The Communiqué (II-31/B.I) on the Procedures and Principles Regarding the Secured Issuance of Capital Market Instruments ("Communiqué") [1], prepared by the Capital Markets Board ("CMB"), was published in the Official Gazette numbered 31731 and dated January 26, 2022.
Purpose within the scope of the Communiqué is to regulate the procedures and principles to be applied regarding the collateral to be given in the issuance of collateral, the collateral management contracts and the collateral manager.
- General Principles of Guaranteed Exportation and Assets Subject to Collateral
Guaranteed exportation of capital market instruments within the scope of the relevant Communiqué; It is the transfer of ownership to the cover manager or establishing limited real rights on them in favor of the cover manager in order to ensure that the obligations of the issuer arising in these instruments are fulfilled in due time, in order to ensure the management, protection and preservation of the assets subject to the guarantee.
In order to be able to sell the secured capital market instruments within the scope of the Communiqué, the transactions regarding the transfer of the ownership of the assets subject to the collateral to the collateral manager or the establishment of limited real rights on them in favor of the collateral manager must be completed at the latest one business day before the sale starts. The completion of these transactions is announced on the Public Disclosure Platform ("KAP") before the sale. However, in case the capital market instruments to be issued are sold to qualified investors as allocated or not traded in the stock exchange, the required announcements are communicated to the investors electronically through the Central Registry Agency ("MKK").
Assets subject to guarantee within the scope of this Communiqué:
a) Cash (Turkish Lira/convertible currency),
b) Assets listed in the first paragraph of Article 15 of the same Communiqué, having the qualifications specified in Article 16 of the Communiqué on Asset or Mortgage-Based Securities (III-58.1) published in the Official Gazette No.28877 on January 9, 2014,
c) Foreign currency denominated bonds issued by the Ministry of Treasury and Finance, State domestic debt securities, lease certificates issued by the Ministry of Treasury and Finance Asset Leasing Joint Stock Company,
d) Borsa Istanbul Joint Stock Company Shares traded on Yildiz,
e) Debt instruments issued by banks, excluding those to be included in the calculation of equity,
f) Bank letters of guarantee, which include an immediate payment commitment at the first request, without any restrictions,
g) Mutual fund participation shares,
h) Standard precious metals traded on the stock exchange,
i) Mortgage-backed securities and asset-backed securities,
j) Provided that it is insured if it is suitable for its qualification, the first paragraph of Article 5 of the Law on Pledge of Movables in Commercial Transactions No. 6750 dated 20/10/2016 and numbered (a), (e), (f), (g), (g), (h) and (l) subparagraphs,
k) Immovable properties specified in Article 704 of the Law No. 4721, provided that they are insured,
l) Immovable properties specified in Article 704 of the Law No. 4721, provided that they are insured,
m) Other assets to be deemed appropriate by the CMB.
From the date on which the assets subject to collateral are transferred to the collateral manager or limited real rights are established on them in favor of the collateral manager, it is obligatory that the assets subject to the guarantee be i. within the borders of the Republic of Turkey (except for the assets specified in Article 5/1/c), if the asset subject to the guarantee is a receivable, ii. the debtor of the receivable must be a resident of Turkey, and iii. it must meet the requirements that restrict the transfer of assets or the establishment of limited real rights.
Under the Communiqué, assets subject to collateral are separate from the assets of the collateral manager and are monitored separately whereby, the assets subject to the collateral cannot be seized, pledged, included in the bankruptcy estate, and interim injunction and precautionary attachment cannot be placed on them, even for public receivables due to the debts of the collateral manager. In addition, bank accounts opened for the assets subject to collateral cannot be used for any other purpose, cannot be shown as collateral, and any blockage, pledge or similar encumbrance cannot be established on them.
- Collateral Management Agreement
Collateral management contract is the contract defined as the collateral management agreement between the issuer and the collateral manager, which includes a commitment to transfer the assets subject to collateral to the collateral manager or to establish limited real rights on these assets in favor of the collateral manager to ensure that the issuer fulfills its obligations arising from the issuance of the relevant capital market instrument. The collateral manager has the duty to protect and manage the assets subject to collateral and to ensure the performance of the obligations of the issuer to the investors by converting the assets into cash when necessary.
a. Default and its consequences
Pursuant to the Communiqué, failure to fulfill the principal, interest and similar payment requirements of the capital market instrument within the time stipulated in the prospectus or issuance document shall be deemed to be a default.
In case of default or in case of meeting the receivable from the collateral the assets subject to the guarantee can be sold and their prices shared among the investors without the condition of fulfilling any prerequisites such as giving notice or warning, giving time, getting permission or approval from the judicial or administrative authority.
b. Rights and obligations of the issuer
The issuer is obliged to transfer the assets subject to collateral to the collateral manager or to establish limited real rights on these assets in favor of the collateral manager.
The issuer in case the periodic payment obligation arising from the issuance of the capital market instrument is fulfilled, the collateral manager may request the return of the asset subject to the collateral at the rate corresponding to the paid/amortized portion of the capital market instrument. In case it is an unsold capital market instrument, it may request the return of the asset subject to collateral at the rate corresponding to the unsold portion.
Footnote
1. Official Gazette numbered 31731 dated January 26, 2022. Accessed on 28 January 2022 from the link below: https://www.resmigazete.gov.tr/eskiler/2022/01/20220126-6.htm
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.
