Amendments to the Capital Markets Law

A. Introduction

The Law No. 7222 Amending the Banking Law and Certain Other Laws (the “Amending Law”) has been published in the Official Gazette dated 25 February 2020 and numbered 31050 and entered into force on the same day. Among others, the Amending Law has introduced substantial novelties to the Capital Markets Law No. 6362 which was published in the Official Gazette dated 30 December 2012 and numbered 28513 (the “CML”). This Monthly Updates aims to highlight the essential amendments and new institutions introduced to the CML with the Amending Law.

B. Significant Transactions and Exit Rights

The first novelty brought by the Amending Law is with regards to Article 23 of the CML governing significant transactions. With the Amending Law, significant transactions have been identified as transactions which can affect the investment decisions of investors and/or the fundamental structure of a company. Accordingly, the scope of the significant transactions has been narrowed down since transactions such as “transfer of a material portion or all assets,” “change in the scope of business”, “dissolution” and “delisting” are no longer listed as significant transactions. That being said, the Capital Markets Board (the “Board”) still has the authority to determine which transactions of a company shall be deemed as “significant”.

With regards to the exit price to be paid to shareholders exercising their exit right following a significant transaction, the Amending Law has abolished the 30-day weighted average of stock price practice and adapted the fair value principle. Accordingly, companies shall be obliged to purchase the shares of the existing shareholders by paying a fair price, the principles of which shall be regulated by the Board. As per the Amending Law, the Board has been authorized, among others, to (i) regulate the offer of the shares held by the existing shareholders to other investors and/or shareholders before being purchased by the company; (ii) regulate the exercise of exit rights with regards to shares held at the time the significant transaction subject to such right was disclosed to the public; (iii) provide exemptions with regards to exit rights; and (iv)regulate the procedure and principles for the exercise of exit right on a case-by-case basis as per the structure of the company.

To reflect such amendments in the ancillary legislations, the Draft Communique No. II-23.3 on Significant Transactions and Exit Right has been published in the official website of the Board.

C. Mandatory Tender Offer

While the CML sets forth the obligation of the acquirers of shares or voting rights in publicly traded companies to make tender offers to the other shareholders, following the novelty brought by the Amending Law, shareholders shall only be able to benefit from such offer if they hold shares in such companies at the time the public disclosure regarding the change of control was made. Accordingly, investors who acquire shares after the date of such disclosure shall not have the right to sell their shares via such tender process.

D. Crowdfunding

Following the amendment of Article 35/A of the CML to enable equity-based crowdfunding in 2017, the Amending Law has now amended the same Article and enabled the Board to regulate crowdfunding based on borrowings. The Amending Law has also explicitly stated that borrowing-based crowdfunding shall not be subject to the banking legislation.

E. Debt Instruments

The Amending Law has introduced a new institution with regards to debt instruments namely, the Debt Instruments Holders Board (the “DIB”). The DIB consists of the holders of debt instruments issued by a certain issuer. The Amending Law states that the principles regarding invitations to the DIB meetings and resolutions to be taken in such meetings shall be included in the prospectuses and/or issuance certificates of the issuers. Pursuant to the Amending Law, the decision quorum for such meetings shall be the affirmative votes of the debt instrument holders representing 50% of the total nominal amount of the debt instruments, provided that no higher quorum is decided as per the prospectus and/or issuance certificates of the issuers.

Another novelty brought by the Amending Law with regards to debt instruments is that, in the event that the terms and conditions of the debt instruments are changed due to the default in the repayment of such instruments, all proceedings and lawsuits initiated before such change, shall be suspended as of the occurrence of such change. Additionally, following the payment in full of such debt instruments, all such proceedings and lawsuits shall be dismissed.

F. The Security Agent

With the amendment, liabilities arising from certain capital market instruments to be decided by the Board can be guaranteed via assets that the Board sees fit. Accordingly, the Amending Law has introduced another institution, namely the Security Agent (the “Agent”) whereby, the Agent, who shall be authorized through a written security management agreement between the issuer and the Agent, shall be responsible, among others, for the management, protection and liquidation of the assets that will be delivered to the Agent or on which limited real rights shall be established in favour of the Agent. It has been further stated that, in the event of default by the issuer the Agent shall be authorized to sell the relevant assets and distribute the amount among the investors without being subject to conditions precedents such as, among others, to notify or respite the issuer or to obtain permission from any authority.

Following the approval of the Board, the commercial name of the Agent, the information on the issuance to which the Agent is assigned and its authorizations shall be registered by the issuer before the relevant commercial registry and shall be announced in the Turkish Trade Registry Gazette. Additionally, the relevant assets in the scope of guarantee shall be separated from the assets of the Agent and shall not be subject to pledge, seizure or other encumbrances for the debts of the Agent.

G. Project Finance

With amendments brought by the Amending Law to Article 61/B of the CML, it is now possible to fund technology, infrastructure, energy and industrial projects that require high-volume investments through project finance instruments. In line with such amendments, investment institutions and portfolio management companies have been enabled to provide loans, credits and currency exchange services within certain activities determined by the Board, including project financing. In order to manage such funding, the Amending Law has also introduced a new fund type namely, the Project Finance Fund (the “Fund”), which shall be an entity without legal personality (save for the exceptions stipulated under the Amending Law), established by investment firms and governed by funds’ bylaws. The portfolio of the Fund shall include revenues of projects and it shall be managed on behalf of the security holders as per fiduciary ownership (inançl? mülkiyet) principles. Accordingly, revenues and other rights deriving from the projects subject to project finance shall be assigned to the Fund. Further procedures and principles governing the Funds shall be regulated by the Board.

Finally, it has been stated that until the project based securities with a Fund are redeemed, the rights and assets of the Fund’s portfolio shall not be disposed, pledged, collateralized or shall not be subject to any other encumbrances, save for the purposes of providing a warranty.

Finally, it has been stated that until the project based securities with a Fund are redeemed, the rights and assets of the Fund’s portfolio shall not be disposed, pledged, collateralized or shall not be subject to any other encumbrances, save for the purposes of providing a warranty.

H. Conclusion

As summarized above, the Amending Law has made substantial amendments to the CML, introducing new concepts to the Turkish capital markets legislation. However, the principles governing such are yet to be detailed with the ancillary legislation.

References

[1] Law No. 6362, published in the Official Gazette dated 30 December 2012 and numbered 28513.

[2] Law No. 7222 Amending the Banking Law and Certain Other Laws, published in the Official Gazette dated 25 February 2020 and numbered 31050.