Regulation Amending the Regulation on Debt Assumption by The Undersecretariat of Treasury has been published on the Official Gazette dated 25 December 2019 and numbered 30989 (“Amendment Regulation”). The Amendment Regulation introduced certain significant changes in debt assumption principles governed under the Regulation on Debt Assumption by The Undersecretariat of Treasury published on the Official Gazette dated 19 April 2014 and numbered 28977 (“Debt Assumption Regulation”) while amended the references made to the public authorities that are involved in debt undertaking process due to the changes in the Turkish administrative organization.

Article 4 (2) of the Debt Assumption Regulation which governs the coverage of debt assumption undertaking by the Ministry of Treasury and Finance has been amended to provide for assumption of 100% of the senior loan, even if the contract is terminated due to the fault of the appointed company. Prior to the amendment, the debt assumption undertakings were covering:

• 85% of the principal amount of the senior loan, if the implementation contract terminates due to the fault of the appointed company;
• 100% of the principal amount of the senior loan, if the implementation contract terminates due to any reason other than the fault of the appointed company; and
• in either case, all of the financing costs.

The amended Article 4 (2) of the Debt Assumption Regulation set forth that, regardless of the reason for termination of the contract, the debt assumption undertaking will be given to cover 100% of the principal amount of the senior loan and all of the financing costs. While giving coverage to 100% of the principal amount of the senior loan in all termination cases, the Amendment Regulation also changes the mandatory debt to equity ratio sought for in the projects. The Decree on Principles and Procedures of Implementation of Law No. 3996 on Realization of Certain Investments and Services Through Build-Operate-Transfer Model states that the equity (özkaynak) to be provided for the investments and services to be realized by the companies is required to be not less than 20% of the total investment amount.  However, under the amended Article 4 (2) of the Debt Assumption Regulation, the equity (özkaynak) to be allocated for the investments and services to be realized by the appointed companies is required to be not less than 30% of the total investment amount throughout the term of the contract (which covers both investment and operation periods).  

Pursuant to the Amendment Regulation, the amendments made in the Debt Assumption Regulation become effective as of the date that the Amendment Regulation has been published on the Official Gazette (i.e. 25 December 2019). Thus, the projects to be announced after 25 December 2019 will be able to benefit from 100% assumption of senior loan in all termination cases subject to a higher debt to equity (özkaynak) ratio. That being said, the legislator introduced a separate provisional article to the Debt Assumption Regulation (Provisional Article 3) governing the applicability of the amended Article 4 (2) to those projects for which a debt assumption undertaking has already been provided.

According to new Provisional Article 3, the amendments made in Article 4 (2) of the Debt Assumption Regulation providing for 100% assumption of the senior loan in all termination cases will not apply to those projects tender announcements of which were published prior to the date of enactment of Article 8/A of the Public Finance and Debt Management Law No 4749 (“Law No.4749”) (i.e. 1 January 2014). This is parallel with the regime introduced through Provisional Article 1 of the Debt Assumption Regulation which provides an exception to the application of partial debt assumption undertaking (i.e. 85% - 100%) to those projects for which a tender announcement has been published prior to the date of enactment of Article 8/A of Law No. 4749. Such projects will not be subject to a higher equity (özkaynak) ratio, even if they are  benefitting from a 100% debt assumption undertaking coverage.

Those projects for which a debt assumption undertaking has already been provided prior to 25 December 2019 and which have been announced after 1 January 2014, the amended Article 4 (2) providing for 100% assumption of senior loan in all termination cases and higher equity (özkaynak) ratio requirement will be applicable to the new debt assumption agreements that will be signed after the date of the enactment of the Amendment Regulation. 

The Amendment Regulation also makes changes to public authorities referred to under the Debt Assumption Regulation. As a continuation of the legislative amendments made following the referendum held in Turkey on April 16, 2017 which resulted in changes in the Turkish administrative organization, the references made to (i) Undersecretariat of Treasury; and (ii) Council of Ministers throughout the Debt Assumption Regulation have been amended. Accordingly, the references made to the “Undersecretariat of Treasury” have been replaced with the “Ministry of Treasury and Finance” while references made to the “Council of Ministers” have been replaced with the “President of the Republic”.