Turkey: Regulation On Debt Assumption By Undersecreteriat Of Treasury

Last Updated: 27 October 2014
Article by Tevfik Gur and Sena Apak

The Regulation on the Debt Assumption by the Undersecretariat of Treasury (the "Regulation") has been published in the Official Gazette, numbered 28977, dated 19 April 2014 upon the Decree (No.2014/6217) of the Council of Ministers, regarding the public private partnership projects to be carried out by the public administrations with general budget and administrations with special budgets within the framework of Law No. 3996 on Procurement of Certain Investments and Services through Build-Operate-Transfer Model, Law No. 6428 on the Construction and Renovation of Facilities and Procurement of Services through the Public Private Cooperation Model by the Ministry of Health and the Amendment of Certain Laws and Decree Laws and the Decree Law No. 652 on the Organisation and Duties of the Ministry of Education, provided that the investments values of these projects exceed certain limits.

As a general condition, the relevant project agreement should include provisions regarding the termination of the agreement before the end of its term and the takeover of the facilities by the relevant administrations

  • Although many of the principles and procedures set forth under the Regulation were already applied in practise, they are now regulated through the provisions of the Regulation. These principals can be summarized as below;
  • Pursuant to the Regulation, the scope, limits, and payment conditions of the financial obligations subject to the debt assumption including those arising from the derivative instruments for the obtaining of such financing have been determined.

    Accordingly, a minumum investment value of 500 million Turkish Liras has been foreseen for the projects under the Law numbered 6428 on the Construction and Renovation of Facilities and Procurement of Services through the Public Private Cooperation Model by the Ministry of Health and the Amendment of Certain Laws and Decree Laws and the Decree Law numbered 652 on the Organisation and Duties of the Ministry of Education; and a minimum investment value of 1 billion Turkish Liras has been foreseen for the projects under the Law numbered 3996 on Procurement of Certain Investments and Services through Build-Operate-Transfer Model.
  • In case any investment amount is determined under a foreign currency, the Turkish Lira equivalent of such amount shall be calculated by taking into account the average currency rate in the relevant investment programme of that year.
  • In case of the termination of the project agreement caused by the project company's default, the debt assumption provided by the Treasury shall cover 85% of the principal loan amount and in case of termination of the agreement due to any reason other than the fault of the project company, the debt assumption undertaking shall cover the 100% of the principal loan amount and all financing costs.
  • The limits for the derivative costs shall be determined by the Treasury in a manner that does not exceed 10% of the principal amount taking the maturity date of the principal loan and the structure of the derivative instrument into consideration. The derivative costs included within the financing costs may not exceed the abovementioned derivative cost limit.
  • Regardless of the termination cause of the agreement, in order for the Treasury to assume the principal amount, the default interest and financing costs which were not paid on due date as a result of the default of the project company, the shareholders of the Company should provide a joint and several surety (kefalet) to the Treasury, in the amount of at least 110% of the highest repayment amount payable to the creditor under the principal loan.
  • Furthermore, the following conditions should be fullfilled in order for the Treasury to undertake the debt assumption: (i) the relevant authority should not have any overdue obligation vis-à-vis the Treasury, (ii) the debt assumption should remain within the limit of the debt assumption undertaking limit of the relevant year, and (iii) the project agreement should refer to the the debt assumption clearly and should include certain provisions set forth in the Regulation.
  • The yearly limits for debt assumption will be determined by the Law on Central Administration Budget within the relevant fiscal term. Council of Ministers shall have authority to increase such limit up to one time upon the request of the Minister.
  • The project companies should obtain an external financing number by making an application to the Treasury before the drawdown of the principal loan. The project companies which already executed a debt assumption agreement should apply to the Treasury to obtain an external financing number within 15 business days as of the publication of the Regulation.

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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