Capital Markets: Turkey

A Q&A guide to capital markets law in Turkey.

The Q&A gives an overview of the main equity and debt markets/exchanges, regulators and legislation, listing requirements, offering structures, advisers, prospectus/offer document, marketing, bookbuilding, underwriting, timetables, stabilisation, tax, continuing obligations and de-listing.

To compare answers across multiple jurisdictions visit the Capital Markets Country Q&A tool.

This Q&A is part of the multi-jurisdictional guide to capital markets law. For a full list of jurisdictional Q&As visit www.practicallaw.com/capitalmarkets-mjg.

Omer Collak and Erkan Tercan, Paksoy Law Firm
Contents

Main equity markets/exchanges

1. What are the main equity markets/exchanges in your jurisdiction? Outline the main market activity and deals in the past year.

Main equity markets/exchanges

The Istanbul Securities Exchange (www.ise.org) (ISE) is the only exchange in Turkey with an equity market established for trading in a wide variety of securities (that is, shares, exchange traded funds, government bonds, treasury bills, money market instruments (repo/reverse repo), corporate bonds and foreign securities). The ISE was established at the end of 1985 and is a public organisation whose members are banks and brokerage houses.

There are two main equity markets under the ISE.

Stock Market (SM)

The SM is mainly categorised as follows:

  • National Market. This is the main stock market of the ISE where companies that fulfil the listing and minimum circulation criteria trade in a reliable and stable environment.

  • Second National Market. This consists of companies delisted temporarily or permanently from the ISE's National Market and medium- and small-sized companies that have growth potential but fail to meet the listing criteria of the National Market.

  • Collective Products Market. This provides a single, definitive market for trading of the shares of investment trusts, real estate investment trusts (REITs), venture capital trusts and warrants and participation certificates of exchange traded funds. There are two separate markets functioning within the ISE Collective Products Market:

    • ETFs Market (Exchange Traded Funds Market) which was established to provide an organised and transparent market for trading of participation certificates of ETFs;

    • Warrants Market, launched in August 2010 as a new market for trading of warrants offering market participants the opportunity to hedge their portfolios against market volatilities with limited risk.

  • Watch List Companies Market. This consists of companies whose shares are under special surveillance or investigation.

  • Wholesale Market. This provides an organised platform for the transactions of shares in large quantities.

  • Rights Coupon Market. Is for trading of the coupons attached to the shares of traded companies which entitle the holders to purchase new shares issued by that company to increase its capital.

  • Primary Market. This is the market where the shares to be offered to public initially through the ISE and the shares representing pre-emptive rights of the listed companies, which are not exercised by the existing shareholders or are offered to public by restricting the pre-emptive rights of the existing shareholders, are offered to public.

Emerging Companies Market (ECM)

The ECM provides a transparent and organised platform for small and mid-sized companies with growth and development potential and therefore has a relatively relaxed admission procedure compared to the SM. This is to provide these companies with an opportunity to raise funds through public offerings or private placements as a long term and low cost financing alternative.

Market activity and deals

Performance of the international markets and exchanges was not good during 2011 due to turmoil in global economic conditions. However, in contrast, the performance of ISE was relatively good. There were 27 new listings in 2011 and, together with these new entries, the number of listed entities reached 363. The number of warrants traded on the exchange went up from 22 to 175, and private sector debt instruments from 16 to 58. The ISE ranked 20th in terms of trade volume, 32nd in terms of market capitalisation, and 34th in terms of number of companies traded among the members of the World Federation of Exchanges (WFE). In the list of WFE-member emerging markets, ISE ranked 7th in terms of trade volume, 15th in terms of market capitalization, and 16th in terms of the number of listed companies.

There were many planned initial public offerings (IPOs) during 2011, but some of them were not realised due to unfavourable market conditions (including the planned IPO of Pegasus Hava Taşımacılığı A.Ş., which had applied for listing on the ISE at the beginning of 2011 and then postponed afterwards).

 
2. What are the main regulators and legislation that applies to the equity markets/exchanges in your jurisdiction?

Regulatory bodies

The CMB is the regulatory and supervisory authority in charge of the securities and derivatives markets in Turkey (www.cmb.gov.tr). The CMB aims to ensure the safe, fair and orderly functioning of the capital markets and to protect the rights and benefits of investors.

Its ultimate objective is to encourage progress in the securities markets and contribute to the efficient allocation of financial resources in the Turkish economy.

Legislative framework

There are three major pieces of legislation governing the capital markets, one of which is specifically devoted to this area, namely the:

  • Capital Market Law No. 2499 entered into force on its publication in the Official Gazette numbered 17416 dated 30 July 1981 (CML). It should be noted that a new CML numbered 6362 was enacted by the Turkish Parliament on 6 December 2012 and is expected to enter into force in the coming days after the approval of the President and publication in the Official Gazette.

  • Legislation concerning the securities exchanges, establishment and activities as well as the operating principles and fundamentals of supervision passed by the Council of Ministers in the Decree-Law No.91 dated on 3 October 1983 through the authority granted by Law No. 2810 dated 5 April 1983.

  • Turkish Commercial Code, entered into force on 12 July 2012 (TCC) which provides the establishment and operating principles for companies and defines and regulates financial instruments in general. Capital companies subject to the CML must comply with the provisions of the Commercial Code whenever there is no provision in the CML.

In addition to the legislation mentioned above there are various other important regulations on the securities markets, including:

  • Decree No. 32 on the Protection of the Value of the Turkish Currency, which generally affects the development process of securities markets.

