Our Information Note on the promotion of secured bond issuances in view of the COVID-19 pandemic has been published.

1. INTRODUCTION

The Capital Markets Board (the “CMB”) has amended its Communiqué on Secured Bonds (III-59.1) (the “Amended Communiqué) which entered into force following its publication in the Official Gazette dated 14 May 2020 and numbered 31127. In its related press release, the CMB has stated that the objective of the amendments is the promotion of the issuance and wider use of secured bonds (“SB”) in line with the 2020 annual plan of the Presidency and its efforts to combat the effects of the COVID-19 pandemic.

2. ISSUANCE LIMIT

The Capital Markets Law No. 6362[1] defines mortgage lenders (“ML”) as joint stock companies that are incorporated for acquiring and transferring assets for housing and asset finance purposes as well as managing such assets, accepting such assets as collateral and conducting other activities deemed appropriate by the CMB.

Although there is currently no active ML in Turkey, the incorporation of an ML with the corporate title “Birlik İpotek Finansmanı A.Ş.” is on the agenda of a large consortium including the Turkish Treasury[2], certain banks and financial institutions.

According to the Amended Communiqué, issuance limits applicable to MLs will now be independent from their respective share capital amounts and will not be subjected to any other threshold. This effectively means that MLs are able to lend without restrictions.

However, the issuance limit for entities other than MLs has been determined as 10% of their total assets indicated in their financial statements prepared pursuant to CMB regulations. Pursuant to the new amendments, upon request, this ratio may be increased to 20% for banks, financial institutions (as defined in the Banking Law No. 5411[3]) and financial leasing, factoring and financing companies that have received satisfactory ratings from rating agencies (being the top three long-term investment grades).

3. DECREASE IN CMB FEES RELATING TO THE ISSUANCE OF SBs

The amendments also introduce a reduction in, and exceptions to, associated fees of the CMB.

Accordingly, no CMB fee will be charged for the issuance of SBs (irrespective of the legal status of the issuer) until 31 December 2020. After such date, CMB fees for SB issuances by MFs are still discounted to 50%.

4. OVERCOLLATERALISATION REQUIREMENT

Pursuant to the Amended Communiqué, for mortgage backed securities (“MBS”), the net value of the pool of assets backing the MBS must be greater than the value of the MBS itself in order to secure the rights of investor in case of an issuer default. The actual ratio will be determined by issuers but may not be lower than 2%.

The amendments clarify that the assets used for overcollateralisation purposes will consist of substitute assets[4] and will be recorded in the security register.

5. CONCLUSION

The intention behind these recent amendments is to encourage SB issuances by lowering associated costs and narrowing down restrictions as part of the efforts to combat the economic and financial stagnation caused by COVID-19. 

The exceptions introduced exclusively for MLs will assist in rendering such institutions key players in real estate financing and allow banks to increase their credit allocation through securitisation.