The Turkish government’s agenda for development is one of the most ambitious in the world. Combined with investor friendly changes in the market, including a new investment incentive regime and new regulation enhancing transparency and certainty for deals under Turkish Law, foreign investors are increasingly looking to Turkey with greater confidence, attracted by the opportunities available.

Creating an investor-friendly environment

A number of years ago the Turkish government embarked on an ambitious infrastructure and energy strategy, with a focus on the power, health, transport and telecoms sectors and this is now bearing fruit. The Government’s aim, following the global trend, is to reduce state participation and increase private investment by creating a more investor‑friendly environment. In order to achieve this, the Turkish Parliament has enacted the new Turkish Commercial Code (TCC), the Turkish Code of Obligations (TCO) and, on 1 January 2012, introduced a new investment incentive regime. “The new investment regime is a remarkable change in the finance environment which has been welcomed by investors” comments Zeynep Çakmak, Ankara Partner at White & Case and Çakmak Avukatlık Bürosu.

Development in the project finance market


Commenting on the government’s programme Zeynep Çakmak says, “The Turkish government‘s privatisation agenda is one of the most ambitious and aggressive programs in the world. The aim is to derive revenue of approximately US$3 billion from the privatisation of the infrastructure and power sectors in 2013.” There have been a number of transportation privatisations, including roads, bridges, tunnels and ports and there are a number of new projects in the pipeline, including the privatisation of Turkish State Railways. The power sector is also a top priority for Turkey, following the liberalisation of the market in 2001.

Public Private Partnerships (PPP)

Unlike other jurisdictions where there is a uniform PPP law, Turkey has special PPP laws governing different sectors, with the Build Own Transfer (BOT) model being the most widely used form of concession-based structure in Turkey for more than 20 years. In particular, Turkey is seeking to develop the health sector under the PPP model. “The Turkish government has great ambitions in the health sector projecting to invest US$5 billion within the next five years…” comments Zeynep Çakmak, “This will include not only the construction of new hospitals and the renovation of existing hospitals, but also the development of health zones.”

Financing trends

Following the global financial crisis, Turkish banks effectively filled the financing gap left as a result of the liquidity issues in the international commercial bank market. Although there is still domestic liquidity available to finance small to mid-sized deals, there is a need for the participation of international financiers for big-ticket projects. The funding mix has evolved further, with increased participation from export credit agencies, multinationals and Islamic banks. On the international stage, project bonds are emerging and are likely to be considered for future projects in Turkey. There is also increasing demand for state guarantees from lenders to mitigate market risks. Zeynep Çakmak confirms “State guarantees are a hot issue for lenders and investors in Turkey. Everyone is asking for a guarantee or State support but the Government is quite conservative about giving this support.”

New regulations in the corporate world

There has recently been an overhaul of the Turkish commercial and corporate landscape. In addition to the TCC and TCO, the New Capital Markets Board Corporate Governance Principles were enacted by the Capital Markets Board on 30 December 2011. Furthermore, a new capital markets law is currently pending before Parliament. The general expectation is that Parliament will pass the draft law by the end of 2012. It is believed that the improvement of these regulations will be a ‘game changer’ and it will help to attract more investment.

The new TCC came into force on 1 July 2012 but it is being implemented gradually. Companies are still adapting to the new regulations by revising their articles of incorporation, shareholders’ and joint venture agreements and making changes to the structure of their boards of directors.  

Although it is the TCC that most of the corporate world is excited about, Meltem Akol, Istanbul Partner at White & Case and Akol Avukatlık Bürosu draws attention to the TCO, commenting “Banks, in particular, are going through a significant effort to revise their standard term contracts to comply with the regulations on unfair contractual terms introduced by the new TCO on 1 July 2012.”  

Key changes

Treasury stock

Privately held companies can now hold Treasury stock of up to 10 percent of the company’s share capital. This contrasts with the previous position under which privately held companies were not allowed to acquire such stock. This change is expected to have a positive impact on stock options, convertible bonds and mezzanine financing by letting companies hold available stocks for honouring their obligations under these arrangements.

Conditional capital increase

Third parties such as bondholders or lenders entitled to convert debt into equity can now prompt a capital increase of the company and have the power to determine the time and amount of the increase. Meltem Akol suggests “This mechanism can also be a useful tool for mezzanine financing, stock options or convertible bonds, assuring the bondholders that they can convert to equity through their unilateral consent”. However, for the protection of shareholders, the law has imposed a limit of 50 percent of the company’s total share capital for any conditional capital increase.

Lifting of the prohibition on transfer of ‘capital in kind shares’

Under the old regime, the shares corresponding to capital-in-kind in joint stock companies could not be transferred for a period of two years. The new regulations lift this statutory prohibition, which is a welcome development for transactional work as deal structures may include transfer of shares following contribution of capital in kind.

Removal of court valuation in mergers and demergers

The new TCC simplifies the procedures for mergers and demergers by removing the requirement for a valuation to be prepared by a court-appointed expert. Parties can now determine the share exchange ratio and all other valuations themselves, provided that it is approved by a chartered accountant, which will accelerate the valuation process.  

