Turkey: Public Offering Process Of Capital Market Instruments In Turkey

The Public Offering is briefly defined as the general call for the purchase of instruments in the Capital Market, and the share sale will take place after the call. There may be various reasons why companies (İssuers) want to apply for public offering. Some of these reasons are; to finance the growth of companies, to want to use share-based performance plans to motivate their employees, to find more space in the media and thus to increase credibility before financial institutions, to go global, to make promotions, to compete with competitors, to realize profits.

Depending on the conditions, the process for companies to offer their shares to the public varies. Companies may offer some of their existing shares to the public in the form of joint sales, or they may choose to offer to the public by limiting the pre-emption rights of the existing shareholders by increasing their capital through the amendment of the articles of association with the decision of the general assembly, or they may apply both methods together.

In this article, the public offering process in Turkey and the changes in the same subject will be mentioned briefly.

1. Initial Public Offering (IPO) Process

The preparation process consists of 6 stages.

• Establishment of an In-Company Working Group: The establishment of this group is of great importance for the public offering process. As a matter of fact, there are many transactions to be made within the company during the preparation phase of the public offering and process of the public offering. Therefore, the working group should consist of mid-level managers, finance and public relations department employees who have relevant information.
• Selection of Investment Firm and Consultants: Companies generally issue through intermediary firm, which are specialized institutions. The Capital Markets Board ("CMB") also recommends that this sale be made with intermediary institutions in order to protect the rights of investors. In this case; Companies are required to sign a brokerage agreement with an intermediary firm for the public offering of their shares. Relevant intermediary firm are authorized by the CMB and the list of intermediary institutions is available on the CMB's website. The important point in this section is that the intermediary institution that will act as an intermediary in the public offering is obliged to undertake against the company regarding the purchase of these shares at the public offering price. This liability ratio will also be determined according to the market value of the shares to be offered to the public. Accordingly, if the market value of the company whose shares will be offered to the public in the first time, to be calculated based on the public offering price of the shares to be offered to the public, excluding additional sales, there is no obligation to undertake;
  • for all unsold shares in case of less than twenty million TL,
  • if it is between twenty million TL and forty million TL, for all of the unsold shares up to twenty million, and for the half of the excess part,
  • if the market value of the shares to be offered to the public is over forty million TL.
• Preparation of Financial Statements and Selection of Independent Audit Company: Companies should also choose an authorized independent audit company for the audit of their financial statements prepared in accordance with the Capital Market Legislation ("Legislation") and sign an audit contract with this company. The list of these independent audit companies is also available on the CMB's website.
• General Assembly Decision and Amendment of Articles of Association: The company, which decides to go public, submits the proposal of the articles of association to the CMB, in order to make the necessary changes in the articles of association in terms of capital market legislation. The point that should not be forgotten is that in the case of a public offering through capital increase, a decision must be taken by the general assembly to increase the capital and limit the rights to buy new shares, within the provisions of the Turkish Commercial Code ("TCC"). After the approval of the CMB and the Ministry of Commerce, the amendment of the articles of association related to the general assembly decision is discussed and voted in the general assembly, and necessary work is carried out within the company in order to comply with the CMB legislation (e.g. forming committees, designation and appointment of independent board members)
• Price Determination: Determining a realistic public offering price is important for a successful public offering. The public offering price of the company shares is calculated by the intermediary firm and there is no intervention by any other institution. This determination report can be analyzed by other intermediary firm.
• Preparation of Documents Required for Application: The company and/or intermediary institution Borsa İstanbul A.S. and CMB officials at the initial stages of the public offering process and obtain information about the necessary documents and procedures.

The actual process of the public offering is briefly discussed below.

• Application to CMB and Borsa İstanbul: After the companies prepare the necessary documents, an application is made to the CMB for the approval of the prospectus and to Borsa İstanbul in order to be traded in the relevant market. The application can be made by an authorized representatives of the company or an intermediary institution.
• Preparation of the Prospectus: In order for the capital market instruments to be offered to the public and to be traded in the stock market, the prospectus must be prepared by the company and submitted to the CMB for approval. Under Article 4 of the Capital Market Law ("CML"), the prospectus must be clear and understandable, so that the investors can make the right decision whether to invest in the public offering process. The content of the prospectus consists of a section about the issuer and the issued capital market instruments which also includes a summary, and a section regarding information on instruments, information on the issuer, the financial outlook of the issuer, and the features of the instruments.
• Amendments and Additions to the Prospectus: In case of any changes or new issues regarding the information disclosed to the public with the prospectus, which may affect the decisions of the investors before or during the sale period, the situation shall immediately be submitted to the CMB in writing by the company. The sales period may be stopped if issues which require amendments or additions emerge.
• Application to the Settlement and Custody Bank and Central Securities Depository ("CRA"): Takasbank is a bank responsible for the exchange, concealment, and numbering in international standards of the securities. It provides an "ISIN Code" to the securities which will be traded in the stock market. It is mandatory to get this code. The company must be a member of the CRA for the dematerialization of the shares by the CRA to be offered to the public following the application to Takasbank and the transfer of these shares to the investors following the completion of the public offering. Furthermore, under the Capital Market legislation, and especially in order to publish the statements of the companies on the Public Disclosure Platform ("PDP") in accordance with the principle of transparency, it is mandatory to apply to the CSD for the PDP membership.
• Determination of the market in which the company will be traded by Borsa Istanbul: After the shares were examined by the experts of Borsa Istanbul, Borsa Istanbul A.Ş. determines the appropriate market in which the company will be traded as a result of the public offering.
• Approval of the Prospectus by the CMB: The application regarding the approval of the prospectus by the CMB will be completed within 10 business days from the submission of the relevant documents to the CMB. However, if the initial public offering is taking place, the application will be completed within 20 business days. If the required documents are missing or if additional documents are needed, the applicant is informed within 10 business days from the application date. The applicant will have 20 business days to provide the relevant documents. If the prospectus consists of separate documents, each document is approved separately. The issuers are responsible for the damages due to the incorrect, misleading, and incomplete information. If the damage cannot be compensated or it is obvious that it cannot be compensated from those issuers; the public offerors, leading authorized intermediary institutions, the guarantor ,if any, and members of the issuer's board of directors are responsible with respect to their faults and to the extent that damages can be imposed on them. The prospectus is valid for sales to be conducted for twelve months from the date of first publication, provided that it keeps up to date.
• Public offering of the shares and the notification of the results of the sales: The publication place of the prospectus that was approved by the Board, is registered with the Trade Registry and announced in the Turkey Trade Registry Gazette ("TTRG"). However, the publication following the approval of the prospectus will be conducted according to the rules of the CMB and it is not required to be published in the TTRG. The corporations whose shares will be traded in the stock market for the first time are also announced by the corporation on their website and on the PDP. The shares will be offered to the public in line with the dates and rules determined in the public offering prospectus and in accordance with the CMB regulations. The intermediary institution announces the sales of the public offering on the PDP and then transmit it to Borsa Istanbul and CMB.
• Listing and Trading of Shares: The sales results will be traded in accordance with listing decision of the Board of Directors and after the evaluation of this decision by Borsa Istanbul General Directorate.

Thus, the public offering process consists of both the preparation and public offering process, and it requires a detailed planning.

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.