  • Regulation Regarding the Establishment and Operation Principles of Securities Exchanges provided by the CMB.

  • Regulation of the ISE, which sets out the principles and rules of operation for the ISE.

 

Equity offerings

3. What are the main requirements for a primary listing on the main markets/exchanges?

Main requirements

The CMB has revised the legal requirements for a primary listing to harmonise local procedure with EU Directives and facilitate the IPO process. Generally, offered securities must be registered with the CMB (which approves any required prospectus) and admitted to listing on the relevant market by the ISE.

Listing requirements are set out in the ISE Listing Regulation. The requirements set out below are for listing on the NM. The ISE generally examines the financial and legal condition of the company for admission to these markets.

Minimum size requirements

Listing requirements differ according to which group the shares will be listed in.

Group 1. The requirements are as follows:

  • Market value of publicly offered shares. Minimum TRY122 million.

  • Profits before tax must have been earned. In at least one of the last two years.

  • Ratio of publicly offered shares to paid-in or issued capital. Not applicable.

  • Equity capital in the most recent independently audited financial statements. Minimum TRY30.5 million.

Group 2. The requirements are as follows:

  • Market value of publicly offered shares. Minimum TRY61 million.

  • Profits before tax must have been earned. In at least one of the last two years.

  • Ratio of publicly offered shares to paid-in or issued capital. Minimum 5%.

  • Equity capital in the most recent independently audited financial statements. Minimum TRY19.5 million.

Group 3. The requirements are as follows:

  • Market value of publicly offered shares. Minimum TRY30.5 million.

  • Profits before tax must have been earned. In the last two years.

  • Ratio of publicly offered shares to paid-in or issued capital. Minimum 25%.

  • Equity capital in the most recent independently audited financial statements. Minimum TRY12.2 million.

Trading record and accounts

At least three calendar years must have elapsed since the company was established and financial statements of the previous three years must have been audited and must be publicly disclosed. The financial statements and independent audit reports which will be included in the prospectus (corresponding to the offering circular/memorandum) in accordance with the CMB regulations must be presented to the ISE.

The company's financial structure must also be examined and approved by ISE regarding the sustainability of operations.

Legal opinion

Among other application documents, a report and other statements, prepared according to terms and conditions set by the ISE must be submitted to the ISE, documenting that the legal status of the issuer and the securities comply with applicable legislation and there are no material disputes capable of affecting production lines and business of the issuer.

Shares in public hands

See above, Minimum size requirements.

 
4. What are the main ways of structuring an IPO?

There are two main ways of structuring a public offering. Issuers can choose either or a combination of the following:

  • Offer of existing shares. The existing shares of a company are offered to the public. This enables shareholders to monetise part of their shareholding.

  • Offer of new shares. New shares are issued through a capital increase. Public investors are invited to subscribe for the shares by fully or partially restricting the pre-emptive rights of the existing shareholders. This creates a financing source for the issuer.

The prerequisites for both types of IPO are as follows:

  • If the public offering belongs to a certain class of shares, the value of these shares, otherwise the capital of the company should be fully paid-up.

  • New provisions abolish the minimum free float requirements in the IPOs.

  • The underwriting commitment is no longer required.

  • There should be no limitations to the circulation of the shares (for example, under a pledge or guarantee) and/or no register on the shares that prevents the use of shareholder rights.

 
5. What are the main ways of structuring a subsequent equity offering?

Under the CMB Regulations, the rules applicable to IPOs and subsequent public offerings (SPOs) do not differ materially.

However, while a prospectus is required for both IPOs and SPOs, there may be differences regarding the required information to be included in the prospectus, and the process of preparing a prospectus for an SPO is simpler. For instance, if the shares of a company are already listed on the ISE, then no listing application to the ISE is necessary and so some of the documents, such as an independent legal opinion and a listing application, are not required (see Question 3).

 
6. What are the main steps for a company applying for a primary listing of its shares? Is the procedure different for a foreign company and is a foreign company likely to seek a listing for shares or depositary receipts?

Engaging the advisers

The issuer engages its core professional advisers. For an IPO, it is mandatory to enter into an intermediation agreement with an intermediary institution authorised by CMB. The financial statements of the company must comply with the capital markets legislation and be audited by an independent audit firm (see Question 3).

Application to the CMB for amendment of the articles of association (if necessary)

The issuer must prepare draft amendments to its articles of association to conform to CMB legislation. Informal communication with CMB and ISE is common to facilitate the formal approval process. Reorganisation by the issuer is sometimes necessary to meet CMB's requirements (such as removal of rights that prevent free trading of, or the use of, rights associated with the offered shares) and to optimise the share value.

Application to the CMB and the ISE

On preparation of the draft prospectus, circular (a short form of the prospectus) and other documents necessary for admission to CMB and ISE, the issuer and/or the intermediary institution applies to CMB for registration of the offered shares and approval of the prospectus, and to ISE for listing in the relevant market.

Due diligence by CMB and ISE experts

CMB experts carry out due diligence to verify the prospectus (see Question 11). ISE experts issue their commentary to be included in the prospectus on whether the shares are eligible for listing on an ISE share market.

Registration of the shares and prospectus and announcement

On CMB's approval the shares are registered with CMB. The prospectus is registered with the Trade Registry, and announced in the Trade Registry Gazette and on the issuer's website.

Announcement of the circular

A CMB approved circular is published for investors. The bookbuilding period (if applicable) may begin within two days of the announcement of the circular (see Question 14).

