1. Introduction
Project finance has been one of the driving forces behind Turkey’s infrastructure and energy development for the last three decades. From highways and airports to renewable power plants and public hospitals, Turkey has relied heavily on structured project financing to attract both local and international capital.
In contrast to corporate lending, project finance is cash-flow–based: lenders primarily depend on the project’s future revenues and the enforceability of security interests rather than the balance sheet of sponsors. This makes the legal framework for securities, step-in rights, and creditor protection crucial to determining the bankability of a Turkish project.
Turkey’s legal system — rooted in civil law principles — provides a comprehensive but sometimes formalistic structure for creating, registering, and enforcing security rights. The following sections explain the core legal instruments, typical security package components, and creditor positions under Turkish law.
2. Legal Framework Governing Project Finance in Turkey
2.1. Core Legislation
Turkey does not have a single codified “Project Finance Law.” Instead, project financings are governed by a combination of general and sector-specific regulations:
- Turkish Civil Code (TCC) – forms the backbone for property rights, mortgages, and pledges.
- Turkish Code of Obligations (TCO) – regulates contractual guarantees, suretyship, assignments, and undertakings.
- Turkish Commercial Code (TTK) – governs corporate structures, share pledges, and corporate resolutions of the SPV.
- Banking Law No. 5411 – regulates credit transactions, security agent structures, and financial institutions.
- Law on Pledge over Movable Assets in Commercial Transactions (No. 6750) – modernizes pledges on movables and receivables through electronic registration.
- Execution and Bankruptcy Law (EBL No. 2004) – defines enforcement procedures and creditor ranking in insolvency.
- Capital Markets Law (CML No. 6362) – relevant for projects financed via bonds or capital markets instruments.
Additionally, sector-specific statutes apply in PPP or BOT projects, such as:
- Law No. 3996 (Build-Operate-Transfer Projects),
- Law No. 6428 (Healthcare PPPs), and
- Electricity Market Law No. 6446, governing energy generation licences.
3. Project Company and Transaction Structure
3.1. Establishment of the SPV
A Special Purpose Vehicle (SPV) is the project company that holds all contractual rights, assets, and licences. Typically formed as a joint-stock company (Anonim Şirket – A.Ş.), it allows for share pledges and flexible governance.
The SPV enters into the key project documents:
- EPC (Engineering, Procurement, Construction) Contract,
- O&M (Operation & Maintenance) Agreement,
- Concession or Implementation Agreement (in PPPs),
- Offtake or capacity agreements, and
- Financing documents with lenders.
3.2. Non-Recourse and Limited Recourse Financing
In Turkish project finance, lenders have limited or non-recourse rights against sponsors. Their main protection lies in the security package and project cash flows. Sponsors are typically only liable for:
- Equity contributions,
- Cost overruns (through completion guarantees), and
- Certain capped liabilities.
This structure isolates project risk from sponsor risk and ensures the project’s sustainability even in insolvency scenarios.
4. Typical Security Package Components
A well-designed Turkish project finance security package aims to cover every valuable right or asset of the project company. The structure typically includes:
- Mortgage over immovable property,
- Pledge over movable assets,
- Assignment of receivables,
- Pledge over project company shares,
- Pledge over bank accounts,
- Assignment of insurance proceeds,
- Step-in and direct agreements, and
- Sponsor guarantees or support letters.
Each security interest is subject to strict perfection rules under Turkish law. Non-compliance with formalities (e.g., registration, notarization) can render a security unenforceable against third parties.
5. Mortgages over Immovable Assets
5.1. Creation and Perfection
Mortgages (“ipotek”) are created by signing a mortgage deed before the Land Registry Office and registering it in the title deed records. They secure a maximum amount, which must be clearly stated in Turkish Lira even if the loan is denominated in a foreign currency.
A mortgage can secure:
- Existing debts,
- Future debts, or
- Conditional obligations.
5.2. Ranking and Enforcement
The ranking (derece) of mortgages determines payment priority in enforcement. In the event of borrower default, the mortgagee may initiate foreclosure proceedings under the EBL. While enforcement can be time-consuming, properly registered mortgages provide strong protection to creditors.
6. Pledge over Movable Property and Receivables
6.1. Modern Framework under Law No. 6750
The Movable Pledge Law (2017) revolutionized Turkish secured transactions by allowing pledges over:
- Machinery and equipment,
- Receivables,
- IP rights,
- Licences and permits, and
- Commercial undertakings.
These pledges are perfected through registration in the Movable Pledge Registry (TARES), eliminating the previous requirement of transferring possession.
6.2. Scope and Enforcement
The pledge agreement must:
- Be in writing,
- Specify the pledged assets, and
- Be registered electronically.
If the debtor defaults, the creditor can request transfer of ownership, sale through auction, or direct collection of receivables. Turkish courts uphold these rights if the pledge is properly perfected.
7. Assignment of Receivables and Contractual Rights
In project finance, lenders seek control over the revenue stream. The SPV typically assigns to lenders:
- Receivables from the offtaker,
- Availability or capacity payments,
- Termination compensation, and
- Insurance proceeds.
Assignments can be absolute or collateral in nature. Under the TCO, a valid assignment requires:
- A written agreement, and
- Notification to the debtor (offtaker) to make it effective against third parties.
Assignments are usually irrevocable and continue until full repayment of the debt.
8. Pledge over Bank Accounts
Lenders require full control over the SPV’s cash flow waterfall through pledged accounts. These include:
- Collection Account,
- Debt Service Reserve Account,
- O&M Account,
- Distribution Account.
Under Turkish law, account pledges are executed by written agreement and perfected by notifying the account bank. In practice, lenders often require the account bank to sign an acknowledgment letter confirming subordination to lender instructions.
