Public Offering (IPO&SPO) In Turkey

Once companies reach a certain size, they usually want to go public or—to be more precise—prefer to employ public offering—i.e. a company selling its equity shares and announcing that to investors in order to raise capital for itself. Within this, there are of course certain rules and stages. If a company wants to offer its shares to the public, or to trade its company equity shares on the stock market in Turkey, it must first prepare itself, and then formally announce that it will trade its shares via Borsa Istanbul.

What Are Initial & Secondary Public Offering?

There are two types of public offering: initial and secondary. The former refers to a company offering its equity shares to the public for the first time, while the latter is when an offering takes place when a company that has already offered its equity shares to the public goes for a second public offering.

Let’s look at the reasons that drive public offering:

How Does Public Offering Benefit Companies In Turkey?

1) Financing Facility & Company Credibility When a company offers its equity shares to the public at a premium price, it uses a more cost- financing method that is more effective than other resources.

In addition, when a company’s equity shares begin to get traded on the stock market, the company then has the opportunity to more easily obtain loans by using their equity shares as collateral.

2) Creating Value Transparently identifying a company’s equity shares according to the rules of supply and demand helps us indicate the company’s value as well. 3) Increasing Awareness of the Company

The company in question’s information is continuously shared with domestic and foreign investors through media and public institutions both as it prepares a public offering as well as during that public offering. This helps us better recognise what the company does, what it produces, and what its services are. Once the public offering has been made, companies often either collaborate or partner up with domestic or foreign companies from similar industries.

4) Achieving a Corporate Structure Given that many companies in Turkey are family based, there is often a strong link between their commercial activities and the personal lives of family members. That said, independent organizations regularly audit that company’s financial data as soon as it begins to share its trades on the stock market, thereby allowing it to operate in a more professional manner.

5) Globalisation A company that trades its equity shares on the stock market can list its capital market instruments in a foreign country in order to trade its shares within that country, thus easily opening itself up to foreign markets.

What Are The Prerequisites For IPO In Turkey?

A company must meet a certain list of criteria in order before it can share its equity shares with the public. These criteria is regulated by the Capital Markets Board, and are as follows: 1) The company must pay its current capital in full.

2) Increment value funds and/or similar funds generated by moving the assets to the fair value must not be added to the company’s capital within two years before the date of application (for the public offering).

3) In case the company had been converted into a joint stock company within two years of the date of application, equity components on the pre-conversion balance sheet must be shown as separate items on the new balance sheet. This serves as a continuation of the pre-conversion company without a consolidation under the capital account of the incorporation’s opening balance sheet after the conversion has taken place. A financial advisor’s report must be issued in order to identify this issue.

4) According to the company’s latest financial statements (to be included in its public offering prospectus), the rate of non-commercial receivables from the related parties—as outlined in the Board’s regulations—total receivables must not exceed twenty per cent. Likewise, the rate of these receivables to total assets must not exceed ten per cent. This is to ensure that the company complies with these rates. the incorporation as well as those who conduct the public offering must undertake that the funds to be raised from the sale of the partners’ existing shares will be used to collect receivables from the relevant parties. This also ensures that no creditor shall conduct this the process of incorporation in any way that evades this provision.

What Must One Do To Ready Themselves for Public Offering In Turkey?

1) Form an In-house Public Offering Unit

Given the comprehensive nature of public offering, you need to set up a team within the company in advance. This team should consist of mid-level and senior executives, as well as of people in charge of financing and public relations. This team should moreover first issue a breakdown of what the company needs to during the public offering process.

2) Select the Brokerage House The company must sign a brokerage contract with a brokerage house authorized by the Capital Markets Board. Only one brokerage house can manage the public offering. Therefore, the company can enter a consortium with multiple brokerage houses in order to oversee and manage the process should the amount of the public offering in question be high.

3) Identify a Brokerage Method Brokers can select from one of the following methods to conduct public offering:

1) Best Effort Underwriting

2) Underwriting

a) Stand-by Underwriting

b) Full Underwriting

4) Prepare a Financial Statement and Select an Independent Auditing Firm

Any company that applies for public offering is required to prepare a financial statement in accordance with certain regulations, as it is then to be audited by an authorised auditing firm. In other words, company that offers its equity shares to the public must sign an auditing contract with an independent auditing firm authorized by the Capital Markets Board.

5) Resolution by the General Assembly & Amendments to the Articles of Association

A company that conducts public offering must submit drafts of all necessary amendments to their articles of association to the Capital Markets Board as per the capital markets regulation.