Sale of shares

The sale of the shares is carried out in accordance with the principles set out in the prospectus.

Notification of sale results

On completion of the sale period, the intermediary institution notifies CMB and ISE in relation to the sale results of the IPO.

Listing and trading

On examination by and decision of the ISE, the shares are listed on the relevant ISE market. The information about the public offering results, the prospectus and other information as deemed necessary by the ISE is published in the daily bulletin of the ISE. The trading of shares starts on the second day following the publication in the daily bulletin. To be traded, the shares must also be registered with the Central Registry Agency (CRA), where all shares of public companies are held electronically.

The Law on Direct Foreign Investments provides that foreign investors are subject to equal treatment as local investors. In accordance with the ISE Listing Regulation, the procedure for a primary listing is mainly the same for foreign companies, except that the permission of the Ministry of Industry and Trade is also required for listing of foreign companies. DO&CO, the only foreign company listed on ISE, sought a listing of shares.

 

Advisers: equity offering

7. Outline the role of advisers used and main documents produced in an equity offering. Does it differ for an IPO?

Advisers

The main advisers commonly used in an equity offering and their roles are as follows.

Intermediary institutions. The issuers must execute an intermediation agreement with an intermediary institution authorised by CMB to carry out the offering (see Question 6, Engaging the advisers). Based on the size of the offering, the issuer may engage a consortium of intermediary institutions. Intermediary institutions usually act as the underwriter, and are mainly responsible for managing the overall offering process and co-ordinating the issuer's other advisers. Intermediary institutions may also:

  • Provide financial advisory services relating to structuring, timing and pricing in an offering.

  • Take roles as book-runner, stabilising manager, research analyst and settlement agent.

Lawyers. Lawyers provide consultancy services relating mainly to:

  • Structuring the offering.

  • Assisting in the drafting of the prospectus.

  • Registration of shares with the CMB.

  • Application for listing on the ISE.

  • General compliance with capital markets legislation, corporate law and corporate governance matters.

Independent auditors. Independent auditors audit the financial statements to be included in the prospectus.

Issuers may also engage public relations consultants and tax advisers or other specialists, depending on the issuer's operations and needs.

While having an independent auditor audit financial statements of the issuer is mandatory in all circumstances, legal opinion is sought only during the listing phase of non-listed securities and having an agreement with an intermediary institution is mandatory only for public offerings.

Main documents

The main documents produced in an equity offering are:

  • The intermediation agreement, which usually includes the underwriting agreement and engagement letters with other advisers.

  • Audited financial statements.

  • Due diligence report.

  • Amendments to the articles (may not be needed in SPOs).

  • Corporate resolutions to approve documents and procedural steps.

  • The prospectus and other documentation requested by CMB for registration of the shares.

  • The offering circular published in newspapers and on the internet.

  • Documentation requested by ISE for listing on a stock exchange.

 

Equity prospectus/main offering document

8. When is a prospectus (or other main offering document) required? What are the main publication, regulatory filing or delivery requirements?

A prospectus is required for all public offerings of equity securities or admission of securities for trading or listing on the ISE, with some exceptions (see Question 9). The prospectus must be registered with the Trade Registry within 15 days following the registration of shares with CMB and published in the Trade Registry Gazette (see Question 6). Any amendments to the prospectus must also be registered and published in the same way.

 
9. What are the main exemptions from the requirements for publication or delivery of a prospectus (or other main offering document)?

The following equity offerings are exempt from any requirement to issue disclosure documents:

  • Offers to a limited group of no more than 100 selected investors such as:

    • employees;

    • persons who have a commercial or shareholding relationship with the company;

    • other groups of people as determined by the issuer (private placement).

  • Offers to qualified investors which are institutional investors and real persons/legal entities with a portfolio exceeding TRY1 million in value. Institutional investors include local and foreign investment funds, pension funds, investment trusts, intermediary institutions, banks, insurance companies, portfolio management companies, mortgage financing institutions and other similar investors, as determined by CMB.

 
10. What are the main content or disclosure requirements for a prospectus (or other main offering document)? What main categories of information are included?

The prospectus for an IPO must include information on:

  • The company.

  • The offered shares.

  • Whether new shares or existing shares are being offered.

  • The use of pre-emptive rights.

  • The offering, in particular:

    • the terms of sale;

    • the sale price;

    • methods used to determine the sale price;

    • the offer period;

    • whether the offer includes sales to selected or qualified groups of investors;

    • whether there will be additional sales;

    • information regarding price stabilisation;

    • places where investors can purchase the shares.

  • Whether the offered shares are registered with the CMB.

  • Liability of the issuer, the intermediary institution and the independent audit firm.

  • The ISE's decision with respect to the eligibility of the shares being listed on a stock market of the ISE.

  • Principles on taxation of profits gained from the sale of the shares, and dividends and advance dividends.

 
11. How is the prospectus (or other main offering document) prepared? Who is responsible and/or may be liable for its contents?

The prospectus is prepared by the issuer in conjunction with the intermediary institution, lawyers and other advisers. The prospectus must:

  • Comply with the standards set out by CMB.

  • Be prepared in accordance with CMB guidelines.

  • Be signed by the issuer and the intermediary institution.

CMB verifies the information provided in the prospectus. To do this, CMB experts may carry out on-site due diligence and review books and records of the company. CMB approves the prospectus based on the correctness and sufficiency of information provided. CMB does not register the offered shares if the prospectus is not approved.

