Recent Developments
To meet investor demand at a high rate, the Capital Markets Board (the “CMB“) has introduced significant amendments to the sale methods and distribution principles for initial public offerings (“IPOs“) with its resolution numbered i-SPK.128.23 (dated 19 September 2024 and numbered 1508) (the “Resolution“). You can access the CMB bulletin in which the Resolution was published here.
With the Resolution, the CMB repealed its resolution numbered i-SPK-128.21 (dated 30 March 2023 and numbered 20/412) (“Former Resolution”). However, it is worth noting that many of the provisions of the Former Resolution are also preserved under the Resolution.
What’s new?
According to the Resolution, IPOs will be subject to the following rules:
1) The rule in the Former Resolution stipulating that if the market value of the shares to be offered to the public is TRY 750,000,000 or less, the sale will be made through the sale-on-stock exchange method, will continue to apply.
2) With the Resolution, if the market value of the shares to be offered to the public is equal to or above TRY 750,000,000, and the sale will be subject to book-building outside of the stock exchange, the following rules will apply:
- Equal distribution will be mandatory for domestic individual investors, and proportional distribution will not be allowed.
- However, if so defined in the offering circular, up to 10% of the total amount to be offered to the public may be allocated to investors that are expected to have high demand, excluding institutional investors. Equal distribution method or proportional distribution method can be applied for this group of investors. In the event of proportional distribution, such investors will provide cash collateral equivalent to their demand and/or shares in the BIST 30 index equal to 120% of their demand. The amount of shares that each investor demands cannot exceed 1/4 of the total amount of shares allocated to the investor group.
- In respect of domestic institutional investors, and provided that there is sufficient demand, at least 50% of the allocation will be allocated to mutual funds, pension funds and/or pension funds’ automatic enrollment system, and the amount of shares to be allocated to each institutional investor will not exceed 1% of the total amount of shares offered.
- If sufficient demand is received for a specific investor group at the end of the book-building period, the shares allocated to such group will not be reallocated to another investor group. If there is no sufficient demand for a given group, the unsold shares of that group may be reallocated to the other groups freely. Thus, the Resolution repealed the rule requiring the transfer of excess allocations primarily to the domestic individual investors.
- The issuer and the underwriter (in case a consortium is formed, the lead underwriter) will be liable in the event that distributions are made to the foreign investor group with the intention of circumventing or eliminating the principles mentioned above (e.g. distributions to funds or other legal entities abroad owned by natural persons or legal entities resident in Türkiye). The issuer and the underwriter/lead underwriter will give an undertaking to the CMB stating that they will comply with the above-mentioned provision and conduct the necessary examination on foreign investors.
3) The rule of the Former Resolution stipulating that the shares purchased by institutional investors for their own portfolios cannot be transferred to individual investor accounts will continue to apply.
4) Likewise, as regulated under the Former Resolution, investors that purchase shares will not be able to sell these shares outside of the stock exchange, transfer them to other investor accounts, or subject them to special order and/or wholesale transactions on the stock exchange for 90 days, starting from the date of acquisition. For shares held by the existing shareholders of the company (except the shares sold within the scope of the IPO), this restriction will continue for 180 days starting from the date the offering circular was approved, and will also prohibit any sale in the stock exchange.
Conclusion
The Resolution facilitates larger IPOs by bringing new rules for the allocation to high demand investors and domestic institutional investors.
