Lease Certificate, which is widely referred to as Sukuk globally, is a security that grants the right to own or utilize an asset in conformity with interest-free financing principles. In this definition, “right” refers to all and any rights backed by the issue of the lease certificate, and “asset” expresses all and any assets other than such rights.
Lease certificates were created by adapting İcara Sukuk, the most popular form of Sukuk on the international markets, to the Turkish capital markets. Lease certificates, also known as interest-free bonds, generate fixed or variable returns to investors periodically and they can be traded in the secondary market.
Lease certificates are issued by Asset Leasing Companies (ALCs) and they can be issued for sales with or without public offering. There are two ways to sell lease certificates without public offering; private placement and sales to qualified investors.
Asset Lease Companies (ALCs) can be established as per a license from Capital Markets Board (CMB) in the form of a joint-stock company by i) banks; ii) brokerage firms which conduct either portfolio intermediation, general custodian services or underwriting; iii) mortgage financing firms; iv) real estate investment trusts whose shares are traded on the stock exchange; v) publicly-held joint-stock companies that belong to the first and second group determined according to the regulation by CMB on corporate governance; vi) joint-stock companies that have received a long-term rating corresponding to an investment level in the currency of the issue according to the credit rating scale from the rating agencies upon request; vii) joint-stock companies more than 51% of whose capital is directly owned by the Undersecretariat of Treasury.
Lease certificates issued by ALCs are monitored at the Central Registry Agency (MKK) on beneficiary basis in dematerialized form and electronically.
Pursuant to Turkish law, there are five types of lease certificates including ownership, management contract, trading, partnership, and work of art contract, and collective use thereof is allowed.
- Lease certificates backed by ownership are issued to be sublet to the originator or third persons or managed on behalf of the asset lease company. They provide financing for the assets and rights that an ALC will take over from the originator.
- Lease certificates backed by management contract are issued for the purposes including subletting the assets or rights owned by the originator during the lease period. They transfer the proceeds generated from the managing of the assets on behalf of the asset lease company, as required by the contract provisions, to the asset lease company.
- Lease certificates backed by trading are issued in the event that an asset or right is acquired by an asset lease company and sold, on deferred basis, to companies that meet certain criteria. They provide financing for the acquisition of such asset or right.
- Lease certificates backed by partnership are issued in order that the asset lease company becomes a partner of the joint venture.
- Lease certificates backed by a contract on a work of art are issued in order to finance the creation of such work of art, to which the asset lease company is party as the owner of such work.
