Since the failed coup d’état of July 2016 (CNN), Turkey has undergone significant constitutional changehalted accession talks with the European Union and seen its sovereign debt downgradedto “junk status” (Reuters).

In August 2018, the Financial Times reported that PresidentRecep Tayyip Erdoğan was calling on Turks to boycott Apple iPhones and to convert their dollars and "gold under the pillow" to Lira in the face of the currency reaching record lows after Donald Trump imposed sanctions on Turkey in a bid to free detained American pastor Andrew Brunson. Lira hasdeclined almost 40% against the dollar since the start of the year, creating pressure for Turkish companies that have foreign currency loans and concern for the Turkish banking sector. The Turkish Central Bank responded by raising interest rates to 24% on 13 September in an effort to stem the currency crisis.

Berat Albayrak, Turkey's Treasury and Finance Minister announced on 27 September 2018 that the government plans to work with international management firm McKinsey & Company to reform Turkey's economic administration and analyse progress in reaching the targets set by the New Economic Programme. The Programme is a three year road map of fundamental economic policies and projections aimed at providing a path to success for Turkey's economy and stimulating foreign investment.



Turkish corporates often borrow in foreign currency due to the low interest rate policies of the European Central Bank and the Federal Reserve, although their revenues are in Turkish Lira. Lenders are mostly domestic banks but European banks, including BBVA, Unicredit, ING and HSBC are also exposed to Turkey's economy. Click here for Reuters' report on European bank exposure.

Early in 2018, the Turkish Council of Ministers approved the proposal of the Undersecretariat of Treasury (Hazine Müsteşarlığı) to amend Decree No. 32 on the Protection of the Value of the Turkish Currency (“Decree No. 32”). The amendments came into force on 2 May 2018 and borrowing activities of Turkish borrowers (resident individuals or legal persons) in foreign currency (such as in USD or EUR) became subject to more strict conditions.

Turkish companies, which finance their businesses in other currencies than Turkish Lira but do not generate sufficient or any FX revenues, will face practical difficulties to repay.

Under Decree No. 32, Turkish borrowers are now permitted toborrow in foreign currency only if they also generate foreign currency revenues.

Subject to certain exceptions (including banks, public institutions, financial leasing companies and financing companies), if a Turkish legal entity generates foreign currency revenues and has an outstanding loan balance of less thanUSD 15m at the date of the loan utilisation, the total of the borrower’s existing loan balance and the FX loan planned to be utilised must not exceed the foreign currency revenues of the last three years. If this threshold is exceeded, the excess will be called back or converted into a Turkish Lira loan.



The Turkish legal system is a civil law legal system which has its origins in the 20th century when the modern Republic of Turkey was founded in 1923. It is influenced by many different civil law legal systems; the private law (civil and commercial codes) is mainly influenced by the German and Swiss legal systems, and the constitutional and public law is mainly influenced by the French legal system.

As a country seeking EU membership, Turkey has aligned a majority of its national laws with those of the EU, including its commercial, company, and competition laws. Besides these similarities to the European legal systems, Turkish law also has many unique points which have their origins in customs.

On a constitutional level, Turkey has recently become a sui generis presidential system following the elections of June 2018. This resulted in the president becoming the head of the executive governmental branch. Previously the prime minister held the executive power in the parliamentary democratic system and the president’s office had a mere symbolic role.

As a result of the switch to the presidential system, the president now has a monopoly in the executive governmental branch and can govern by passing presidential decrees, although the parliament still remains as the constitutional legislative governmental branch. 



We appreciate the assistance of Dr. H. Erdem Şişmangil, LL.M. at Heuking Kühn Lüer Wojtek with the following discussion of Turkish law, regulation and practice.



  • A banking licence may be required. This should be reviewed on a case-by-case basis with Turkish counsel and/or the Banking Regulation and Supervision Agency (the “BRSA”).
  • LMA form of funded participation is unlikely to require a banking licence if only a single or small number of loans are being transferred (i.e. not a portfolio of loans).
  • Accessory security (i.e. share pledge or mortgage) follows the debt, whereas, non-accessory security (i.e. guarantee) must be transferred separately.
  • English law novation may extinguish accessory security so is not advised.



In general, Turkish banking regulations apply if the banking business in question has a Turkish nexus such as a targeted approach to the Turkish market by promoting, marketing or otherwise soliciting financial services and/or products in Turkey. This should be reviewed on an individual basis by consulting with the BRSA. There are indications that the BRSA would prefer that debt trading activity is licenced in Turkey.

