- The establishment of MTN
programmes in Turkey represents a key benchmark in the
country’s fast-developing capital
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
- Banks must consider who is
their target audience of investors and which types of
securities those investors will be attracted
- The creation of MTN platforms
is just one of a range of new possibilities opened up by
Turkish issuers’ increasing access to the
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
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
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.
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
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
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
"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
"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
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
Both of Turkey’s MTN programmes are set up as
wholesale offerings with minimum denominations of €100,
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
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
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.
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
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
VakifBank’s offering circular is
available here. Garanti
Bank’s offering circular is available here
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