How to establish Turkish MTNs

Author: Gemma Varriale | Published: 13 Jun 2013
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  • The establishment of MTN programmes in Turkey represents a key benchmark in the country’s fast-developing capital markets;
  • VakifBank’s inaugural programme was swiftly followed by Garanti Bank’s establishment of an MTN platform. More Turkish programmes are expected;
  • For future issuers looking to set up similar programmes, deciding on funding needs is a key consideration;
  • Banks must consider who is their target audience of investors and which types of securities those investors will be attracted to;
  • The creation of MTN platforms is just one of a range of new possibilities opened up by Turkish issuers’ increasing access to the capital markets.

VakifBank has become the first Turkish issuer to set up a medium term note (MTN) programme. With the inaugural deal set to spark a wave of programmes out of Turkey, IFLR spoke with deal counsel to determine the key considerations for issuers looking to establish an MTN in the new territory.

The launch of VakifBank’s $3 billion programme was quickly followed by a similar platform from Garanti Bank.

The establishment of MTN programmes in Turkey is a sign of the speed at which the country’s capital markets are maturing. It has taken less than three years for Turkey to progress from standalone bond issuances to programmes.

"The establishment of the VakifBank programme is the latest key development in what has been a very quickly developing market," said Leona Tan, assistant general counsel at Bank of America Merrill Lynch, who led on the deal’s documentation.

The Turkish markets were opened in July 2010 with Akbank’s standalone US dollar international bond offering. This milestone was quickly followed by the first bond issuance by a Turkish corporate issuer and the first international Turkish Lira offering.

"VakifBank’s programme shows the speed at which financial institution issuers in Turkey have moved from issuing with standalone documentation to issuing off MTN programmes like seasoned investment grade issuers," Tan added.

Turkey was recently upgraded to investment grade rating and many of the country’s financial institution issuers already hold investment grade ratings.

Full disclosure

Discussing the funding needs with the issuer is one of the key considerations when setting up a new programme, said Tan.

The rationale for setting up these programmes was to enable VakifBank and Garanti Bank to access the capital markets far more quickly from a documentation perspective and to tap into the private placement market, as well as issuing benchmark-sized deals.

VakifBank chose to set up their programme as a fully operational US MTN programme with full 144A level disclosure, explained Catherine Daly, a managing director and associate general counsel with Bank of America Merrill Lynch’s legal team, whereas Garanti’s programme has Reg S level disclosure with 144A mechanics only.

Tan noted that the first two programmes had chosen different structural approaches. "It will be interesting to see how future issuers who come to the market choose to structure their programmes," she added.

Capital Markets Board Approval

All Turkish borrowers need to get approval from the Capital Markets Board of Turkey for any bond issuance done out of the country.

Both VakifBank and Garanti Bank secured this approval for the issuance limit of their programmes.

"This will facilitate the approval process on any issuance off the programme and means that they will no longer need to apply on a case-by-case basis," said Tan.


Both programmes have been set up to enable Turkish lira issuance and Turkish lira settlement. Tan said it was likely that this feature would be incorporated in future programmes out of Turkey.

"Avoid unnecessary complexity"

According to the private practice lawyers, clearly defining the breadth of the programme was one of the challenges of establishing Turkey’s first MTN.

Recent changes to Europe’s Prospectus Directive mean that issuers looking to issue a variety of MTN types under one programme must now include full disclosure within the base prospectus.

"One of the key items to be discussed upfront with an issuer is the types of securities it wants to have the flexibility to issue under the MTN programme," said Jim Patti, Chicago-based banking and finance partner with Mayer Brown.

Programmes can range from providing only for senior unsecured offerings to more complex programmes that permit senior debt, subordinated debt, structured debt and potentially also convertible debt.

"As programmes can be amended to provide additional scope, an issuer is well-advised to avoid unnecessary complexity and to establish a programme that provides only for the types of securities that it realistically anticipates issuing over the following 12 months," said Patti.

Issuers looking to establish an MTN also need to decide whether to do a so-called wholesale prospectus or a retail prospectus.

The disclosure requirements in the Prospectus Directive for a retail prospectus are more stringent because it involves offering securities to a wider range of investors, including retail.

Both of Turkey’s MTN programmes are set up as wholesale offerings with minimum denominations of €100, 000.

Additionally, as has been the trend with Turkish issues, the debut programmes are listed on the Irish stock exchange.

Tan said there had been a recent shift of Turkish issuers moving their listing from the UK to Ireland. "I would expect that Dublin would be the chosen listing venue for future programmes," she said.

Turkey’s new funding generation

The creation of MTN platforms is just one of a range of new possibilities opened up by Turkish issuers’ increasing access to the capital markets.

Mayer Brown’s Jim Patti and Istanbul-based Paksoy partner, Omer Collak, agreed that the next capital instrument on the horizon in Turkey would be mortgage-covered bonds.

"You could sensibly see a broad range of capital markets instruments being issued out of Turkey and by Turkish issuers in the future," said Patti.

"There are lots of other markets to consider: high yield bonds, convertible bonds," he added. "There’s no reason why Turkish financial institutions and corporations can’t have the same degree of flexibility as any other European companies."

According to Alex von Sponeck, managing director of central eastern Europe, Middle East and Africa debt financing origination at Bank of America Merrill Lynch, currency diversification will be a key development in the market.

"The main thing we’ll see is the ability of Turkish banks to issue smaller size deals off the back of MTN programmes with much more flexibility, as well as the ability to arbitrage currencies and take advantage of short-term changes in the markets" he said.

The one potentially dark cloud on the horizon is the current market volatility. However, according to von Sponeck, this is not causing any Turkey-specific panic among investors or issuers.

The issue, said von Sponeck, is much more global this time. It concerns bond liquidity in the secondary markets and overall funding levels because of US Treasury spikes, and not underlying credit concerns.

"If the only point of concern was what was happening in Turkey right now, and nothing else happening in the wider bond space, we’d see very limited sell-off in a lot of these Turkish bonds," he said.

Tear sheet

VakifBank’s MTN programme was listed on the Irish Stock Exchange’s regulated market but permits the issuer to issue both listed and unlisted series of notes.

Bank of America Merrill Lynch acted as the arranger for the MTN programme.

Mayer Brown advised VakifBank. Paksoy represented the joint lead managers and the dealers on Turkish law.

VakifBank’s offering circular is available here. Garanti Bank’s offering circular is available here

See also:

Turkey’s first non-ijara sukuk dissected

Turkey’s maturing PE market

Financing under Turkey’s new code