On 27 November 2015, the Capital Markets Board of Turkey (the “CMB”) proposed a landmark amendment to the Debt Communiqué (the “Proposed Amendment”) which will lift the restrictions on bond buy-back activities by non-bank issuers incorporated in Turkey. If adopted in its current form, the Proposed Amendment will pave the way for a wider range of liability management practices, as well as alternative, more cost-efficient debt restructuring methods for issuers to adjust their capital structures by using more balanced solutions.
Issues such as changing economic and financial conditions, volatility in the macroeconomic environment, or structural changes in the market, may place a bond issuer under operational and financial stress. In such circumstances, the bonds being traded at significant discounts in the secondary market, or the redemption of outstanding bonds maturing in the near future, are possible financial risks for potential issuers. In addition, covenants under the terms and conditions of existing bonds may also become burdensome for an issuer. Liability management techniques provide a valuable tool for issuers who wish to mitigate their risk by restructuring balance sheet liabilities.
This note provides an overview of (i) liability management techniques used in international markets, (ii) the legal framework applicable to liability management activities under current Turkish law and the Proposed Amendment, and (iii) potential tax issues that may arise in connection with liability management transactions under Turkish law.