Turkey: A Major Shift In The Regulatory Perspective Regarding IPOs, Rights Issues And Bonus Issues

 Capital Markets Board of Turkey (the "CMB") announced new principles (the "New Principles") on IPOs, Rights Issues and Bonus Issues with a view to discipline the supply side of Turkish Capital Markets. This recent regulatory step is a major shift in the regulatory perspective and puts a prominent emphasis on the quality of fund raising activities in Turkish capital markets.

According to the new perspective, the capital markets motto which was largely based on increasing the number of companies benefiting from equity capital markets has turned out to be a motto with a conservative, but investor friendly character. From now on, companies intending tap into equity capital markets, their controlling shareholders and brokerage firms acting as intermediaries in the IPO market shall comply with certain principles.  

Below are the highlights of the principles envisaged by the CMB Resolution;

A) Principles for IPOs

  • Under the latest financial tables of the relevant company, the ratio of all receivables from related parties shall not exceed 50% over total short and long term receivables or 20% over its total assets. These restrictions may not be applicable, subject to discretion of the CMB, provided that (i) funds to arise from the IPO shall be used for collecting the receivables from the related parties as to meet the referred ratios; and (ii) it is committed that the company shall not be converted back into creditor status with respect to such receivables.
  • The intermediary institution shall underwrite the IPO at sale price;

(a)   for all shares to be offered when the value of IPO is up to TL 20 million; or,

(b)   for all shares up to 20 million and for 50% of the upper amount when the value of IPO is between TL 20 million and TL 40 million. 

It is also stated in New Principles that the intermediary institution shall not sell the shares that it acquired as a result of its underwriting hereabove below the IPO price for a term of six months following the trading date of such shares.

  • In public offerings conducted through a price range, the maximum price shall not be higher than 20% of the minimum price.
  • The valuation report may be subject to analysis and critics by any institutions other than the underwriter. In case such reviewers prepare an analyst report, this report shall also be announced to public.
  • In order for a brokerage firm  to prepare a valuation report in an IPO, such firm should have prepared and announced at least three analyst reports addressing the valuation reports with respect to IPOs in which it has not acted as leader or co-leader of the IPO during previous twelve months' term.

B) Principles re. After the IPOs

  • The shareholders holding 10% or more shares in capital of the company as of the date of the IPO and the shareholders holding the management control in the company shall not sell their shares below the IPO price for a term of one year following the trading date for the IPO. Shares to be acquired after the trading date shall be exempt from this prohibition.
  • With respect to companies with a total value lower than TL 40 million (to be calculated based on IPO price), additional shares corresponding to 25% of the nominal value of the shares to be offered to public shall also be made available for public offering through restricting the pre-emptive rights of existing shareholders. In case the market price of IPO shares go above 25% of the IPO price, these shares may be offered to public within 1 year after the publication of the prospectus. Until these shares are entirely sold, the shareholders holding 10% or more shares in capital of the company and the shareholders holding the management control in the company shall not sell their shares through the exchanges.
  •  The underwriter of the IPO shall prepare and announce at least 2 analyst reports on the publicly offered company  within one year following the IPO .
  • The company is required to make announcements addressing (a) whether the assumptions considered in calculation of IPO price have come true, and if not, the reasons of the same; and (b) whether the funds obtained through the IPO have been used in accordance with the principles set forth in the IPO prospectus, within 10 business days following the announcement of financial tables for two years following the IPO.

C) Capital Increase of Listed Companies through Rights Offerings

  • In case the funds to be obtained through the respective IPO exceeds the capital of the company and the funds are to be used for making the payments to the related parties arising from transfer of assets to the company other than cash, this capital increase shall be treated as a "Substantial Issue" as referred to in Article 23 of Capital Markets Law (Law No: 6362) (the "CML"). Accordingly, the shareholders who voted against such decision shall be granted the right to sell their shares to the company in accordance with Article 24 of the CML ("Right to Exit") prior to conducting the capital increase.
  • In capital increases through cash, the company is required to prepare and announce a report that describes the purposes of the funds to be obtained through the public offering. Furthermore, after the IPO, the company is also required to make announcements addressing whether the funds obtained through the IPO have been used in accordance with such purposes within 10 business days following the announcement of financial tables for two financial terms (including interim terms.

D) Capital Increase of Listed Companies through Bonus Shares

  • In capital increases where internal reserves, other than profits, are added to capital, and in consideration of the weighted average price of the shares at the exchanges during thirty days prior to announcement of such capital increase, in case the adjusted price of the shares is calculated below TL 2,- (two Turkish Liras), the respective company is not permitted to conduct such capital increase.

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.

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