The issuer is liable for damages suffered by the investors due to the prospectus containing misleading or inaccurate information, or omitting necessary information. Intermediary institutions can also be liable for this if they have not acted with the care and diligence expected from them and the damages are not recovered from the issuer. Independent auditors are liable for inaccurate and misleading information in the audit reports relating to the financial statements of the company.

 

Marketing equity offerings

12. How are offered equity securities marketed?

Marketing methods vary depending on the size of the offering and the targeted investors. Road shows are used to attract foreign institutional investors. The issuer may also carry out an advertising campaign through printed and visual media and get professional assistance from a public relations consultant or an advertising agency for this.

Any announcements directed to the public in connection with an offering of securities must not include inaccurate, misleading, groundless or exaggerated information or omit any material information (CMB Regulations). The CMB can prohibit the publication of advertisements which it considers misleading.

Making misleading statements in connection with any offer of securities in Turkey is a criminal offence for the issuer's directors. In addition to criminal liability, civil liability under general Turkish law principles may also arise for providing misleading or inaccurate information (see Question 13).

 
13. Outline any potential liability for publishing research reports by participating brokers/dealers and ways used to avoid such liability.

There are no detailed guidelines on the use or content of research reports under Turkish law. However, Communiqué Serial: V, Number: 46 on Principles Regarding Intermediary Activities and Intermediary Institutions requires research reports prepared by brokerage houses to be objective. Consequently, inaccurate information and subjective analysis may lead to liability for brokerage houses. To avoid incurring liability, the advice provided in a research report should not constitute investment advice under the Communiqué Serial: V, Number: 55 on Principles Regarding Investment Advisory Activities.

Intermediary institutions must not disclose information which is not included in the prospectus or publish any misleading or inaccurate information (see Question 12). Intermediary institutions must also prevent leaks of information not included in the prospectus. The intermediary institution must not commit that an offered security will generate a certain rate of return.

Where the disclosure of research reports results in the breach of any of these rules, CMB may:

  • Request that the intermediary institution cure the breach or suspend activities of the institution.

  • Cancel some or all of its licences.

  • File for criminal charges against persons responsible for the breach and revoke their signing authorities.

Publishing misleading or inaccurate information can give rise to liability under the general provisions of the Code of Obligations on breach of contract or non-contractual liability, if investors suffer damages because of the research report. To avoid liability, intermediary institutions can:

  • Set out procedures to ensure that the information in the research report is included in the prospectus.

  • Only use a research report for internal evaluation purposes within the team of the issuer and its advisers, who are bound by confidentiality obligations under law or a non-disclosure agreement.

 

Bookbuilding

14. Is the bookbuilding procedure used and in what circumstances? How is any related retail offer dealt with? How are orders confirmed?

Bookbuilding is commonly used in Turkey. The sale of shares to investors is conducted in three ways:

  • Bookbuilding with a fixed price.

  • Bookbuilding through collection of bids.

  • Bookbuilding with a price spread.

The underwriter may also investigate investor demand in a certain price range before the registration of shares by the CMB with no binding obligation on the part of the applicants.

The pre-bookbuilding period, which should not be more than 15 days, starts no earlier than two days after the announcement of the circular, for all three methods. The commencement and expiration dates of the pre-bookbuilding period must be announced to the CMB by the intermediary institutions at least one day before the pre-bookbuilding.

The bookbuilding period itself should not be less than two business days or more than 30 days in length, and cannot begin earlier than two days after the announcement of the circular, for all the three methods.

In addition, non-listed public companies (companies with more than 250 shareholders) must use bookbuilding for offers by way of subscription, if all the following conditions apply:

  • According to their last balance sheet, the book value of their shares is at least twice as much as their nominal value.

  • The company has generated profits.

  • The value of its total assets exceeds TRY10 million.

In all public offerings, at least 10% of the shares that are offered to the public must be allocated to local retail investors in Turkey and 10% to local corporate investors, except in offerings by sale on the stock exchange and additional sale process.

 

Underwriting: equity offering

15. How is the underwriting for an equity offering typically structured? What are the key terms of the underwriting agreement and what is a typical underwriting fee?

It is mandatory to use an underwriter in equity offerings. The underwriting methods described in the CMB legislation are:

  • Best effort underwriting. The sale of the capital market instruments registered with the CMB within the sale period stated in the prospectus, and return of the unpaid portion to the seller.

  • Stand-by underwriting. An undertaking to purchase all the shares which are not sold in the equity offering following the end of the sale period, by full payment of the price in cash. If the undertaking only covers a portion of the offered shares, this type of underwriting is called partial stand-by underwriting.

  • Full underwriting. An undertaking by the intermediary institution to purchase all the shares subject to the equity offering in cash, and before the initiation of the sale period and subsequent offering of the shares to the public. This type of undertaking may only cover a portion of the offered shares.

The key terms of the underwriting agreement are:

  • Information about the parties.

  • Information about the offered shares, including their terms and conditions, applicable statute of limitations, and the sale of the shares.

  • Information about the type of underwriting.

  • Information about the rights, undertakings and obligations of the issuer and intermediary institution.

  • Principles about the sale procedure for the offered shares.

  • Principles about the fee and commission to be paid to the intermediary institution.

 

Timetable: equity offerings

16. What is the timetable for a typical equity offering? Does it differ for an IPO?

A typical equity offering may take three to six months. However, depending on the size or method of an IPO, it can take longer. For example, in an IPO where new shares are issued through a capital increase, the period for the use of pre-emptive rights (unless revoked by a corporate decision) may range, in practice, from 15 to 60 days.