* All provisions that restrict the transfer or circulation of the shares to be traded on the stock market, and that prevent the partners from exercising their rights must be removed from the company’s articles of association.

* Other provisions of the articles of association must comply with the regulations set out by the Capital Markets Board.

* Should public offering through capital increase take place, the company’s General Assembly must decide upon whether or not it should increase capital in accordance with provisions put forth by the Turkish Code of Commerce and restrict the right to receive new share.

Such amendments must be made in the articles of association, upon which the CMB must then approve. Subsequently, the amendments must be approved by first general assembly and published in the Trade Registry.

6) Pricing Setting the price for public offering is perhaps the single most important phase of this process. What’s more, how it’s done is tied both to the company itself as well as to external factors. Pricing public offering in a realistical manner as possible is crucial to both for its success and for the performance of the equity share to be traded on the stock market. Both the company in question alongside a broker prices and own public offering. Neither Borsa Istanbul nor the Capital Markets Board can interfere in any way in this pricing.

7) Preparing the Necessary Paperwork

The Borsa Istanbul Listing Directive stipulates what documents are necessary in order to apply for a public offering. Please note that this can vary from company to company, sector to sector—this despite there being a universal standard. Additional paperwork may also be required after analysis.

How does the Public Offering Process In Turkey Work?

If the company has met all the outlined prerequisites, and has made the necessary preparations, then it is ready to enter the public offering process.

1) Applying to the Capital Markets Board and Borsa Istanbul As soon as of the necessary paperwork is in order, then you must register with the Capital Markets Board and Borsa Istanbul. At this point, you should begin your marketing/promotional campaign in order to attract as many investors as possible.

2) Analysing of the Company by Borsa Istanbul and CMB Specialists

As soon as you have submitted all of the necessary paperwork application, relevant specialists will come to inspect your company’s headquarters and production facilities. This stage includes the analysis both of financial as well as non-financial data.

3) Applying to the Central Securities Depository of Turkey

Capital market instruments that the Capital Markets Board decides to dematerialise are registered to the Turkish Central Securities Depository (MKK). This institution registers dematerialised capital market instruments on the basis of their rightful owners. The company must be a member of the MKK in order to register their shares upon consulting the Takasbank (Istanbul Settlement and Custody Bank). It also must deposit their investor’s shares into its MKK accounts as soon as the public offering has been made. Companies offering their stocks to the public must disclose their financial statements as well as any special circumstances on the MKK’s Public Disclosure Platform (KAP) as per the principle of transparency. For this reason, you/the company must also become a member of the KAP. 4) Pinpointing the Market Borsa Istanbul Will Trade The Company With

The stocks of any company that applies to trade with Borsa Istanbul gets traded in any one of BA’s equity markets:

* Star Market * Main Market * Emerging Companies Market * Collective Investment & Structured Products Market * The Offering Market for Qualified Investors

5) Board Approval of the Prospectus When the CMB evaluates the application, it looks at whether or not the information given in the prospectus is legally sound. Once the Capital Markets Board deems it suitable suitable, it approves it for the next phase: public offering.

6) Publicly Offering The Equity Shares & Following Sales

Publicly offering the company’s shares takes place within the framework of either the prospectus or the principles. The dates are outlined in as sales notice made to the account owners in line with all legal regulations. Once the sales transaction has been made, the broker announces the sales results on the KAP, inform Borsa Istanbul, and CMB.

7) Being Accepted Into the Exchange List and Trading

After Borsa Istanbul asseses the the sales results public offering, the company shares enter trading on the second day after the announcement on the KAP. A gong ceremony may be held in Borsa Istanbul on the day trading starts at the company’s request.

How Can Tara Consulting Help You With This Process?

1. We can help you determine whether initial public offering is the best option for your company or not. We do this by taking a closer at its financial structure of your company. Part of this includes calculating the timing and strategy.

2. We can support and guide your company through public offering experience.

3. We can help you find just the right broker. Choosing the right broker is critical to the success of the initial public offering process. 4. We can help you set the price as well as the conditions of your sale. We take into account your current conjuncture during the demand collection phase.

5. We can ensure that you will have a robust company structure for the future. We guide your company throughout the entire initial public offering process from start to finish.

6. We can support brokers and potential corporate buyers in all aspects of sales and marketing.

7. We can help you not only adapt to the principles of corporate governance but also manage your relations with public institutions.

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