The Legal 500

Focus items for this edition are: Amendment to Corporate Governance Principles, Amendment to Real Estate Investment Companies Communiqué, the Registered Capital System Threshold Decrease and the ISE Authority to Prevent Manipulation.

Focus items for this edition are: Amendment to the Council of Ministers Decree on Resource Utilisation Support Fund, Amendment to the Communiqué on Legal Reserves and the Cheque Law.  

The effect on acquisition finance

With the enactment of the new TCC, a prohibition with respect to financial assistance has been introduced into Turkish law for the first time. Article 380 of the new TCC prohibits the provision of an advance, loan or security by a company for the purpose of the acquisition of its own shares by a third party. 

General assembly (“GA”) meetings of joint stock companies play an important role, since it gives the opportunity to shareholders to enjoy to exercise their rights regarding company affairs. Shareholders enjoy their essential rights such as right to obtain information and right of examination through GA meetings.

The rapidly expanding Turkish economy has been increasingly exciting the attention of foreign investment funds and multinational companies. The amount of acquisitions expected to be realized by investment funds and multinational companies in Turkey in 2012 is approximately $2.5-3 billion.

The chaos which struck Libya a year ago has also left its legal system shattered and in disarray. Most foreign investors, including Turkish ones, who have invested a huge amount of capital in Libyan infrastructure, saw their invested assets gradually evaporate in the Libyan desert.

Focus items for this edition are: Communiqué on Legal Reserves and Council of Ministers Decree on Decree No. 32

The main legislation regarding the banking industry in Turkey is the Turkish Banking Law No. 5,411 (‘the Banking Law’), the Turkish Central Bank Law No. 1,211 (‘the Central Bank Law’), the Turkish Capital Markets Law No. 2,499 (‘the Capital Markets Law’), the Law on the Protection of the Value of Turkish Currency No. 1,567, the Decree Law on Money Lending Transactions No. 90, and the regulations promulgated under these laws.

A dynamic, stable and attractive economy paralleled with structural reforms, a young and skillful workforce, as well as its location as an international hub make Turkey a favourable jurisdiction for doing business; and as such, it attracts all manner of investors from around the world.

(1) Turkish Derivatives Exchange Exempted from BITT (2) New Communiqué on Foreign Capital Market Instruments (3) Amendment to the Public Disclosure Communiqué (4) Draft Amendments by the CMB

(1) Issuance of Payment Instruments by Development and Investment Banks (2) BRSA Allows Banks to Issue Notes and Bonds (3) BRSA Restrictions on Mortgage Loans (4) Amendment to the regulation on Bank and Credit Cards (5) Credit Card Interest Rates Amended (6) Amendment to Statutory Reserve Ratios (7) Decree Increases Resource Utilisation Support Fund Rates

The main purpose of this brief information note is to indicate the regulations of healthcare services and health insurances available for foreigners in Turkey.

The Communiqué on Principles regarding the Registration and Trade of Debt Instruments (Serial II, No.22) was amended on 12 September 2010. An important amendment is the abolishment of the obligation to have a provision on the articles of association of the company allowing it to issue debt instruments.

Order cancellation shall be unconditionally allowed on the stock market, effective from 8 October 2010. Orders pending in the Stock Market Trading System may be cancelled one by one on an order basis, in full or in part.

Starting from 8 October 2010, trading party member codes stated in trades executed on the stock market shall not be displayed, whereas executed transactions will be sent to the data vendors without buyer and seller information.

Within the framework of surveillance activities jointly carried out by the CMB and the ISE, the netting in settlement has been removed for only certain stocks, as announced by the ISE on 21 September 2010. For such securities, cross netting shall apply.

The first warrant began trading on the Warrant Market of the ISE and was established within the Institutional Products Market on 13 August 2010. The warrant qualifies as a “brokerage firm warrant”.

Voluntary delisting procedures in relation to stocks traded on the stock market have been clarified by a CMB decision dated 30 July 2010. The CMB has clarified voluntary delisting procedures by taking into consideration delisting requests received from companies that have low free float rates.

The CMB amended some of ISE stock market trading rules with its decision (dated 23 July 2010 and numbered 21/657) (the “Decision”). According to the Decision, all companies traded on the ISE will be classified into three groups (A, B or C). The trading rules are differentiated based on this classification.

The third quarter of the year has seen many important changes in the Turkish capital markets, with the most significant ones taking place on the relevant markets of the Istanbul Stock Exchange (the “ISE”).

The Communiqué regarding the Statutory Reserves of Banks was amended on 23 September 2010 to be effective as of 1 November 2011. The statutory reserve rates of banks held with the Central Bank for Turkish lira liabilities have been increased to 5.5% from 5%, and statutory reserve rates for foreign currencies increased to 11% from 10%.

Communiqué No.2006/1 on Maximum Interest Rates to be Imposed on Credit Card Transactions was amended on 23 September 2010 to be effective as of 1 October 2010.

The BRSA issued a circular on 8 July 2010 to clarify the responsibilities of factoring companies. The BRSA states that factoring companies are responsible for monitoring whether invoices or other documents that a transaction is based on are valid and binding and whether cheques or deeds received should be evaluated as securities.

