The majority of Turkey's infrastructure has traditionally been supplied by public authorities or private entities through a build/operate/transfer model. In emerging markets like Turkey, lack of capital is a serious concern for large-scale projects. Meeting infrastructure needs in emerging markets requires a substantial amount of project finance. Accordingly, both domestic and foreign sources of capital have to be identified and used efficiently to satisfy the infrastructure needs without creating a heavy financial burden on the treasury.
Infrastructure projects have become one of the most popular investment destinations in Turkey. Both local and foreign investors are interested in investing in infrastructure projects through various methods (privatisations and build, operate and transfer methods, for example). Despite investors' appetites for investing in infrastructure projects, the financing, especially for large-scale infrastructure projects, may occasionally be difficult. Hence, the Capital Markets Board (Board) has published a draft communiqué on infrastructure investment trusts for public review (Draft Communiqué). The Draft Communiqué regulates principles and procedures with respect to incorporators and incorporation procedures, portfolio management licences, registration of their securities with the Board, investment activities and public disclosure obligations of trusts. With the enactment of this Draft Communiqué, investors will be able to incorporate a trust for the purpose of financing one or more infrastructure projects. However, if the trust is incorporated only for an exclusive infrastructure investment, then other infrastructure investments cannot be included within the scope of the purpose of such trust. The system provided under the Draft Communiqué enables investors to include all of their infrastructure investments under one trust, thus providing a better system for risk management.
Under the Draft Communiqué, agricultural, mining, manufacturing, energy, transport, communication, information technology, tourism, housing, cultural, rural and municipal services, urbanisation, environment, research and development services, education, health, justice, and security services conducted by public authorities are defined as infrastructure needs. Investors will invest in projects through the trusts that are regulated and controlled by the Board, either by directly financing infrastructure projects or investing in companies engaged in financing infrastructure projects indirectly, on a diversified, portfolio basis. The Draft Communiqué also provides that the trusts will be able to participate in privatisations or other tenders of infrastructure projects, and may also submit bids as part of a consortium. One of the remarkable provisions of the Draft Communiqué is that the trusts will not be able to conduct the construction activities for the infrastructure projects in their portfolio.
The Draft Communiqué provides certain standards to be met with respect to the structure (share capital, governance and format, for example) of the trusts. According to Article 4 of the Draft Communiqué, a trust must be in joint stock corporation form with an initial minimum capital of TL100 million ($61.5 million), of which at least 10% must be paid in cash. Article 4 also requires one of the company's founders to be a leading shareholder with at least a 25% stake in the trust. The investors of the trusts are also entitled to contribute capital in kind to the trusts. The trusts that are incorporated exclusively for the realisation of a certain infrastructure investment may also contribute certain tangible and intangible assets (excluding real property) as capital in kind with the decision of the Board.
Once the Draft Communiqué is enacted, the capital required for the infrastructure investments will be dispersed. The Draft Communiqué requires that at least 49% of the issued capital of the infrastructure companies is offered to sophisticated investors, to previously determined investors or to the public. Timing of the offer diversifies in accordance with the amount of the share capital. The offer will be actualised two years after registration of the portfolio management licence with the relevant trade registry, if the issued share capital of the infrastructure company is less than TL200 billion. However, if the share capital is TL200 billion or more, the offer will be actualised four years after its registration.
According to the provisions of the Draft Communiqué, the trusts are obliged to insure their entire portfolio against all losses and damages at the fair market value of the infrastructure portfolio.
With respect to the collaterals to be granted over the portfolio, the Draft Communiqué provides certain limitations. Placing a pledge or a mortgage over the infrastructure investment, over the services in the portfolio, or establishing other real rights over them is possible only if such collateral is provided for the financing of the infrastructure project in the portfolio.
The trusts may also obtain loans from financing institutions, but the amount of the loan may not exceed three times the value of the assets included in the trust's most recent quarterly portfolio table, that is disclosed to the public and investors at the end of each financial year.
The trusts should determine the fair market value of the infrastructure investments in their portfolios on a yearly basis.
Through the enactment of the Draft Communiqué and the application of the new system provided within its scope, infrastructure needs will be met without imposing a financial burden on the public budget. The capital requirement for infrastructure investment companies will be dispersed by the public offer. Capital market instruments will be diversified. Investing in infrastructure projects will be more attractive for foreign investors who are not comfortable with infrastructure investments because of their lack of technical and legislative knowledge on the issue, as activities will be conducted under the supervision of the Board through infrastructure investment companies.
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