An indicative timetable for a typical public offering is as follows:

  • Application to CMB to amend the articles of association: four to five weeks.

  • Application to CMB to register the shares, and due diligence by CMB and ISE: eight to 12 weeks.

  • Registration and announcement of the prospectus.

  • Bookbuilding: two to 30 days.

  • Pricing and sharing the results of the bookbuilding with CMB.

  • ISE approval of the trading of shares.

  • Trading (registration and announcement of the prospectus through to trading takes about two weeks).

 

Stabilisation

17. Are there rules on price stabilisation and market manipulation in connection with an equity offering?

CMB rules provide that the intermediary institution can purchase shares which started trading on ISE following the IPO, to stabilise the price, provided that the IPO is realised by bookbuilding and information about this is set out in the prospectus.

Price stabilisation purchases can only be made in the price stabilisation period indicated in the prospectus, which cannot be more than 30 days following the initiation of the trading of shares on the ISE, and only if the share price falls below the offering price. The intermediary institution's purchase price must not be higher than the offering price.

Following the end of the price stabilisation period, the intermediary institution must notify ISE and publicly announce information relating to the price stabilisation transactions (the price, number of shares bought by the intermediary institution during the price stabilisation period, and so on).

Under Turkish securities legislation, market manipulation is an offence subject to two to five years' imprisonment and heavy judicial monetary penalties. Price stabilisation transactions do not constitute a market manipulation offence provided the intermediary institution complies with the price stabilisation rules introduced by the CMB and ISE.

 

Tax: equity issues

18. What are the main tax issues when issuing and listing equity securities?

Corporation tax

Where the company carries out a capital increase and receives an amount over the nominal value of the shares, this amount is treated as income but exempted from corporate tax (emission premium exemption).

VAT

The issuance is exempt from VAT and the documents prepared in relation to the issuance are also exempted from VAT.

Competition fund levy

In case the issuance is carried out through capital increase, the increased capital amount is subject to 0.04% competition fund levy.

Capital gains

It is unclear whether the capital gains withholding mechanism under Income Tax Law (ITL) Provisional Article 67 applies if the issuance is carried out on the stock exchange through a sale of unlisted shares. It is suggested that ITL Provisional Article 67 attempts to tax the income derived from listed instruments. Therefore a sale of unlisted shares on the stock exchange (therefore leading to their being listing instruments) should fall within its scope.

The holding period is an important tax consideration for tax resident real persons and income tax purposes. Where shares were obtained before 2006, the holding period is one year to qualify for income taxation; if not, it is two years. The capital gains derived from listed shares is subject to 0% withholding tax, which is the final taxation for real persons (tax resident and non-tax resident) and non-tax resident legal persons operating without a permanent establishment in Turkey.

Stamp duty

Transfers of shares are exempt from stamp duty. However, where a share purchase agreement (SPA) is signed it is subject to stamp duty. There is an exemption provided to SPAs if the seller qualifies for corporate tax capital gains exemption (see above, Capital gains).

 

Continuing obligations

19. What are the main areas of continuing obligations applicable to listed companies and the legislation that applies?

Financial statements and independent audit

Listed companies must prepare and announce annual and quarterly financial statements based on the international financial reporting standards (IFRS). The annual financial statements of a listed company must be subject to independent audit and the semi-annual financial statements must be subject to limited review.

Dividend payments

The CMB has the authority to make a certain amount of dividend distribution mandatory for the listed companies. Currently, listed companies are free to make their own dividend distribution decisions. Listed companies can distribute advance dividends subject to CMB conditions.

Public disclosure

Listed companies must make prompt public disclosures of events or information which may affect the value of capital market instruments and shape the investors' decisions.

Corporate governance

Listed companies must have an internal audit and financial reporting committee, an investor relations unit, and licensed senior management personnel responsible for enhancing compliance with corporate governance requirements. Recently, under a CMB communiqué, some corporate governance principles became binding for listed companies, such as:

  • Appointing independent board members.

  • Having several committees.

  • Complying with some special decision taking procedures defined for some material corporate actions (that is, mergers, disposal of material corporate assets, and so on) and related party transactions.

Approval of the amendments to the articles

A public company must obtain the approval of both the CMB and the Ministry of Science, Industry and Technology to amend the articles.

Criminal offences

There are prohibitions on insider trading, market manipulation and certain other activities which involve market abuse.

Listed companies must set up certain units and hire personnel with certain qualifications, including:

  • Setting up a PR unit.

  • Hiring licensed personnel.

  • Setting up an audit committee.

 
20. Do the continuing obligations apply to listed foreign companies and to issuers of depositary receipts?

Foreign companies and issuers of depository receipts are generally subject to the same continuing obligations. Those companies must also simultaneously disclose their financial statements in Turkey, if the financial statements are disclosed in a jurisdiction outside Turkey.

 
21. What are the penalties for breaching the continuing obligations?

When a listed company or its shareholders, directors or persons trading in shares breach the obligations set out in CMB and ISE legislation, CMB can, among other things:

  • Issue an official warning demanding compliance.

  • Order the public disclosure of an event/information.

  • Impose administrative fines.

  • File a complaint before the public prosecutor of a criminal offence.

  • Suspend trading.

When determining the type and amount of penalty, CMB takes into account the severity and frequency of the damage caused by the violation.

 

De-listing

22. When can a company be de-listed?

A company can apply to the ISE for a voluntary de-listing if both:

  • At least 95% of its shares and/or its voting rights are held by a single shareholder or by shareholders acting in concert.

