Turkey: Turkey Introduces Sovereign Wealth Fund

I. Introduction

This note evaluates the Turkish Sovereign Wealth Fund Management Joint Stock Company (the "Company")¹ and the wealth fund (the "Wealth Fund") that will be established by the Company.

II. Explanations

The relevant Law² came into effect on 26 August 2016 with its publication in the Official Gazette. With the Wealth Fund that will be incorporated by the Company, it is aimed to (i) contribute to the variety and depth of capital market instruments; (ii) evaluate the country's national public assets within the economy; (iii) obtain foreign funding; and (iv) participate in strategic and large-scale investments.

The Company will be incorporated with TRY 50 million of capital. Such capital will be provided by the Privatisation Fund and the shares will be owned by the Privatisation Administration. Although it is stated that all the shares of the Company will be owned by the Privatisation Administration, it is also foreseen that the Company will be incorporated in compliance with the rules of private law, managed professionally and exempted from many regulations which apply to public corporations. Accordingly, it is regulated by the Law that the Company and the Wealth Fund (and the companies and sub-funds that will be incorporated by the Company) are not subject to regulations or restrictions that are relevant to public institutions, entities and cooperatives, which have more than half of their capital owned by the public, including state economic enterprises.

The Company's activities will be as follows: (i) the sale and purchase of shares of domestic and foreign companies, shares and debt instruments of issuers incorporated in Turkey and abroad, capital markets instruments based on precious metals and goods, fund participation shares, derivate instruments, lease certificates, certificates of immovable properties, tailor made foreign investment instruments and other instruments; (ii) any kind of money market transactions; (iii) the evaluation of real estates, the rights based on real estates and all kinds of intangible rights; (iv) any kind of project development, funding based on project, providing project loan, transactions of funding with other methods; and (v) any and all commercial and financial transactions, in both the national and international primary and secondary markets. The Company is also authorised to engage in investments that are made by other governments and/or foreign companies in the international field.

According to the Law, it is expected that the Wealth Fund, which is planned to be incorporated in order to support the financial stability of the economy, becomes an important actor of the capital markets. According to research conducted, it has been observed that the disposals within the capital markets are not sufficient and the tendency is on the axis of precious metals and real estates, although there has been some increase in retirement portfolios with the government backed incentives program. As regards the Company, it is foreseen that a portfolio management unit, a research unit, accounting, registration, information and documentation systems, an organisation that will provide a stable course of business, communication, internal control and a risk management systems and an internal audit unit, a fund service unit, and other necessary units shall be established. A professional management of the Company is also aimed at by having the chair and the members of the board consist of at least five persons and a general director with at least five years of experience in economy, finance, law, treasury or banking. As the Company to be incorporated by the Law will also be subject to the corporate governance regulations within the scope of the Capital Markets Law³, the Company will be acting within the framework of a regulated system which is expected to provide confidence to investors.

The Company, any other company to be incorporated by the Company, the Wealth Fund and the sub-funds that are incorporated within the Wealth Fund are subject to independent audit standards. On that note, the Law ensures that the Company will be audited pursuant to the independent audit standards by at least three central audit members who are specialised in the fields of capital markets, finance, economy, treasury, banking, development and assigned by the Prime Minister, and the report that is created as a result of the audit will be presented to the Council of Ministers every year. In addition to this, the Law regulates that the previous year's financial statements and the transactions of these entities shall be audited every year in October by the Turkish Grand National Assembly Planning and the Budget and Planning Commission.

It is stated by the Law that, the assets of the Wealth Fund and the Company are separated from each other and the Company's debts and obligations towards third parties cannot be deducted from the receivables of the Wealth Fund. In addition to this differentiation, it is regulated that the assets of the Wealth Fund cannot be secured, disposed for any other purpose or seized except in certain limited cases.

The Law introduces a wide variety of exemptions and exceptions for the Company, Wealth Fund and any other company to be established by the Company and the sub-funds, such as stamp duty and tax exemptions. Additionally, the Law on the Implementation of Privatisations⁴ and the Law of Regulating Public Finance and Debt Management⁵ (which impose stringent conditions for certain transactions to be followed by entities that come within the scope of these laws) are not applicable. The intention is that a certain freedom of action is provided to the Company and the Wealth Fund (as is the case for private law companies) so that financing can easily be obtained from foreign countries and other organisations and entities.

Footnotes

1. This will be established within the scope of the Law on the Incorporation of the Turkish Sovereign Wealth Fund Management Joint Stock Company and the Amendments in Other Laws numbered 6741.

2. The Incorporation of the Turkish Sovereign Wealth Fund Management Joint Stock Company and the Amendments in Other Laws numbered 6741 and published in the Official Gazette numbered 29813 and dated 26 August 2016.

3. The Capital Markets Law is numbered 6362 published in the Official Gazette numbered 28513 and dated 30 December 2012.

4. The Law on the Implementation of Privatisations is numbered 4046 published in the Official Gazette numbered 22124 and dated 27 November 1994.

5. The Law of Regulating Public Finance and Debt Management is numbered 4749 published in the Official Gazette numbered 24721 and dated 9 April 2002.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.