The Council of Ministers has recently issued a Regulation on Liability Undertakings to be Performed by the Undersecretariat of Treasury (“Regulation”).
According to the Regulation, (i) build-operate and transfer projects with a minimum investment amount of TRY 1,000,000,000 and (ii) build-lease and transfer projects with a minimum investment amount of TRY 500,000,000 (“Projects”) can now benefit from the liability undertaking which will be provided by the Undersecretariat of Treasury (“Undersecretariat”).
The first step towards this liability undertaking was taken during the acceptance of the Budget Law for the Year 2014 (“Budget Law”). According to the Budget Law, the limit for the Undersecretariat to provide a liability undertaking has been determined as USD 3,000,000,000.
The Regulation provides that the Undersecretariat will act as guarantor of the borrower companies and compensate the creditors in case the borrower company defaults on the loan from the creditor to finance the project.
In order to benefit from this liability undertaking, the shareholders of that company will need to provide a joint and several surety to the Undersecretariat which needs to be at least %10 higher than the highest installment under the payment plan agreed between the borrower and the creditor.
For example, if the highest installment under the payment plan is USD 50,000,000, then the surety to be provided by the shareholders to the Undersecretariat will have to be USD 55,000,000.
Moreover, the Regulation provides that the following conditions must be met in order to benefit from this liability undertaking:
- The agreement executed between the company and the relevant administration regarding the Projects must contemplate that (i) the agreement shall be terminated prior to the end of its term, (ii) the facilities subject to the agreement shall be transferred to the relevant administration and (iii) that the loan should be assumed by the Undersecretariat;
- The administration requesting the liability undertaking shall have no overdue liabilities before the Undersecretariat; and
- The limit of liability undertaking set forth for that year has not been exceeded.
As mentioned above, the limit of undertaking for 2014 has been set as USD 3,000,000,000. This being said, the Regulation provides that the Council of Ministers is authorized to increase this limit up to USD 6,000,000,000.
Finally, it is important to note that the tenders which have been announced before January 01, 2014 will be exempted from the abovementioned monetary limit.