  • Its board of directors and general assembly accept the de-listing.

95% of the shareholders seeking voluntary de-listing must make a cash tender offer to the other shareholders. The tender price applicable to a tender offer for voluntary de-listing is set out by CMB decisions.

Companies can be permanently or temporarily de-listed by the ISE due to:

  • Excessive accumulated losses.

  • Non-compliance with disclosure requirements and stock exchange regulations.

  • Suspension of operations.

  • Insolvency, liquidation or any dissolution.

  • Failure to pay stock exchange fees.

  • Cancellation of permits and/or licences required to carry out main operations.

  • Loss of two-thirds of the capital.

  • Other conditions, as specified in detail under the listing regulations.

 

Main debt capital markets/exchanges

23. What are the main debt securities markets/exchanges in your jurisdiction (including any exchange-regulated market or multi-lateral trading facility (MTF))? Outline the main market activity and deals in the past year.

Main debt markets/exchanges

Bonds and Bills Market. The Bonds and Bills Market can be categorised as follows:

  • Outright Purchases and Sales Market. This market is for trading of:

    • government debt securities (GDS) issued in Turkish lira;

    • foreign currency, revenue-indexed bonds (RIB);

    • private debt securities;

    • debt securities issued by Privatisation Administration, Housing Development Administration of Turkey and local administrative bodies;

    • liquidity bills issued by the Central Bank;

    • other securities which are decided to be traded on the market by the Executive Council.

  • Repo/Reverse Repo Market. The repo market is for securities which are held as collateral in sufficient amounts at the starting value date of the transaction and held in the name of the party executing the reverse repo until the end value date of the transaction. A daily re-appraisal is conducted on the securities according to market conditions and if any depreciation is determined, additional collateral is sought. Settlement transactions on the end-value date are realised automatically.

  • Interbank Repo Market. This is established for eliminating the risk of trading with a non-bank member since the banks are required to deposit a certain percentage of their repo trades at the Central Bank as a compulsory reserve requirement when the trade is carried out with a non-bank party. The Central Bank and member banks are authorised to operate in this market. However, brokerage houses cannot participate and banks can only trade on behalf of their portfolio.

Foreign Securities Market (FSM). The FSM is established for trading Turkish Eurobonds, international debt securities issued by the Turkish Undersecretariat of Treasury and other international debt securities similar in nature to bonds and bills registered by the Turkish Capital Markets Board (CMB) and listed and/or registered by the ISE. There are two sub-markets operating under the FSM:

  • International Bonds Market (IBM).

  • Eurobond Negotiated Deals Platform (ENDP).

Market activity and deals

As in the equity market, the bonds and bills market also continued to grow in 2011, with its annual trade volume standing at TRY3.46 trillion at the end of 2010 and reaching TRY4.12 trillion at the end of 2011. During this period, the average daily trade volume increased by 17.79% from TRY13.83 billion to TRY16.29 billion. 70.41% of trade volume was in the Repo Reverse Repo Market, 11.6% in the Outright Purchases and Sales Market, 17.78% in the Interbank Repo Reverse Repo Market, 0.2% in the Repo Market for Specified Securities, and 0.01% in the Offerings Market for Qualified Investors.

During 2011, 11 issues, worth TRY279 million in total were realised in the Offerings Market for Qualified Investors, which was launched for primary market transactions on 17 May 2010.

The trade volume of the Repo Market for Specified Securities, which started to operate on 17 December 2010, reached TRY8.4 billion.

 
24. What are the main regulators and legislation that applies to the debt securities markets/exchanges in your jurisdiction?

Regulatory bodies

The main regulatory bodies are the CMB and the ISE.

Legislative framework

Legislation that applies to the debt securities markets includes:

  • Communiqué Serial II No. 22 with regard to principles of registration and sale of the debt securities.

  • ISE Bonds and Bills Market Regulation.

  • ISE Listing Regulation.

  • CMB Decision No. 2009/15344 with regard to the issuing limits of debt securities.

  • CMB Decision No. 2009/15330 with regard to the registration fees of the debt securities.

  • Circular-Letter No. 340 on Principles Regarding the Trading of Unlisted Private Sector Debt Securities on the Bonds and Bills Market.

  • Circular-Letter No. 349 on Principles Regarding the Trading of Foreign Securities and Depositary Receipts on ISE.

 

Listing debt securities

25. What are the main listing requirements for debt securities?

Main requirements

Debt securities issued in Turkey must be authorised by and registered with the CMB. The CMB must also approve the offering circular, if any. In order to ensure that debt instruments are traded at the ISE, applications filed with the ISE for listing/registration are filed concurrently with the registration application filed with the CMB. The companies or investment trusts offering debt instruments must meet the listing criteria under the ISE's Listing Regulation published in the Official Journal No. 25502 of 24 June 2004.

Although there is no general limit for foreign investors to invest in all listed securities of the Turkish capital market, there are limitations in some specific sectors for foreign shareholders' share ratios such as aviation, maritime and broadcasting.

Minimum size requirements

The nominal value of the debt instruments to be issued and listed must be at least TRY1.22 million.

Trading record and accounts

The following listing criteria must be fulfilled by an issuer company:

  • A minimum three calendar years must have elapsed since the company was established (two years if the free float ratio is at least 25%).

  • The financial statements and independent audit reports of the company must have been submitted to the ISE.

  • Profits before tax must have been earned as evidenced by its financial statements relating to the last two years before the application date (or the last year if free float ratio is at least 25%).

  • The total shareholders' equity in the last independently audited financial statement of the company must be at least TRY1.95 million.

