In an unprecedented move on February 14, 2014, the Turkish Capital Markets Board (the "CMB") approved Fenerbahçe Futbol's proposed TRY 200 million bond offering -- but imposed an unusual requirement. The CMB required Fenerbahçe Futbol to obtain a Turkish bank guarantee for its obligations under the bond issuance. The CMB also ruled that half of the Fenerbahçe's bond offering may be privately placed without a guarantee; however, the other half of the bonds, which are to be offered to the public, must still be guaranteed by a Turkish bank.

The CMB based its decision on Communiqué No. II-31.1, on Debt Instruments (the "Communiqué"), which entered into force last year on July 7. Under the Communiqué, the CMB may require that the payment obligations of debt instrument issuers be guaranteed by a Turkish bank or other Turkish legal entity, or that the debt instruments be sold only to qualified investors (private placement). This relatively new rule applies to Turkish issuers, both inside Turkey and abroad.

While the CMB is trying to protect investors and the market, we anticipate that this guarantee requirement will set a precedent for future transactions. Issuers, banks and advisors should be well-prepared for CMB skepticism of an issuer's ability to satisfy its payment obligations under a bond program. Given this new precedent, it is likely that the CMB will demand guarantees for other bond programs.  

Although the intent is to protect investors and create a more secure environment for all market players, requiring guarantees will likely slow the issuance process and dissuade some potential issuers from entering the market, reducing the overall number of bond transactions. It will, however, increase the quality and security of these transactions. This is in line with the new CMB management's interventionist approach of taking substantial measures to create more secure capital markets in Turkey.