Authors: Capital Markets Law Department, Prof. Dr. Ali Paslı, Att. Mustafa Şahin

Introduction

One of the methods that companies apply to secure long-term financing is the issuance of bonds. A bond refers to a capital markets instrument issued by companies in their capacity as debtors and sold to investors, whereby the issuer undertakes to pay principal and interest at certain dates. In this respect, bonds provide investors with the opportunity to receive regular returns, while offering issuers an alternative long-term funding source compared to bank loans.

In Turkey, bond issuance is carried out within the framework of the Capital Markets Law No. 6362 (“CML”), the Turkish Commercial Code No. 6102 (“TCC”), the Communiqué on Debt Instruments No. VII-128.8, the Communiqué on Prospectus and Issuance Certificate No. II-5.1, the Communiqué on the Sale of Capital Markets Instruments No. II-5.2, and other related regulations. The Capital Markets Board of Turkey (“CMB”) prescribes the procedures and principles that issuers are required to comply with.

A. Definition of Bonds and Their Role in the Capital Markets

Bonds, as a type of debt instrument, are defined in the Communiqué on Debt Instruments as securities issued and sold by issuers in their capacity as debtors, with a maturity of at least 365 days. These instruments secure the payment of interest and principal to investors while providing issuers with medium- and long-term financing.

Bonds are issued not only by joint stock companies but also by the state, public institutions, and local administrations. Thus, bonds constitute an important source of financing for both the private sector and the public sector. With the development of the capital markets in Turkey, companies have increasingly tended towards bond issuance as a means of raising funds.

B. Types of Bonds

The essential feature of bonds is that they place the issuer under the obligation to make interest and principal payments throughout the maturity period. In addition to conventional bonds, other types of bonds are regulated under the capital markets legislation, such as convertible bonds and exchangeable bonds.

Convertible bonds grant their holders the right to acquire the issuer’s shares under the conditions set forth. In such cases, investors may either convert their bonds into shares at maturity or opt to receive principal and accrued interest in cash.

Exchangeable bonds, on the other hand, grant the right to exchange bonds for shares of another company that are traded on the stock exchange. These instruments provide investors with flexibility while offering issuers the advantage of securing long-term financing through the capital markets.

C. Types of Bond Issuance

Bond issuance in Turkey may be conducted either through a public offering or without a public offering.

Public bond issuance enables companies to reach a wide investor base and secure financing. Pursuant to Article 4 of the CML, it is mandatory to prepare a prospectus for bonds to be publicly offered, and such prospectus must be approved by the CMB. The approved prospectus must be disclosed to the public. In addition, an application must be filed with Borsa Istanbul (“BIST”) for the bonds to be traded on the exchange.

Bond issuance without public offering may take place through sales to qualified investors or through private placements. In sales to qualified investors, there is no requirement to prepare a prospectus; instead, an issuance certificate must be prepared and submitted for the CMB’s approval. In private placements, the buyers are predetermined. However, if the number of investors exceeds 150, the issuance becomes subject to the rules applicable to public offerings.

International bond issuance is also envisaged under the legislation. Pursuant to Article 4 of the Communiqué on Debt Instruments, issuance ceilings may be determined in Turkish Lira or foreign currency, and sales may be conducted in different currencies. In such cases, the relevant exchange rates published by the Central Bank of the Republic of Türkiye are applied in the calculations.

D. Issuance Process and Applications

The first stage of bond issuance is the company’s internal decision-making mechanism. The company’s articles of association must not contain any provisions preventing the issuance of bonds.

The decision to issue bonds is taken by the general assembly; however, pursuant to Article 505 of the TCC, this authority may be delegated to the board of directors for a maximum period of fifteen months. In practice, companies frequently prefer to delegate this authority to their boards of directors.

Following the adoption of the relevant corporate resolution, an application must be submitted to the CMB within one year at the latest. The application process requires the preparation of a prospectus or issuance certificate, independently audited financial statements, underwriting agreements, and credit rating reports, which must be submitted to the CMB. The documents approved by the CMB remain valid for one year, during which different tranches of issuance may be carried out. Furthermore, issuers may conduct additional sales not exceeding 50% of the total amount initially offered.

E. Procedures Before Third-Party Institutions

Bond issuance is not limited to CMB approval. The process must also be completed before other institutions. Foremost among these is the Central Securities Depository of Turkey (“CSD”). Bonds must be issued in dematerialized form, and ownership records must be kept by CSD on a beneficiary basis.

Applications to Borsa Istanbul must also be made to enable the bonds to be traded in the debt securities market. Furthermore, membership in the Public Disclosure Platform (“PDP”) is required to disclose the prospectus and issuance certificate to the public. If the issuer is not already registered with PDP, such registration must be completed before the issuance.

F. Listing Process

The listing of bonds on Borsa Istanbul is subject to certain conditions. The issuing company must have been established for at least two years, and its independently audited financial statements must show that shareholders’ equity exceeds paid-in capital, with a net profit recorded in at least one of the last two financial years. In addition, the company must not have legal disputes of a nature that could adversely affect its activities.

During the listing application, it must also be documented by an independent legal opinion that the company’s directors and controlling shareholders have not been convicted of certain criminal offenses. However, these conditions are not sought for companies already listed on Borsa Istanbul and certain banks that meet specific requirements. In the case of sales to qualified investors, the listing process is conducted in a simplified manner, with the bonds being listed following CMB approval and completion of the sale.

Conclusion

Bond issuance provides companies with the opportunity to secure long-term financing and enhances their integration with the capital markets. However, the process is subject to strict regulations under the CML and related communiqués. Issuer companies must align their articles of association, corporate decision-making mechanisms, and financial statements with the requirements before the issuance. In addition, a prospectus or issuance certificate must be prepared and submitted for CMB approval, and the necessary applications must be made to CSD, Borsa Istanbul, and PDP.

A properly structured bond issuance not only provides companies with a source of financing but also strengthens their corporate structure, increases investor confidence, and contributes to their integration with the capital markets.