  • The ISE management must have examined, accepted and approved the financial structure of the company.

  • The company's documentation regarding its establishment and activities and legal situation of its debt securities must comply with the relevant regulations.

  • The company's articles of association must not include any provisions restricting the transfer and circulation of the securities traded on the ISE or preventing the shareholders from exercising their rights.

Minimum denomination

There is no minimum denomination limit for debt instruments.

 

Structuring a debt securities issue

26. What are the main types of debt securities issued in your jurisdiction?

The main types of debt securities under Turkish law are:

  • Bonds.

  • Convertible bonds.

  • Exchangeable bonds.

  • Commercial papers.

  • Gold, silver and platinum bills.

  • Bank bills.

  • Other capital markets instruments accepted as debt securities by the CMB due to their characteristics, even if they are not listed in the relevant Communiqué, provided that the issuers acting as debtors, issue and sell after the CMB's recognition.

There are also government bonds and treasury bills issued by the Treasury:

  • Zero coupon government bonds.

  • Government bonds indexed to reference auctions.

  • Flat rate government bonds.

  • Fixed interest government bonds.

  • CPI indexed government bonds.

  • Revenue indexed government bonds.

  • Treasury bills.

 
27. Are different structures used for debt securities issues to the public (retail issues) and issues to professional investors (wholesale issues)?

Debt securities to be privately placed or sold to qualified investors do not require any disclosure documents except a written statement, the content of which is determined by the CMB, to be taken from the purchaser. It is also not mandatory to use an intermediary institution for debt securities that are planned to be privately placed.

 
28. Are trust structures used for issues of debt securities in your jurisdiction? If not, what are the main ways of structuring issues of debt securities in the debt capital markets/exchanges?

The main ways of structuring issues of debt securities are:

  • Private placement or sale to qualified investors.

  • Public offering.

Since the trust is not a legally recognised concept under Turkish law, it is not possible to use trust structures for Turkish law-governed issuances.

 

Advisers: debt securities issue

29. Outline the role of advisers used and main documents produced when issuing and listing debt securities.

Intermediary institutions

An intermediary institution is appointed by the issuer to either act alone or to form a consortium with other intermediary institutions. Intermediary institutions underwrite the bonds that are issued and sell them to investors. Intermediary institutions are responsible for facilitating the payment of principal and interest to bondholders. The lead intermediary institution leads the syndicate and manages the entire process.

Legal counsel

Legal counsel assist the issuer in negotiating with the lead manager on the agreements related to the offer, preparing the due diligence and verifying the prospectus. The lead manager's counsel advise the lead manager on the agreements related to the offer, assist with due diligence and with the prospectus.

Auditors

All information relating to the financial status and operations of issuers subject to independent audit must comply with the reports issued by independent auditors. Compliance must be approved by the independent auditors.

Main documents

The main legal documents produced when issuing and listing debt securities are:

  • Prospectus and circular.

  • Underwriting agreement between the issuer and the intermediary institution.

  • Other documents that might be required by the CMB.

 

Debt prospectus/main offering document

30. When is a prospectus (or other main offering document) required? What are the main publication/delivery requirements?

A prospectus is required for all debt instrument offerings except for a private placement or sale to qualified investors (see Question 9).

The content of the prospectus and circular must comply with the relevant regulation as well as other information required by legislation or by the CMB. The prospectus and circular must also comply with the minimum standards set by the CMB and contain the additional information required by the CMB during the registration application.

The prospectus is then approved by the CMB and registered with the relevant Trade Registry and announced in the Turkish Trade Registry Gazette within 15 days of the date of the certificate of registration. Following registration with the Trade Registry, the prospectus is published on the website of the issuer company and on the Public Disclosure Platform which an electronic system with a web page through which electronically signed notifications required by the CMB and ISE are publicly disclosed.

 
31. Are there any exemptions from the requirements for publication/delivery of a prospectus (or other main offering document)?

A prospectus or circular is not required for a private placement or a sale to qualified investors (see Question 30).

The number of persons, natural or legal, to purchase the debt securities through the private placement cannot exceed 100 (either during the registration of the instruments with the CMB, or during later proceedings). Where debt securities sold through private placement are re-offered for sale in a public offering, a prospectus and a circular must be prepared.

 
32. What are the main content/disclosure requirements for a prospectus (or other main offering document)? What main categories of information are included?

The following information must be explicitly set out in the prospectus:

  • Financial status of the issuer company.

  • Risks.

  • Basic assumptions relating to the redemption of the debt securities.

  • Scope and result of operations of the issuer company.

  • All other information required by the relevant legislation or by the CMB.

  • The types, amount, maturity, interest rate, terms and conditions of the debt securities.

  • Other information which may affect the decisions of investors.

  • Where the debt securities have been guaranteed by a third party, basic information regarding the guarantor must be included in the prospectus and the circular.

The prospectus and circular must comply with minimum standards set by the CMB and contain any additional information required by the CMB during the registration application. All of the information and explanations in the prospectus and circular must be based on documentary evidence.

The financial information provided in a prospectus and circular regarding issuers subject to independent audits must be prepared in accordance with independent auditor reports.

 
33. How is the prospectus (or other main offering document) prepared? Who is responsible and/or may be liable for its contents?

The prospectus is prepared by the issuer company, its legal counsel and finance and tax advisers with the co-operation of the intermediary institution.

The liability of parties for disclosure documents is similar to that for equity issues (see Question 11).

