Anticipated growth in Turkey’s convertible bond market

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Convertible bonds are a type of bond regulated under the Communiqué Regarding Debt Securities (II-31.1) published in the Official Gazette on June 7 2013, and numbered 28670. This bond has a hybrid nature, which is a combination of an ordinary bond and a warrant. It grants the holder the right to convert the bond into a number of shares in the issuer company either by means of capital increase (contribution), or by converting them into other issuer shares.

According to the Communiqué:

• the term of a convertible bond cannot be less than 365 days;
• the conversion of a convertible bond to shares must be completed at least 365 days after the start date of maturity;
• convertible bonds may be sold through a public offering and private placement;
• unlike ordinary bonds, if convertible bonds are to be sold by public offerings, then the issuing company must also be a listed company;
• if the public offering method is used, then the issuer company must also prepare a circular and a prospectus for the convertible bond issue.

Despite the fact that bond issuing is not common practice among corporates in Turkey, it is becoming more popular. Once companies acknowledge and get used to this method, due to its flexibility in allowing issuers to run their business, it is expected that companies will also consider financing their operations and projects by issuing bonds rather than borrowing from a bank or a credit institution. As a result, the corporate bond market is anticipated to grow over the coming years. Moreover, by issuing convertible bonds, the issuer has certainty on how the bonds will be redeemed.

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