The long awaited debt assumption model has been finally
introduced recently into Turkish legislation through a new piece of
regulation paving the way for the Turkish Treasury to assume
project debt borrowed by project companies in large-scale BOT model
infrastructure investments and healthcare and educational campus
PPP projects. The Debt Assumption Regulation was published in the
Official Gazette on 19 April 2014.
The Turkish Treasury's direct backing of energy and
infrastructure projects is not something entirely new; it was a
vital element of energy and infrastructure projects for at least a
decade in the 1990's for realization of large size projects in
Turkey. Multiple financial crises forced the government to stop
providing Treasury guarantees in 2001.
Now, a similar concept has been introduced in our modern day!
The newly instituted debt assumption mechanism allows the Treasury
to assume the outstanding debt sourced from abroad and the amount
arising from its derivative transactions in case of an early
termination of the project agreement in eligible PPP and BOT
projects in infrastructure, healthcare and education
The minimum investment requirement for debt assumption is 500
million Turkish Liras for investments with respect to integrated
PPP model health campuses as well as education campuses realized
under their respective relevant laws governing these investments.
The minimum investment requirement available to debt assumption for
BOT model investments is higher than the above PPP projects and
requires at least a one billion Turkish Lira investment cost for
eligibility for the Treasury's review or discretion. In
addition to the minimum investment requirement, pursuant to the
Debt Assumption Regulation, the Treasury can assume the debt of the
project company under its financing obtained abroad if (i) there
are debt assumption and early termination clauses in the project
agreement allowing the administration to take over the facility and
(ii) the Council of Ministers approves the debt assumption.
As a general rule, the maximum limit for debt assumption in a
financial year is determined by the annual State, Budget Law. The
Council of Ministers may double such limit. Currently, the maximum
limit for debt assumption is three billion US Dollars. The
provisions regarding partial debt assumption, the requirement for
the Treasury's affirmative opinion prior to the tender and the
maximum debt assumption limit for a year will not be applied to any
projects whose tender announcement was already made as of 1
December 2012. As to the early termination and other relevant
clauses with respect to the debt assumption in a project agreement,
the Treasury's affirmative opinion is required before the
execution of the project agreement.
Following the Treasury's prior affirmative opinion, a debt
assumption agreement is executed by and among the Treasury, the
project company and the lenders.
Pursuant to the regulation, the Treasury can cover, or assume,
85% of the loan facilities and the amounts arising from its
derivative transactions in the event of early termination due to
the project company's fault. On the other hand, debt assumption
is available for 100% if early termination is not attributable to
the project company's fault.
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.
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