 

Timetable: debt securities issue

34. What is a typical timetable for issuing and listing debt securities?

An indicative timetable for issuing and listing debt securities is as follows (T is the date of trading):

  • T minus 4 months. Internal corporate decisions of the issuer, appointment of the intermediary institution and other advisers, and preparatory work for the application to CMB and ISE.

  • T minus 4 months to T minus 1 month. Application to the CMB and ISE (and other regulatory agencies, if applicable). Examinations by the CMB and ISE.

  • T minus 1 month to T minus 1 week. Approval of the CMB and ISE, registration of the securities with CMB, and announcement of the prospectus and circular.

  • T minus 1 week. Sale of the securities.

  • T. Date of trading.

 

Tax: debt securities issue

35. What are the main tax issues when issuing and listing debt securities?

The tax issues on the issuance of debt instruments by Turkish residents in Turkish primary markets (which is defined as issuance in Turkey for tax purposes) include the following.

Issuer

The amounts received in return for the issuance of debt instruments will not trigger corporate tax.

The issuance is exempt from VAT and the documents prepared in relation to the issuance are also exempted from stamp duty.

Where the issuer is a bank or a financial institution, the amounts received in relation to the issuance should not be subject to banking insurance and transaction tax.

Investor

The acquisition of debt instruments does not trigger any taxable event. The acquisition is also exempt from VAT and stamp duty.

 

Clearing and settlement of debt securities

36. How are debt securities cleared and settled and what currency are debt securities typically issued in? Are there special considerations for holding, clearing and settling debt securities issued in foreign currencies?

Debt securities are issued in Turkish lira in Turkey. However if issued outside Turkey, the debt securities may be issued in foreign currency subject to certain restrictions.

 

Continuing obligations: debt securities

37. What are the main areas of continuing obligations applicable to companies with listed debt securities and the legislation that applies?

The main continuing obligations of the companies with listed debt securities are as follows:

  • Public disclosures. Public disclosure must be made of:

    • interest payments for debt securities;

    • conversion, exchange, settlement, participation in issue of new debt securities;

    • exercise of cancellation rights;

    • redemption of the value of the debt securities;

    • rating and changes regarding the rating.

    Where the debt instrument is a bond, the following must be disclosed:

    • details regarding the date, place and agenda of bondholders meeting;

    • how the bond holders may exercise the right to attend to the meeting.

    • new debt instrument issues, and in particular the guarantees and collaterals concerning such issues.

  • Periodic financial reporting. Like listed companies, issuers of debt instruments must prepare and announce annual and quarterly financial statements during the lifetime of the instrument. The annual financial statements of a listed company must be independently audited and the semi-annual financial statements must be subject to limited review.

 
38. Do the continuing obligations apply to foreign companies with listed debt securities?

Foreign companies are subject to the same continuing obligations as domestic companies (see Question 37).

 
39. What are the penalties for breaching the continuing obligations?

For a breach of continuing obligations, the CMB can impose administrative fines ranging from TRY20,389 to TRY135,926 for each violation.

 

Reform

40. Are there any proposals for reform of both equity and debt capital markets/exchanges? Are these proposals likely to come into force and, if so, when?

To respond to the financial and corporate world's needs, the CMB has prepared a new draft Capital Markets Law which was announced in March 2012. Therefore, a new Capital Markets Law is expected to enter into force in the near future.

 

Contributor details

Omer Collak

Paksoy Attorneys At Law

T +90 2123 664 700
F +90 2123 662 355
E ocollak@paksoy.av.tr
W www.paksoy.av.tr

Qualified. Turkey, 2005

Areas of practice. Banking and finance; capital markets transactions; eurobond offerings; Islamic finance transactions; private placements.

Recent transactions

  • Joint lead managers on the first direct sukuk issuance in Turkey.
  • Advised Albaraka in its intended sukuk offering.
  • Acting in many equity and debt offerings of Turkish banks/companies.
  • Off-shore sukuk offering of Kuveyt Turk.
  • Advised Qınvest in several murabaha facilities.
  • Advised in the intended sale of Turkiye Finans, the leading Islamic bank in Turkey.
  • Advised Calik Holding in eurobond offering.
  • Acted for ArcelorMittal in an equity and warrant offering involving Erdemir shares.

Erkan Tercan

Paksoy Attorneys At Law

T +90 2123 664 700
F +90 2123 662 355
E etercan@paksoy.av.tr
W www.paksoy.av.tr

Qualified. Turkey, 2011; New York, US, 2009

Areas of practice. Compliance with capital market regulations.

Recent transactions

  • Joint lead managers on the first direct sukuk issuance in Turkey.
  • Advised Albaraka in its intended sukuk offering.
  • Acting in many equity and debt offerings of Turkish banks/companies.
  • Acted in the merger of TEB and Fortis.
  • Acted for ArcelorMittal in an equity and warrant offering involving Erdemir shares.
  • Advised Citigroup in sale of Akbank shares.

{ "siteName" : "PLC", "objType" : "PLC_Doc_C", "objID" : "1247323720829", "objName" : "Capital Markets Turkey", "userID" : "2", "objUrl" : "http://uk.practicallaw.com/cs/Satellite/resource/7-501-3206?service=crossborder", "pageType" : "Resource", "academicUserID" : "", "contentAccessed" : "true", "analyticsPermCookie" : "2-5e3b4431:1493955e0f4:171a", "analyticsSessionCookie" : "2-5e3b4431:1493955e0f4:171b", "statisticSensorPath" : "http://analytics.practicallaw.com/sensor/statistic" }