An acquisition of loans by way of a "true sale" (involving the transfer of legal or beneficial title) may qualify as factoring or an asset management activity which would require a licence from the BRSA if carried out commercially.



A loan can be transferred by way of (i) assignment of receivables, (ii) assumption of debt or (iii) transfer of contract.

Assignment of receivables is similar to the English law concept of assignment. Borrower consent is not required unless otherwise required by law or the terms of the contract. However, it is recommended to notify the debtor of the assignment in order to prevent any payments being made by the debtor to the previous creditor.

Assumption of debt or transfer of contract are methods used in Turkey to transfer both the rights and obligations under a loan facility. These methods require both the old debtor's and the creditor's prior consent for its validity. In the event of a valid assumption of the debt, the accessory security will also be transferred to the new lender/creditor but any non-accessory security will have to be transferred separately.

Novation as a concept does not exist in Turkey. An English law novation would cause any accessory security to be extinguished.

Participation agreements are not expressly recognised under Turkish law or practice. However, the LMA form of funded participation agreement may not require a banking or asset management licence if such participation agreement is in respect of only a small number of loans. A Loan Syndicated Trading Association ("LSTA") is more likely to require a banking or asset management licence as it is a "true-sale" contract with the beneficial interest being transferred.



new lender has to become a creditor under the existing loan and security document in order to benefit from existing security. Accessory security rights (such as a share pledge or mortgage) follow the debt, whereas, non-accessory collateral (such as a guarantee) must be transferred separately. It is advisable when assigning a guarantee separately to notify such assignment to the guarantor.

English law concepts of trust and agency are not recognised under Turkish law.

Some syndicated loan transactions in Turkey utilise agency-like aspects whereby a Turkish or foreign bank acts as security agent as the representative of the syndicate of lenders. However, such security arrangements need to be executed by all lenders who are required to become beneficiaries to the security package.

There are alternative structures utilised in Turkey depending on whether the debt will be retained on the books of the existing lenders or transferred to a third party. If the loan will not be transferred, pro rata security arrangements could be considered where lenders are expressly named and become a party to the security package. If the loan is planned to be transferred, parallel debt structures or abstract acknowledgement of the debt by the borrower in favour of trust may also be used. It is not thought that the abstract acknowledgement of debt or parallel debt mechanisms have been tested before the Turkish courts, although they are widely used in practice.



The tax treatment of the foreign NPL business depends on whether it will be regarded as a licence-exempt businesswhich can be conducted cross-border, or as a domestic asset management business with a BRSA licence. In this respect, individual tax advice should be sought on a case-by-case basis. Turkey has introduced certain tax exemptions for domestic asset management companies in an effort to attract foreign investors to become licenced asset management companies.



Accessory security which automatically follows the transfer of the loan must be notified to the public registers where such security interests are registered or to relevant third parties (such as the movable pledge registry where the movable pledge is registered, the bank holding the pledge bank account, the debtors of the borrower for which the receivables of the borrower were assigned to the lenders or the land registry where the mortgaged property is registered). Furthermore, it should be ensured that certain securities are registered in the relevant registry (such as the land registry).


ASTALDI SpA ("Astaldi")

Astaldi, Italy's second largest construction company withEUR 2.69bn of debt, filed forconcordato preventivo 'con riserva' in the Court of Rome on 28 September 2018 as Turkey's economic crisis delayed the sale of its 33% stake in the Third Bosphorus Bridge. The concordato preventivo procedure under Article 161 of the Italian Insolvency Law provides Astaldi with a timeframe of up to 6 months (as determined by the court) to present a debt plan to lenders and imposes a standstill on interest and debt repayments.

Click here for the Astaldi Press Release.

FOLLI FOLLIE S.A. (“Folli Follie”)

Reuters reports that on 12 September 2018 Folli Follie successfully obtained a two month extension from a Greek court to a temporary injunction protecting its assets.

On 26 September, the company announced that Alvarez & Marsal's report on the FF Asia Group found that revenue in 2017 was USD 116.8m as opposed to USD 1.1bn previously reported by Folli Follie in its financial statements, and it had a loss of USD 44.7m, as compared to reported profits of USD 316.4m.

The President and founders Demitrios and Ekaterini Koutsolioutsou resigned from the board on 26 September 2018.


