Government Bonds – Private Sector Bonds
Government bonds are government debt securities (GDS) issued by the Undersecretariat of Treasury. Bonds issued by municipalities and public institutions are also deemed government bonds. Private sector bonds are issued by companies to meet their financial needs.
Premium Bonds – Par Bonds
If a bond is issued at its nominal value, it is called a par bond. If a bond is put to sale at a value lower than its nominal value, it is a premium bond.
Lottery Bonds
In order to encourage the sale of bonds, bonuses other than interest and early sale premium can be given. However, in Turkey it is not permitted to provide any benefits to bond holders including cash bonus lotteries, whatsoever, except interest.
Registered - Bearer Bonds
Bonds can be in the form of registered or bearer bonds as with all other securities. However, it is customary in our market to issue bonds as bearer bonds.
Cash Convertible Bonds
Cash convertible bonds can be converted to cash along with the accrued daily interest whenever desired provided that a certain period of time has elapsed since the issue. In some bonds, this opportunity can be used any time, whereas in others, such bonds are included in redemption if a request is submitted to the company to that effect.
Guaranteed - Non-guaranteed Bonds
In guaranteed bonds, the guarantee of a bank or the holding company of the issuer is secured. The guarantee of the bank or the holding covers repayment of principals and interest of the issued bonds at maturity.
Flat - Floating Rate Bonds
Flat-rate bonds guarantee a certain return if they are held until maturity. In the case of flat-interest bonds, the return to be earned by the investor at maturity is known at inception of the term.
Floating-rate bonds protect the investor against excessive volatility in interest rates between inception and expiry of the term especially in highly inflationary periods. The bond interest rate changing according to market condition mitigate the interest risk for the bond holder and enables the issuer to borrow funds on a long term.
Indexed Bonds
In indexed bonds, the principal is increased in proportion to the rate of increase in gold prices or certain exchange rates between the issue date and redemption date, and is paid to the bond holder. Indexed bonds protect the investor against inflation as with the floating-rate bonds.
Preferred Bonds
Companies may give pre-emptive rights to all of the bonds they have issued or a portion thereof to be determined by a draw of lots, or to a certain percentage, or a portion in excess of a certain limit, applicable to the first capital increase to be undertaken in the future. Such bonds are called preferred bonds.
Profit-sharing Bonds
In profit-sharing bonds, issuers may choose one of the following principles in determining the profits for the dividends payable to bond holders:
- In addition to interest, payment of the amount falling onto the bond out of the amount calculated over the dividend percentage determined for the bond series;
- Interest of payment if dividend is less than interest; if the dividend accrued is equal to or higher than the interest earnings, then payment of the dividend;
- Without any interest, payment of the amount falling onto the bond out of the amount calculated over the dividend percentage determined for the bond series.
Profit-sharing bonds are issued on condition to pay principal at maturity, and the payment of principal is not spread over years.
Convertible Bonds (CB)
A convertible bond gives the holder to replace (the bond) with stocks issued by the issuing company to represent the increased capital.
CB’s should have a term no less than 2 years and no more than 7 years. Conversion can be executed no earlier than the end of 2 years after the inception of the term.
Conversion of the bond to a stock may be triggered by the corporation’s request or the request of CB holder.
Stocks which are left to the corporation due to CBs that are not converted to stock at the end of the conversion period are offered to public in accordance with the "Communiqué on Registration of Stocks" by the Board.
In the case of conversion upon the request of CB holder, the CB holder who fails to exercise the conversion right forfeits that right, and may only take the principal and the accrued interest upon redemption. In the case of conversion upon the request of the corporation, CB holders are informed via an advertisement to be published twice on the Turkish publication of minimum two newspapers by the incorporation no later than 1 month prior to the conversion date.