Increased minority rights

“The fact that the minority is given the ability to dissolve a company is a striking change introduced to the Turkish legal system” explains Meltem Akol. If there is a just reason, for example the company consistently operates at a loss and has dividends but does not distribute them for a consecutive number of years, then a minority shareholder can file a claim seeking the dissolution of the company. The judge then has the discretion to dissolve the company or order the majority to buy out the minority at fair market value (which is determined by court-appointed experts).  

Majority shareholders’ ‘squeeze out’ right

Majority shareholders now have the right to ‘squeeze out’ minority shareholders. Following a merger, shareholders holding at least 90 percent of the shares of the surviving company can ‘squeeze out’ the remaining shareholders, by making a merger ‘squeeze out’ payment (based on the fair value of the relevant shares). In instances other than a merger, shareholders holding 90 per cent of the shares are entitled to ‘squeeze out’ a minority who are: (a) hindering the activities of the company; (b) acting in bad faith; (c) causing distress to the business of the company; or (d) acting recklessly.

Prohibition on financial assistance

Based on the EU’s Second Company Law Directive, the new TCC introduced a prohibition on target companies providing financial assistance for the purpose of acquisition of their shares, which is a thorny issue. While the EU restriction applies only to publicly held companies, the restrictions in Turkey apply to privately held companies as well. This provision may also impact buy-outs. “We are working on alternative structures together with our European offices who have dealt with this prohibition before” comments Meltem Akol.

Managing legal risks in the Turkish market

On entering into any new market, it is important to be aware of pertinent local issues so that risks can be appropriately mitigated. Charlie Lightfoot, disputes partner at White & Case, London confirms “The legal and judicial framework in Turkey is certainly headed in the right direction and there’s a great deal to be positive about, but it’s still important to be aware of the risks.”


There are a number of risks that should be considered when contracting in Turkey. A key consideration is that Turkish law is based around a civil code, which leaves more room for judicial interpretation and discretion than in most common law systems. For example, there is a strong doctrine of good faith running through Turkish law which may mean that contractual terms might not be given strict effect if the court considers it would not be fair to do so in the circumstances. In addition, when compared, for example, to the courts in England & Wales or New York, the Turkish courts do not yet have the same level of experience in dealing with complex international commercial disputes. This means the Turkish courts may not necessarily interpret concepts familiar to international M&A practitioners and financial institutions in the way those practitioners or institutions would expect. This situation is rapidly changing and improving as Turkey welcomes more international investors and the introduction of the new TCC. However, as Charlie Lightfoot points out “the TCC is brand new and uncertainty remains as to how some of its provisions will be interpreted and applied in practice.”


There are already a number of strong positives in respect of the Turkish judicial system which foreign investors will welcome. For example, commercial disputes are heard in front of courts specialised in commercial matters and Turkey is also reforming its system of appeal courts. For those looking to resolve Turkey-related disputes outside Turkey, it is party to the 1958 New York Convention on the recognition and enforcement of international arbitral awards and Turkish courts will enforce foreign judgments, without a re-examination of the merits, on the basis of enforcement treaties (of which Turkey is party to a number) or reciprocity. Charlie Lightfoot comments “Commensurate with the new Turkish commercial code, an enormous effort is going in to make Turkish law modern and up to date. All the building blocks are in place. We are at the stage of getting people up the learning curve so that modern commercial rules and procedures are properly and consistently implemented.”  


Despite the improving situation, there are still some practical realities to consider. For example, even if disputes with Turkish parties are resolved in an English court or by way of arbitration, unless you have voluntary compliance, parties may face practical issues in enforcing a foreign award or judgment. Charlie Lightfoot explains “Public policy objections to the enforcement of a judgment or an arbitral award are available as a defence in any jurisdiction. However, the concept of public policy has tended to be a broader and more elastic concept when applied by the Turkish courts than in many other jurisdictions.”


There are a number of steps that can be taken to manage the risks, in the Turkish legal environment, including giving careful consideration at the outset to the appropriate governing law and dispute resolution mechanism and contemplating which method and forum will give you the best enforcement prospects in the unfortunate event of a dispute. If selecting international arbitration outside Turkey, the prospects of enforcement within Turkey may be enhanced by ensuring you use a recognised foreign seat (e.g. London, Paris or Geneva) and a well-established arbitral institution (e.g. the ICC). It is also sensible to avoid the one-sided optional dispute resolution clauses that have become common to international finance transactions emanating from the London market. Charlie Lightfoot suggests “Keep dispute clauses simple and straightforward and if a dispute arises, be cautious with procedure – you cannot afford to be relaxed about filing deadlines and other procedural issues, as what appear to be minor issues of process may well be raised as a defence to enforcement down the road.” It is also worth noting that Turkey is party to a number of bilateral investment treaties. In order to obtain additional protection, investors may therefore choose to invest through a vehicle located in a jurisdiction which has entered into a bilateral investment treaty with Turkey and benefit from the protections from expropriation or inequitable treatment that they provide.

Things are certainly headed in the right direction in terms of development in the Turkish market. Dr. Robert Barnes Managing Director, Equities at UBS and Chair of the Turkey Group at TheCityUK sums it up perfectly “When the topic of Turkey comes up, the discussion is about opportunity, improved governance, new incentives, and enhanced transparency and ultimately this is improving confidence in the market which is making Turkey more and more attractive both domestically and internationally.”

Dr. Robert Barnes