The debate concerning the use of debt pushdown mechanisms in secured financing of listed company acquisitions has been ongoing in Turkey since the late 1990s. With increasing investment by foreign private equity funds, the scope of this debate is broader, and covers the use of a target company’s assets for securing the financing of an acquisition. The CMB's approach to this structure appears to be controversial. Recently, the CMB encountered an unpleasant experience where a private equity fund backed out of a deal due to a lack of financing. According to public disclosures made by the target company in that matter, a fund which had agreed to purchase the company’s shares terminated its share purchase agreement with the sellers on the ground that it had financing-related problems caused by economic fluctuations. The CMB’s position was that such financing-related problems would not have occurred had the financing not been secured by the target company’s assets. Reportedly, this experience led to the CMB’s position that investors who wish to acquire shares in Turkish companies should secure their own financing instead of relying on the target company’s assets as collateral. The CMB’s reasoning is that the use of the target company’s assets to secure the financing of the same company’s acquisition puts the minority shareholders in a difficult position.
De-listing has always been a hot issue in capital markets. Recently, there have been few examples for de-listing of publicly held companies (but not listed in a stock exchange) from the CMB. All of these de-listings were as a result of the decrease in the shareholder numbers of publicly held companies below two hundred constantly for a period of two years. However, although there are publicly held companies listed in the Istanbul Stock Exchange (the “ISE”), to date there are no precedents of de-listing from the ISE, as the rules for de-listing are not determined, and the de-listing procedure is fully at the discretion of the ISE’s Board.
Another hot issue was the transfer of a significant portion of the assets of publicly held companies. If such an asset transfer does not fall within the terms of a spin off, the CMB generally prefers to obtain a general assembly shareholders’ decision adopted with the necessary quorum depending on the terms of the asset transfer, and an independent third party evaluation report determining the value of the assets to be transferred. If these conditions are met and satisfactory to the CMB, the CMB does not intervene with the asset transfer transactions. In cases where the asset transfer results in the change of activity of the company (e.g. transfer of all machinery and equipment, etc.), the CMB may also request amendment of the articles of association of the company to reflect the change in the scope of activity of the relevant company.
Another recent regulation was adopted regarding Grading Activities and Grading Institutions1. The grading institutions found in Turkey and authorized by the CMB to perform grading activities defined under said Communiqué, and the international grading institutions authorized by Board to perform grading activities in Turkey, constitute the subject of the said Communiqué. Under this Communiqué, grading activities constitute credit grading activity and grading activity as compliance under corporate governance principles. Under a separate provision, the obligations of notice to CMB and of public announcement are regulated. Pursuant to the said provision, grading institutions must submit any and all required documents under Article 26 of said Communiqué, such as their articles of association and all information regarding their partners, managers, personnel and controllers. The international grading institutions entitled by CMB to perform within Turkey are required to submit all information regarding grading notes, monitoring and updating of the same.
In 2007, the CMB will continue its efforts to regulate and monitor the capital markets as it did in the past, but it appears that its major challenge will focus on the protection of minority rights as the number of several minority shareholders filing lawsuits against the CMB, due to allegations of neglect while monitoring the market, increases.
Footnotes
1. The Communiqué on the Incorporation and Operation Principles of Derivative Transactions Intermediary Companies (Serial V No. 90) published in the Official Gazette No. 26485 on 6 April 2007.
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