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December 21, 2023

Lease Certificates and Their Issuance

I. FEATURES AND TYPES OF LEASE CERTIFICATES

Lease certificates are regulated within the scope of Article 61 of Capital Markets Law (“CML”) numbered 6362 and Communiqué on Lease Certificates (“Communiqué”).

Lease certificates, are defined as capital market instruments and securities, issued by the Asset Lease Company (“ALC”) in order to finance all kinds of assets and rights, ensuring that their owners have rights in proportion to their share of the income obtained from this asset or right; the qualifications of which are determined by the Capital Markets Board (“Board”).  Right notion stated in the definition, refers to all kinds of rights based on the issuance of lease certificates and asset notion, refers to all kinds of assets other than the basis rights for the issuance of lease certificates. The lease certificate, which has the same functional structure as the most basic debt instrument, bond, can stand out as a safe alternative for investors since it is issued as a basis for an asset that can be sold and turned into a resource and therefore has a more of a protected structure.

It should be emphasized that ALC is a capital markets institution established as a joint stock company and exclusively to issue lease certificates. In this respect, the lease certificate is an instrument that allows private sector companies (source institution) to obtain financing by using the assets they possess or will take over by leasing, through a ALC and transfer-lease-takeover method.

Lease certificates may be issued based on;

  1. Ownership,
  2. Management agreement,
  3. Trading,
  4. Partnership,
  5. EPC (engineering, procurement and construction) contract

Or through combined use of the listed above by ALCs.

However, pursuant to the Communiqué, it is regulated that the applications for the approval of the prospectus or issuance document of capital market instruments, which are not included herein and in the scope of other regulations of the Board, and which are to be accepted by the Board as lease certificates due to their nature, will be concluded by applying the provisions of the Communiqué through compare. [1]

Within this scope,

  1. Owner-based lease certificates can be issued to finance the assets and rights to be taken over from the source institution by ALC, to be leased to the source institution or third parties or to be managed on behalf of ALC.
  2. Management agreement-based lease certificates can be issued for the purpose of transferring the revenues obtained as a result of the management of the assets or rights of the source institution in favor of ALC, including the lease throughout the term, to ALC within the framework of the provisions of the agreement.
  3. Trading-based lease certificates can be issued in order to finance the purchase of assets or rights in the transaction of purchasing an asset or right by ALC and selling it on credit to certain companies.
  4. Partnership-based lease certificates can be issued in order for ALC to become a partner in the joint venture.
  5. EPC contract-based lease certificates can be issued in order to ensure that the work is produced within the scope of a EPC contract which ALC is a party as an employer.[2]

 

II. ISSUANCE OF LEASE CERTIFICATES

Lease certificates may be issued for sale with or without a public offering. Sales to be made without public offering can be made in two ways as private placement and sales to qualified investors.

In case the lease certificates are to be issued domestically an application must be made to the Board with the documents specified in ANNEX-1 of the Communiqué and in case the lease certificates are to be issued abroad an application must be made to the Board with the documents specified in ANNEX-2 of the Communiqué. The lease certificates to be issued may be sold in tenors up to the issue ceiling deemed appropriate by the Board. In the public offerings to be made during the validity period of the prospectus, ALC should apply to the Board for approval, together with the documents in ANNEX-3 of the Communiqué, for the sale of each tenor. In the sales to be made without public offering, ALC must apply to the Board for approval of the issuance document before each tenor. On the other hand, it is a necessity for the lease certificates to be offered to the public to be traded on the stock exchange and to apply to the stock exchange (Borsa İstanbul) for this purpose.

 

III. REGULATIONS OF BORSA İSTANBUL

In accordance with the provisions of Borsa İstanbul Anonim Şirketi (“Borsa İstanbul”) Quotation Directive, debt instruments and lease certificates issued for sale to qualified investors or offered to the public will be traded by being listed by Borsa İstanbul.

In order for the lease certificates to be listed, a quotation application must be made. Accordingly, a one-time application may be filed covering the entire predetermined amount. Following the approval of the application, the lease certificates will be traded in the “Debt Instruments Market” following the announcement to be made on the Public Disclosure Platform.

Lease certificates to be issued through public offering are listed after the approval of the prospectus by the Board and the realization of the sale, without any evaluation by Borsa İstanbul.

Lease certificates issued to be sold to qualified investors are listed without any evaluation by the Borsa İstanbul, following the approval of the issue document by the Board and the realization of the sale. The issuance of the lease certificates to be issued in this way will take place in the “Issuance to Qualified Investor Market“.

 

  IV.            CONCLUSION

Since lease certificates issued by ALC, which appear as a financing instrument that enables their holders to have rights in proportion to their share of the income obtained from this asset or right, are issued as a basis for an asset that can be sold and turned into a resource, they can currently be issued by both the public and private sectors in our country, and they are preferred as a safe option for investors.

Best Regards,

 

[1] Capital Markets Board, Announcement on Communiqué on Principles Regarding Lease Certificates and Asset Lease Companies”, Capital Markets Official Website. https://www.spk.gov.tr/Duyuru/Goster/201041/0.

[2] Lease Certificates, Borsa İstanbul. https://www.borsaistanbul.com/tr/sayfa/1471/borclanma-araclari-piyasasi-kira-sertifikalari.

Authors

Gülenay Kavcar

Gülenay Kavcar

Yaren Türe

Yaren Türe

Lawyer