Capital Markets Law in Turkey 1. Guidebook to

Transcription

1 Capital Markets Law in Turkey 1 Guidebook to Last Update: June, 2014

2 LEGAL FRAMEWORK The main legislation regarding capital markets law in Turkey is the Capital Markets Code (abbreviated as the CMC ) numbered 6362 and dated Also, specific rules and regulations regarding capital market institutions, capital markets and capital market instruments in Turkey are governed under special communiqués which are promulgated by the Capital Markets Board (abbreviated as the Board ). Turkish Commercial Code numbered 6102 and dated (abbreviated as the TCC ) also applies to public companies and other capital markets players with respect to corporate governance regarding issues on which the CMC or the above-mentioned communiqués are silent. Turkish Code of Obligations, Turkish Civil Code, Foreign Direct Investment Law, Bankruptcy and Execution Law, The Code on the Protection of the Competition, Code on Collection of Public Receivables, tax and banking legislations may also be indirectly related to the activities of public companies and other players in the capital markets. 2

3 CAPITAL MARKETS PLAYERS Types of companies and entities in the capital markets arena in Turkey are as follows: 1- Public Companies 2- Intermediary institutions 3- Banks 4- Portfolio Management Companies 5- Real Estate Appraisal Companies 6- Investment Trusts (Securities, Venture and Real Estate) 7- Independent Audit Companies All of the above-mentioned entities must be established as a joint stock company (abbreviated as the A.S., in Turkish Anonim Şirket ) in accordance with rules under the TCC. 3

4 AUTHORITIES AND INSTITUTIONS The most important regulatory authorities, exchanges and other private or public institutions in the capital markets arena in Turkey are as follows: 1- Capital Markets Board of Turkey 2- Capital Markets Licensing and Training Agency 3- Central Registry Agency 4- Central Securities Depository (within Central Registry Agency) 5- Takasbank - Istanbul Settlement and Custody Bank 6- Borsa Istanbul Exchange 7- Turkish Derivaties Exchange 8- Public Disclosure Platform 9- Investor Compensation Center Also, other public bodies such as Union of Chambers and Commodity Exchange of Turkey, Banking Regulation and Supervision Agency, Central Bank of the Republic of Turkey, Financial Crimes Investigation Board, Pension Monitoring Center, Undersecretariat of Treasury. 4

5 PROFESSIONAL ASSOCIATIONS Following are the most important professional associations active in the capital markets arena in Turkey each established with different purposes and objectives: 1- Association of Brokerage Firms Managers 2- Association of Capital Market Intermediary Institutions of Turkey 3- Association of Publicly-Traded Companies Managers 4- Association of Stock Market Investors 5- Banks Association of Turkey 6- Corporate Governance Association of Turkey 7- Investor Relations Association of Turkey 8- Participation Banks Association of Turkey 9- Turkish Institutional Investment Managers Association 5

6 CAPITAL MARKETS BOARD The Board (in Turkish Sermaye Piyasası Kurulu ) is the ultimate regulatory and supervisory authority in charge of the capital market entities and institutions, capital markets and capital market instruments in Turkey. The Board regulates and supervises: (i) public companies (ii) intermediary institutions, banks and brokerage companies; (iii) investment companies (real estate investment trusts, securities and venture capital companies); (iv) mutual funds; (v) exchanges; (vi) institutions such as Settlement and Custody Bank (Takasbank), Association of Capital Market Intermediary Institutions of Turkey Central Registry Agency and (vii) Borsa Istanbul, Turkish Derivatives Exchange and other establishments (settlement, custody, rating institutions, independent auditors, portfolio and asset management, investment advisory, real estate appraisal companies, etc.). Web Site: Tel/Fax: +90 (312) / +90 (312) Address: Eskişehir Yolu 8.Km No: , Ankara 6

