Turkey: Who Wants To Say Good Bye To Capital Markets?

The new Communiqué of Capital Markets Board (CMB) regarding the Removal from the Company and The Sale Rights (the Communiqué) numbered II-27.1, dated 2 January 2014, became effective 1 July 2014. The new Communiqué was prepared in accordance with the Article 27 (Removal and sale rights) of the Capital Markets Law, sets out for the first time in capital markets, the principles and procedures for the exercise of the rights of controlling shareholder to remove the other shareholders from the company as well as the sale rights of their shares by the other shareholders to the controlling shareholder.

Under the Communiqué, the controlling shareholder must reach %95 of the voting rights in order that such removal and sale rights become exercisable. In calculation of such proportion, the direct or indirect shares of the shareholders and the persons acting in concert with them along with any privileges on the voting rights will also be counted. The Communiqué stipulates that the controlling shareholder must apply to the company, in cases where the controlling shareholder wants to remove the other shareholders, for the exercise of such removal rights within 3 months after such controlling shareholder reaches to have %95 of the total voting rights of the company, or following the purchase of any further shares of the company in the cases where such shareholder already holds %95 voting rights of the same. The board of directors of the company to whom such application is made will initially verify the actual shareholding status of the shareholder who makes such an application. The Board of directors of the company will further evaluate the price to be paid for the purchase and resolve that the shares of the other shareholders are cancelled and that the new shares are issued to replace such cancelled shares. Only then, will the company apply to CMB, with the documents listed under the Communiqué, for the approval of the issuance certificate in respect to such new shares. As to the determination of the price to be paid in return for the purchase of the shares of other shareholders by the controlling shareholder, the Communiqué sets out that, (i) for the public companies whose shares are traded in an exchange, the arithmetic average of the weighted average in the exchange, for each of the share groups being traded in such exchange, calculated for the last 30 days before the controlling shareholder status has been acquired or the additional shares are purchased by the controlling shareholder; (ii) for the public companies whose shares are not traded in an exchange, the price indicated in the valuation report prepared for the determination of the fair and reasonable price in relation to each share group, will be taken into consideration. Pursuant to exercise of the removal rights by the controlling shareholder, the company will, ex officio, be excluded by CMB from the scope of the Capital Markets Law.

As per the temporary provision 1 of the Communiqué such right to remove the other shareholders does not arise per se for the shareholders who already hold such status of controlling shareholder as of the effectiveness date of the Communiqué. Also the sale rights of the other shareholders do not arise under such circumstances. However, if the controlling shareholder makes an additional share purchase, such rights become exercisable. So far 5 companies listed in Borsa İstanbul, among the 13 companies publicly traded, fall short %5 of the proportion which has applied to CMB to benefit from such provision and for the removal of the other shareholders.

As being one of the reasons and justifications of the Communiqué, it is indicated that foreign based companies already listed in their domestic exchanges and subject to their domestic regulations believe that an additional regulation burden imposed on them, in particular, despite such a small proportion of publicly traded shares, is not favorable in any sense. Further, such companies do not want the price to be determined by such a small number of investors based on the small proportion of publicly traded shares, and applied as the total valuation of the company. However, despite such justifications, the fact that these companies are now allowed to purchase the shares of the retailer investors, for whom such investments are among their lifelong savings, with a price that such retailer investors do not want to sell, is strongly criticized by several scholars and investors working in the field.

The question as to whether the Communiqué is designed to provide more favorable conditions for the controlling shareholders of the public companies who holds more than % 95 shareholding of the company, or is it solely an invention to shake off the small investors is yet to be answered.

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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