Turkey: The Capital Markets Board's Communiqué: New Era For Equity Offerings

Last Updated: 1 August 2014
Article by Omer Collak and Okkes Sahan

At the end of 2012, the Capital Markets Law No. 2499 ("Former CML") was replaced by the new CML No. 6362 ("CML" or "Law"), which was published in the Official Gazette dated 30 December 2012.

According to Article 4 of the Former CML, all capital market instruments to be issued or offered to the public were required to be registered with the Capital Markets Board ("CMB"). Now, instead of a registration process, an "approval of the offering documents system" has been adopted by the CML. Furthermore, the new Law has brought fundamentally new principles on the public offering of shares and rights issues. Along with these innovations of the CML, one of the implementing regulations, the Communiqué on Share No. VII-128.1 ("Communiqué on Share"), was published in the Official Gazette dated 22 June 2013. Below are the highlights of the principles envisaged by the Communiqué on Share:

  • Out of the paid in or issued capital of the company making an initial public offering, excluding the funds allowed by legislation, there should be no revaluation funds within the last two years
  • In the latest financial statements attached to the prospectus of the company, the ratio of non-commercial receivables from related parties to the total sum of the receivables may not exceed twenty per cent, and the ratio of all non-commercial receivables from related parties to the total assets may not exceed ten per cent. However, if the issuer company undertakes certain conditions that are approved by the CMB, these ratios may be exceeded
  • If the shareholders, who have control over the management of the company, sell on the stock exchange within any 12-month period an amount of shares exceeding (i) ten per cent of the capital of the company or (ii) 50 per cent of the nominal value of the actively circulating shares, then these shareholders are required to issue an information note or form, which is subject to the principles specified by the CMB and the approval by the CMB.
  • As of the approval date of the Turkish prospectus for the shares offered to the public, shareholders holding ten per cent and more of the shares of the current capital of the company or all shareholders having control over the management of the company, regardless of their share percentage, are prohibited from selling their shares on the stock exchange at a price lower than the offering price for a period of one year from the date on which the shares began trading on the stock exchange. All those who purchase the shares through a private transaction from such shareholders over the counter are also subject to these restrictions. However, the company's shares that have been purchased by any shareholders [on the stock exchange], including those mentioned in this paragraph, after the shares have begun trading are not within the scope of this restriction.
  • Another innovation for shareholders is the right to exit the company in cases where a capital increase qualifies as a material transaction under the CML. This right is also granted if the ratio of the average of the total debts owed to related parties due to non-cash asset transfers to the average of the company's total assets exceeds 20 per cent. In this respect, the company's last four financial statements announced to the public prior to the capital increase is regarded as relevant. The same is the case even if the company announces that funds generated by the capital increase are not to be used for the payment of such debts owed to the related parties.
  • Without prejudice to the legal obligations relating to capital increases, applications made by listed companies for a capital increase through internal sources, which will result in the reduction of the stock exchange price of the adjusted shares to less than TL 2, will not be put into operation by the CMB. In this regard, the exchange price of the adjusted shares will be calculated on the average of the weighted average prices made on the stock exchange within 30 days prior to the announcement of the capital increase to the public.

A company may increase its share capital from internal sources after the lowest of its accumulated losses is covered by setting-off against such internal sources or a resolution by the board of directors in relation to the recovery of such losses has been submitted to the CMB. The latest financial statements that have been prepared pursuant to the legal records of the company and the regulations of the CMB are relevant in ascertaining the accumulated losses. However, the following cannot be used to offset any losses, but rather, can be used as sources for making a capital increase: (i) real estate sales, (ii) participation sales that are pending in the equity capital to be added to the capital reserve, and (iii) the funds that are not allowed to be used in the set-off of the losses from previous years as per the related legislation.

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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