The Communique on the Procedures and Principles Regarding the Secured Issuance of Capital Markets Instruments ("Communique") by the Capital Markets Board ("Board") has entered into force with the publication of the Official Gazette dated January 26, 2022, and numbered 31731. The Communique regulates the procedures and principles regarding the secured issuance of capital market instruments, the quality of the assets subject to the security, the minimum aspects to be included in the security management agreement, rights and obligations of the security agent and liquidation of security in case of a default.
Pursuant to article 4/2 of the Communiqué the issuers, will be able to secure the capital market instruments they will issue with the assets the Board deems fit, in order to guarantee that the obligations arising from these instruments are fulfilled within its maturity. The ownership of the assets subject to guarantee, may be transferred to the security agent holding the qualification of an investment institution with general custody or limited real rights may be established on these assets in favor of the security agent. Pursuant to paragraph 3 of the same article, it is regulated that the sale of the secured capital market instrument cannot be initiated within the scope of this Communique, unless the transfer of ownership of the assets subject to security to the security agent or the establishment of limited real rights on them in favor of the security agent is completed.
In case of a default or in case of compensation of the receivables form the security due to the reasons stipulated in the law or the provisions of the contract, the security agent will be able to sell the assets subject to the security and distribute the amounts among the investors without fulfilling any preconditions. In practice, in case of a default, the pledged assets could take a long time to be converted into cash and paid to the beneficiaries. With this regulation, it is aimed to enable the investors to collect their receivables quickly.
In the first phase of the implementation, only debt instruments and other capital market instruments deemed appropriate by the Board can be issued with security. Assets subject to security within the scope of the Communique, including cash, foreign currency bonds issued by the Ministry of Treasury and Finance, lease certificates, domestic government bonds, debt instruments issued by banks other than those that can be included in the equity calculation, bank letters of guarantee, investment fund participation shares will be determined by the Board. No valuation obligation is foreseen for these assets. The Board is authorized to to demand diversification and/or modification of the assets subject to the security from the issuers, taking into account the nature, liquidity and similar characteristics of the assets subject to the security, to determine the extent to which such assets can be accepted as security and/or revaluation of the assets subject to collateral on a regular and/or occasional basis.
In article 7 of the Communique, the security management agreement to be concluded in writing between the issuer and the security agent and its minimum elements are regulated. Other situations which the receivable may be covered from the security can also be determined in the security management agreement. Situations where the receivable can be covered from the security without the obligation to fulfill any preconditions in cases other than the default of the issuer have been regulated in the agreement.
As the Communique determines the rights and obligations of the issuer within the scope of the secured issuance, it also clarifies the issues regarding termination of the security management agreement. Additionaly, the independence criteria and qualifications required for security agent are stipulated by the Communique.
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.