Translated version of this PSD: Turkish
The Bank is considering the Turkish lira Corporate Bond Framework (Framework) to facilitate the development of the local currency corporate bond market in Turkey and support longer-tenor fixed and floating rate issuances. By providing a strong demonstration effect, it is expected to expand the universe of domestic investors, extend the average tenor of bonds (currently the average maturity of issuances is two years); and support first time issuers in the market.
The framework will be invested in unsecured and secured local currency corporate bond debt instruments with maturities not less than two years issued by Turkish corporates (excluding banks and non-bank financial institutions) in Turkey.
Successful placement of local currency bonds under the framework will help Turkish corporates diversify their funding sources by encouraging them to tap into the local currency corporate bond market. The Bank's participation will send a strong signal to private participants in the market as well as international investors on the sustainability of medium term local currency bonds in Turkey.
The framework will also help Turkish corporates to reduce the FX risk on their balance sheets by replacing some of their FX loans with local currency bonds.
The transition impact of the framework will be derived from three main sources:
1. Demonstration effects of new ways of financing. The framework aims to demonstrate the viability of the local currency bond financing for a broader range of Turkish corporates. While the Turkish corporate sector is well versed in bank financing, bond financing, particularly for smaller corporates and with long tenors are relatively scarce in comparison with the size and potential of the market. The bonds will also provide long-term investment options for institutional investors
thereby broadening the investor base for the capital markets.
2. Market expansion. The local currency corporate bond market has substantial potential for further development particularly with respect to providing finance for longer maturities and hedgeable floating rate indices development. There is also very limited liquidity in the market in terms of trading volume which could be helped by the expansion of the presently limited investor base as well as increased disclosure requirements.
3. Standards for governance and corporate behaviour. While currently there are basic requirements for disclosure for local currency bond issues, there is room for improvement towards international standards. The local currency corporate bond issues supported as part of this framework will aim to increase secondary market activity as higher levels of disclosure will encourage more investors to enter the market.
The framework will be available for local currency bonds issued by Turkish corporates (excluding banks and non-bank financial institutions, e.g. factoring, leasing companies). The framework will not concentrate on a specific set of corporates (i.e. by size, business activity and sector) but may be available for various sectors and various companies (from mid-size to large caps, from public companies to private companies).
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The framework itself is not categorised but rather each sub-project will be categorised on a case by case basis. Sub-projects categorised as A are likely to be difficult to be financed with bond proceeds, because the nature of capital market transactions, particularly in terms of timing, may prevent these projects from fully complying with the Bank's Environmental and Social Policy and the Public Information Policy, specifically the need for an Environmental and Social Impact Assessment to be disclosed for 60 days prior to consideration by the board of directors.
The environmental and social due diligence (ESDD) for each sub-project will be determined on the basis of the specific use of proceeds, especially where this involves investment projects. Environmental and Social Action Plans will need to be agreed with the respective bond issuers to structure the sub-projects in line with the Bank's performance requirements. The environmental and social performance of each sub-project will need to be reported to the Bank on an annual basis.
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