Turkish Law Blog

Draft Communiqué on Debt Instruments Holders Board

Sena Nur Karadayı, Associate Sena Nur Karadayı, Associate/ Taboglu Attorneys at Law
26 June, 2020
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A new body with regards to debt instruments namely, the Debt Instruments Holders Board (the “DIB”), has been introduced to the Capital Markets Law numbered 6362 (the “CML”) with the Law No. 7222 Amending the Banking Law and Certain Laws which was published in the Official Gazette dated 25 February 2020 and numbered 31050 (the “Omnibus Law”). Within the scope of such amendments, the Capital Markets Board (the “Board”) has been authorized to determine the procedures and principles with regards to the DIBs. Accordingly, the Board has prepared the Draft Communiqué on the Debt Instruments Holders Board No. III-31/A.1 (the “Draft Communiqué”) and presented for the public consultation on 22 April 2020 via its official website.

This article aims to provide a brief explanation on the Draft Communiqué and highlight the novelties introduced therein.

A. Debt Instruments Holders Board

Pursuant to the Draft Communiqué, the DIB is a special board consisting of the holders of debt instruments issued by an issuer to be convened upon the request of either the holders of debt instruments or the issuer’s board of directors. As per the Draft Communiqué, DIBs shall be authorized to make changes that may affect the investment decisions of the investors with regards to (i) interest rate, maturity and principal amount; and (ii) main terms and conditions of the respective debt instruments stated in the prospectus or issuance certificate, as per Article 31/A of the CML, all resolutions to be taken by DIBs on such matters shall be taken with 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 required under the prospectus and/or issuance certificates of the respective issuer.

According to the Draft Communiqué, two different subtypes of DIBs, namely the Tranche DIB (Tertip BASK) and the General DIB, have been regulated as follows:

a. Tranche DIBs

In line with the Draft Communiqué, Tranche DIBs shall be constituted with regards to the debt instruments that are issued in tranches. Accordingly, Tranche DIBs shall be authorized to make changes with regards to (i) interest rate, maturity and principal amount; (ii) main terms and conditions of such debt instruments; and (iii) financial or operational commitments of issuers specified in the prospectus or issuance certificate. Tranche DIBs shall, in principal, take all resolutions with a minimum quorum of two thirds of the nominal value of the respective debt instruments. However, in the event that the resolution taken by a Tranche DIB changes financial or operational commitments of issuer as stipulated in (iii), the affirmative votes of debt instruments holders representing more than half of the nominal value of such debt instrument shall be required. Moreover, all resolutions taken by Tranche DIBs shall be binding on all of the same tranche debt instruments holders, even for those opposing to such resolutions or those not attending meetings despite due invitation.

b. General DIB

Pursuant to the Draft Communiqué, General DIBs shall be convened upon the request of the tranche debt instruments holders whose rights are adversely affected due to a resolution taken by Tranche DIBs and approved by the issuers’ board of directors. General DIBs shall take all resolutions with a minimum quorum of two-thirds of the nominal value of the respective debt instrument. Moreover, all resolutions taken by General DIBs shall be binding and final for Tranche DIBs as well.

B. Determination of Debt Instruments Holders’ Representatives

A representative can be appointed to represent the debt instruments holders in DIBs in order to protect their rights in accordance with the principle of equal treatment. According to the Draft Communiqué, the debt instruments holders’ representatives shall be elected by the affirmative votes of those who represent more than half of the nominal value of such debt instrument at the first DIB meeting to be convened for each tranche. Furthermore, until the election is made, a temporary representative can be assigned via the prospectus or issuance certificate.

C. DIB Meetings Procedures

In line with the Draft Communiqué, unless otherwise stated in the prospectus or issuance certificate, DIB meetings shall, in principal, be held physically. However, DIBs can also take a resolution without a physical meeting, by circulating the resolution electronically or physically among debt instruments holders or their representatives for their signatures.

Within the scope of the Draft Communiqué, (i) joint-stock companies, whose shares are listed on the stock exchange; and (ii) issuers that offer debt instruments to public, are obliged to enable the means for the debt instruments holders to participate in DIB meetings electronically, as well as physically. However, other issuers that do not meet the aforementioned criteria, shall also be able to hold DIB meetings electronically, even if there are no provisions in their articles of association that enable electronic meetings.

D. Payment Obligation of the Issuer

As per the Draft Communiqué, in the event that the terms and conditions of the debt instruments are changed due to the default in payment of the respective debt instruments, (i) all legal proceedings and lawsuits initiated before such change shall be suspended as of the occurrence of such change; and (ii) preliminary injunction and provisional seizure decisions shall not be applied for such debt instruments. Following the payment in full of such debt instruments, all legal proceedings and lawsuits that were previously suspended shall be dismissed.

According to the Draft Communiqué, if a debt instruments issuer fails to fulfil or it is predictable that the issuer will be unable to fulfil any payment obligations with regards to the debt instruments, the issuer shall not be allowed to (i) make any payments to third parties before their due date; or (ii) buyback or redeem any debt instruments without a resolution of the Tranche DIB regarding the amendment of the main terms and conditions of such debt instruments.

E. Other Novelties Introduced by the Draft Communiqué

The Draft Communiqué sets forth other novelties as follows:

a. the Draft Communiqué shall not be applied to debt instruments issued abroad. However, issuers that have issued debt instruments both domestically and abroad must obtain the approval of the General DIB in order to provide additional guarantees in favour of foreign investors;

b. secured debt instruments holders and debt instruments holders which are covered by a warranty management agreement shall be authorized to convene a DIB separately with regards to the matters concerning their debt instruments; and

c. (i) DIB meetings procedure; (ii) representatives’ appointment procedures; and (iii) events of default shall be specified in the prospectus or issuance certificate of the relevant debt instruments.

F. Conclusion

With the Draft Communiqué, the scope and procedures regarding DIBs, which is a new concept introduced to the CML via the Omnibus Law in order to protect the rights of debt instruments holders effectively, has been determined. Additionally, if the Draft Communiqué is accepted as it is, the aforementioned rules shall be valid for the issuances as of 25 February 2020.


References

[1] Omnibus Law No. 7222, published in the Official Gazette dated 25 February 2020 and numbered 31050.

[2] Capital Markets Law No. 6362, published in the Official Gazette dated 20 December 2012 and numbered 28513.

[3] Draft Communiqué on the Debt Instruments Holders Board No. III-31/A.1, presented to the public’s opinion on 22 April 2020 through Capital Markets Board’s official website.

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