9. Share Pledge over the Project Company
Share pledges are crucial for step-in control.
- For joint-stock companies (A.Ş.), the pledge is established by endorsement and delivery of share certificates (if issued) or registration in the share ledger.
- For limited liability companies (Ltd. Şti.), the pledge requires notarized agreements and registration in the trade registry.
Lenders prefer A.Ş. structures due to easier transferability and enforcement of pledged shares. In case of default, lenders may either sell the shares or exercise voting rights to replace management.
10. Direct Agreements and Step-In Rights
In major PPP and energy projects, lenders execute direct agreements with the grantor or offtaker (often a government entity). These agreements typically grant:
- Notice and cure rights,
- Step-in rights (allowing lenders to replace the operator or take over the project), and
- Restrictions on termination without lender consent.
Turkish administrative authorities increasingly accept such mechanisms, especially in Build-Operate-Transfer and City Hospital PPP projects. This bridges international practice with Turkish administrative law principles.
11. Guarantees and Support Undertakings
While project finance aims for non-recourse lending, sponsors often provide:
- Completion guarantees (covering cost overruns or delays),
- Equity support undertakings, or
- Debt service guarantees during the early operation period.
Under Turkish law, guarantees can take the form of:
- Suretyship (kefalet) under the TCO (personal and accessory), or
- Independent guarantees, including bank letters of guarantee, which are autonomous and widely accepted.
Independent guarantees are preferred for their on-demand enforceability.
12. Intercreditor and Security Agency Structures
Large-scale projects typically involve multiple financiers: commercial banks, DFIs, ECAs, and bondholders. To coordinate enforcement and voting, parties adopt intercreditor agreements defining:
- Ranking (senior/junior),
- Voting thresholds, and
- Enforcement mechanics.
Because Turkish law does not formally recognize a trust, parallel debt or security-agent structures are used to ensure that the security agent can hold and enforce securities for all lenders collectively.
13. Enforcement and Insolvency Procedures
13.1. Default and Acceleration
Upon an event of default, lenders may:
- Accelerate the loan,
- Enforce security rights, and
- Take over the project through share pledges or step-in rights.
13.2. Enforcement Mechanisms
Depending on the asset type:
- Mortgages → Foreclosure before the Execution Office,
- Movable Pledges → Sale, assignment, or ownership transfer through TARES,
- Receivable Assignments → Direct collection from the debtor.
Turkish law provides judicial protection but enforcement can be procedurally lengthy unless lenders use expedited mechanisms like contractual power of sale under the Movable Pledge Law.
13.3. Insolvency and Creditor Ranking
If the SPV becomes insolvent:
- Secured creditors are paid from the proceeds of collateral sales,
- Unsecured creditors share remaining assets proportionally, and
- Subordinated lenders or sponsors rank last.
Properly perfected security rights remain enforceable even during bankruptcy, though enforcement may be stayed temporarily by court order.
14. Foreign Lenders and Security Enforcement
Foreign lenders can hold and enforce Turkish securities directly. However, certain practical points apply:
- Security documents must be in Turkish (or bilingual with Turkish prevailing).
- Registration fees and notary costs are payable in Turkish Lira.
- Enforcement proceedings occur before Turkish execution offices or courts.
- Foreign arbitral awards on financial disputes can be recognized under the New York Convention or Law No. 5718 on International Private Law.
Cross-border lenders typically appoint a Turkish security agent to hold local securities.
15. Public-Private Partnership (PPP) Context
Turkey’s PPP model, particularly in energy, transport, and healthcare, depends on complex project finance structures backed by state guarantees.
For example:
- City Hospital PPPs feature availability payments from the Ministry of Health.
- Airport and motorway concessions operate under long-term BOT contracts.
- Renewable energy projects benefit from feed-in tariffs and license guarantees.
These projects integrate direct agreements, step-in clauses, and sovereign undertakings that increase lender confidence.
16. Emerging Trends in Turkish Project Finance
16.1. Renewable Energy and Green Finance
Turkey’s energy transition agenda has made green finance and ESG-linked loans a key trend. Lenders increasingly require:
- Environmental impact compliance,
- Sustainability-linked covenants, and
- ESG reporting from SPVs.
16.2. Islamic Project Finance
Sukuk (Islamic bonds) and murabaha structures are being used in renewable and infrastructure projects. Turkish law accommodates Islamic finance structures through participation banks regulated under the Banking Law.
16.3. Refinancing and Secondary Markets
As projects mature, sponsors seek refinancing through capital markets or foreign institutional investors. Proper structuring of initial security interests ensures smooth transfer and refinancing of facilities.
17. Tax and Regulatory Considerations
- Stamp Tax: Security and loan documents are subject to stamp tax unless executed abroad or exempted.
- Foreign Exchange Controls: Foreign currency loans are permitted under certain Ministry of Treasury regulations.
- Registration Fees: Mortgages and pledges incur registry costs proportional to secured amounts.
- Withholding Tax: May apply to interest payments to non-resident lenders depending on treaty provisions.
Tax-efficient structuring remains an integral part of legal due diligence.
18. Conclusion
Project finance in Turkey continues to evolve as one of the most sophisticated financing mechanisms in the region. The robust security framework, experienced banking sector, and PPP-driven infrastructure pipeline make Turkey a preferred jurisdiction for long-term investors.
For lenders, the strength of the security package, clarity of enforcement rights, and alignment with Turkish formalities determine real recoverability. Properly structured projects—with bilingual documentation, perfected securities, and compliant corporate governance—remain bankable and enforceable even under stress scenarios.
As Turkey expands its focus on renewables, logistics, digital infrastructure, and energy transition, the role of carefully designed project finance structures will only deepen, supported by evolving legislation and an increasingly investor-friendly legal environment.
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