Bloomberg reported on 17 September 2018 that Actis Capital’s USD 1 bid for the Middle East and North Africa private equity operations ofAbraaj is favoured by fund investors

Bids have already been finalised by Brookfield Asset Management Inc. to buy Abraaj’s Turkish private equity funds, with Colony Capital Inc.as the favourite for their Latin America funds. Meanwhile,Reuters reported on 15 September 2018 that Abu Dhabi Financial Group has set aside USD 6m for a full forensic audit and a USD 10m credit facility to fund the operations as part of their revised bid.


GKP announced its half year results for 2018, where GKP pre-tax profits have increased to USD 26.5m from USD 619,000for the same period in 2017. GKP’s revenues have also increased from USD 78.3m toUSD 116.2m.

Reuters reported on 10 September 2018 that GKP is resuming spending on the Shaikan oilfield in the Iraqi region of Kurdistan and is targeting production output from the oilfield of 55,000 barrels per day during the second half of 2019; a gross investment of between USD 200m and USD 230m would be required to meet such targets.

Relevant documents:

Half Year 2018 Results Presentation 
Annual General Meeting Presentation 2018 
Annual Report and Accounts 2017


The Economic Times reportedon 20 September 2018 that the Competition Commission of India has approved ArcelorMittal’s revised bid forEssar;  deals beyond certain thresholds under theCompetition Act, 2002 and theCompetition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 require clearance from India’s Competition Commission. ArcelorMittal made its revised Essar bid on 10 September 2018 to pay USD 5.8bn, along with an undertaking to repay its debts to previously related entities Uttam Galva and KSS Petron (Economic Times); although such a bid remainssubject to further approval by India’s Supreme Court as discussed below. However, theBusiness Standard reported on28 September 2018 that NuMetal is preparing to match ArcelorMittal’s bid of USD 5.8bn for the troubled steel giant.

On 27 September 2018the Economic Times reported that the Supreme Court in India has reserved verdict on cross-appeals of NuMetal and ArcelorMittal challenging the National Company Law Tribunal (“NCLAT”) order on 7 September 2018 regarding theeligibility for ArcelorMittal to bid for Essar. ArcelorMittal is disputing the ruling by the NCLAT to only allow its Essar bid if it clears debts of nearly USD 1bn to Uttam Galva and KSS Petron, while NuMetal argues that ArcelorMittal should not be afforded the chance to clear its debts at all. The Supreme Court is due to decide the bidding eligibility aspect of the appeal, whereas the debt settlement issues are to be decided by India’s Committee of Creditors.


On 20 August 2018,ConocoPhillips announcedthat it has entered into a settlement agreement with Petroleos de Venezuela ("PdVSA"), Venezuela's state oil company, to recover approximately USD 2bn, being the full amount awarded to ConocoPhillips by an arbitral tribunal constituted under the rules of the International Chamber of Commerce ("ICC").

PdVSA has agreed to recognise the ICC Judgment and make initial payments of around USD 500m within 90 days of the time of signing. The balance is to be paid quarterly over a period of 4.5 years.

As a result of the settlement, ConocoPhillips has agreed to suspend its legal enforcement actions of the ICC award, including in the Dutch Caribbean.




Opinion No. 2018-05 of The NYC Bar Association published on 30 July 2018 (the "Opinion") considers whether: a lawyer may "enter into a financing agreement with a litigation funder, a non-lawyer, under which the lawyer's future payments to the funder are contingent on the lawyer's receipt of legal fees or on the amount of legal fees received in one or more specific matters."

The Opinion concludes that some forms of fee-sharing arrangements in a litigation financing context violate Rule 5.4(a) of the New York Rules of Professional Conduct -Professional Independence of a Lawyer.

There is precedent to show that New York Courts have upheld litigation funding arrangements as valid. InHamilton Capital VII, LLC, I v. Khorrami, LLP, 48 Misc. 3d 1223(a), 2015 N.Y. Slip. Op. 51199(U), at *9 (Sup. Ct., N.Y. County Aug. 17, 2015) the court explained that “[p]ermitting investors to fund firms by lending money secured by the firm’s accounts receivable helps provide victims their day in court. This laudable goal would be undermined if the Credit Agreement were held to be unenforceable. The court will not do so."

Although Bar Association opinions are not binding on courts, they may nonetheless be persuasive in any future court proceedings.


Louisa Watt

P: +44.20.7851.6141

F: +44.20.7851.6100

Elena S. Rey

P: +44.20.7851.6101

F: +44.20.7851.6100

Samira Javadova

P: +44.20.7851.6081

F: +44.20.7851.6100

Blair M. Rinne

P: +1.617.856.8203

F: +1.617.289.0751