated sectors.
Legal Context for Bond Issuance
Bonds -as capital market instruments- are a type of debt securities issued by public or private sector companies to provide medium or long term funding through borrowing. In other words, a bond functions like a loan between the investors and the corporation. The CML, which regulates capital market instruments, including bonds, is the main piece of legislation governing the legal framework of a bond issuance. As per Article 4 of the CML, approval by the CMB is compulsory for the issuance of capital market instruments, including the bonds, which necessitates an application to the CMB and fulfillment of the requirements regulated under capital markets legislation. Yet, under Turkish Law, in addition to the CML, the bond offering process is detailed by the secondary legislation issued by the CMB, namely: (i) Communiqué on Debt Securities numbered II-31.1 (“Communiqué on Debt Securities”) regulating the principles for the issuance of bonds and the qualities/types of bonds; (ii) Communiqué on Sales of Capital Market Instruments (“Communiqué on Sales of Instruments”) numbered II-5.2, regulating the sales types and methods, distribution and delivery of the bonds; and (iii) Communiqué on Prospectus and Issuance Certificate (“Communiqué on Prospectus”) numbered II-5.1, regulating the preparation, approval and promulgation of the prospectus (izahname) and issuance certificates (ihraç belgesi) for the issuance, sale or trading of the bonds.