Article 16 of the Regulation on the Credit Operations of Banks (published in the Official Gazette dated 1 November 2006 and numbered 26333), which regulates transactions not subject to the credit limitations set forth under Article 54 of the Banking Law No. 5411, was amended on 30 July 2010.

The Banking Regulation and Supervision Agency (the “BRSA”) issued a press release on 31 July 2010 regarding the main indicators for the Turkish banking sector.

Legal and regulatory areas of concern come and go in their perceived importance. It is, however, very difficult to recall any other occasion when a subject regarded by many lawyers as so obscure and arcane as international banking regulation has come to such prominence in such a short period of time.

Proposed amendments on pending ‘Draft Turkish Banking Law’: Is it constituting a hindrance for new comers to the market?

On 2 September 2009, the Turkish Capital Markets Board (the “CMB”) promulgated a new set of rules on tender offers relating to public companies. The new tender offer rules replaced the earlier CMB regulation on the matter, and introduced important changes on mandatory offers, terms of offers, minimum offer value, payment of consideration, voluntary offers, rules, procedures and principles to be complied with, and so on.

Slowly but surely, financial law in Turkey is moving toward global standards. Turkish banks are currently in the midst of implementing new cash pooling policies, following amendments passed last year to the foreign exchange regulations. In line with the newly legalised practice of physical pooling, Turkish companies are now able to transfer via banks cash funds abroad for investments or to conduct commercial activities through a newco, partnership or branch, allowing for the reciprocal flow of funds.

A brief on a significant legal development in Turkey.

The Capital Markets Board of Turkey (the “CMB”) published a new communiqué regulating the principles regarding purchase and sale of warrants and the registration of the same with the CMB. By means of the said Communiqué, the CMB aims at introducing a new capital market instrument allowing trade of warrants in regulated exchanges. The CMB also aims at sustaining a more liquid and active market.

Quick and mass trading in securities and other instruments of the capital market requires a special regulation concerning the organization of the market, intermediation in transactions as well as facilitating the investment decision making process. With the new regulations on Capital Markets Law several amendments were made by the communiqués, regarding the principles on intermediary activities and intermediary institutions.

As demand for energy increases in Turkey, investments in this sector is boosting with the help of the government. Incentives focus on renewable energy resources for obvious efficiency and environmental considerations and specifically wind energy investments had been very popular due to vast resources of Turkish geography. Therefore the government is trying to optimize financing conditions to attract more investment in the field.

Liberalization of the regulations governing the insurance sector commenced in the 1980s, in parallel with legal reform of other financial sectors. Primarily the banking and securities industries were affected as the possibility of Turkey's accession to the European Union gained credibility.  This liberalization trend ultimately spread throughout the broader financial markets, and gathered momentum in the early 2000s.

On the Republic of Turkey’s Privatisation agenda in 2008 is the Privatisation of toll motorways and bridges.  Privatisation in Turkey not only aims to minimise state involvement in economic activities, but it also aims to increase productivity and add value to the economy by ensuring more efficient organisation and management of enterprises that should be commercialised to be competitive in the market.

The competitive working environment and the need to focus on core activities force today’s financial institutions to outsource some services, critical to their business, for which they have limited expertise and/or limited funds.  Outsourcing offers a cost-efficient business by preventing time loss. The Banking Law and the recently-relevant legislation comprise provisions with respect to outsourcing in light of global trends. The Banking Law provides the definition of outsourcing companies (supporting service providers) in Article 3; however it leaves the details of application to the secondary legislation. Regulation regarding the Procurement of Outsourcing Services by Banks and Authorization of the Service Providers (the “Outsourcing Regulation”) enacted on 1 November 2006 regulates outsourcing companies and the specifications of outsourced services.

The debate concerning the use of debt pushdown mechanisms in secured financing of listed company acquisitions has been ongoing in Turkey since the late 1990s.

A few years ago, the Turkish Capital Markets Board (the "CMB"), the independent governmental authority regulating and monitoring the capital market activities in Turkey, prepared a bill amending the existing Law on Capital Markets No. 2499[i] (the "Capital Markets Law"), (the "Draft Law")[ii] to revamp the current one with a view to bring it in line with the relevant European Union (the "EU") legislation. Capital Markets Law is the main piece of legislation governing capital markets in Turkey. 

In the IMF Letter of Intent dated 7 July 2006, the Turkish Government stated that "the Banking Regulatory and Supervision Agency ("BRSA") shall continue to bring its supervision closer to best international practice. To this end, it has implemented the organizational changes envisaged in the Banking Law No. 5411 ("Law"), including the merger of onsite and offsite supervision. The BRSA has also adopted the other remaining measures set out in its October action plan, including new audit teams and further improvements in transparency and accountability. To come into line with Basel Core Principles, the BRSA will complete the drafting of supporting regulations for the Law by end August 2006."

The debate concerning the use of debt pushdown mechanisms in secured financing of listed company acquisitions has been ongoing in Turkey since the late 1990s. With increasing investment by foreign private equity funds, the scope of this debate may become broader, and cover the use of a target company’s assets for securing the financing of an acquisition. This structure involves the acquisition of a company (“Target Company”) through a special purpose vehicle (“SPV”), whereby the SPV obtains financing for the acquisition of the Target Company’s shares, and actually uses the Target Company’s assets to secure such financing.