7 CAPITAL MARKETS BOARD (cont.) The Board is entrusted with a wide range of duties and responsibilities such as regulating the process of public offerings, monitoring the trade of capital markets instruments, adopting decisions to ensure transparency and public disclosure and regulating the certification process of executives and employees of capital markets institutions. Among the many duties and responsibilities of the Board, the most important function of the Board is to regulate and supervise public companies. (which as explained below are A.S. s which have more than 500 shareholders and/or which offer their shares to the public to be traded on a stock exchange.) The Board is also the highest authority that is responsible for the implementation and enforcement of the CMC and the communiqués. As mentioned in detail below, the Board is also granted with broad authority by the CMC to exempt companies (determined by the Board itself) from the liabilities and obligations regulated under the CMC and the communiqués taking into account various aspects such the volume of the public offering, investors, securities, etc. 7

8 LICENSING AND TRAINING AGENCY As a subsidiary of the Board, the Licensing and Training Agency (abbreviated as the SPL ) provides education at capital markets, conducts and supervises examination, licensing and certification procedures of capital market professionals and also performs research and introductory activities. According to the information provided on its website, the SPL is established to determine fundamentals regarding the certification of occupational education, occupational competence and occupational qualification of managers and other employees of capital markets institutions. Web Site: Tel/Fax: +90 (212) / +90 (212) Address: Arapcami Mahallesi,Bankalar Caddesi No: 21/A Kat: Karakoy, Beyoglu, Istanbul 8

9 CENTRAL REGISTRY AGENCY Central Registry Agency (abbreviated as the CRA, in Turkish Merkezi Kayıt Kuruluşu ) is the central securities depository, holding capital market instruments and the rights attached to such instruments as dematerialized in an electronic environment. Web Site: Tel/Fax: +90 (212) / +90 (212) Address: Askerocagi Cad. Süzer Plaza No:6 Kat: Elmadag, Sisli, Istanbul 9

10 DEMATERIALISATION In principle, in Turkey, capital market instruments are issued in a dematerialized form in an electronic environment, without physical certificates. The Board is authorized to determine which capital market instruments will be issued in dematerialized form and which rights will be monitored; to establish the principles and procedures regarding their dematerialization as to their types and issuers, the record keeping and the termination of the monitoring of records belonging to issuers who have lost membership conditions. Dematerialized capital market instruments are kept in accounts created in the name of the owner irrespective of whether they are classified as registered or bearer. Rights related to dematerialized capital market instruments are monitored by the CRA. The records are kept by CRA members, in the electronic environment created by the CRA. 10

11 DEMATERIALISATION (cont.) According to the CMC, capital market instruments which are decided to be dematerialized must be physically delivered to CRA in line with the principles established by the Board. Physical certificates of delivered capital market instruments automatically become invalid. Undelivered capital market instruments cannot be traded on a stock exchange after the dematerialization decision; intermediary institutions cannot provide intermediary services for the purchase and sale of such capital market instruments and fund units cannot be redeemed. Capital market instruments which are not delivered until the end of the 7th year following the beginning of the monitoring by CRA, are automatically transferred to the ICC. The limited rights in rem on such instruments become automatically terminated. Such instruments must be sold within 3 months starting from the date they are transferred to the account of the Investment Compensation Center (as mentioned below). 11

12 DEMATERIALISATION (cont.) According to the information given by the CRA, currently in Turkey, all floating and non-floating shares of publicly-traded companies, mutual funds, corporate bonds, commercial papers, warrants, covered bonds and asset backed securities are issued and held in the CRA s electronic book-keeping system (without physical certificates). Rights affixed on such dematerialized capital market instruments are reflected to the CRA records and these records bear legal basis. The records created at the CRA have declaratory status. The date of notification made by participants to the CRA is taken as a basis with respect to the claims made to third parties in connection with the rights affixed on dematerialized capital market instruments. It is not mandatory to carry out transactions on capital market instruments that are held at CRA through CRA for such transactions to be valid and effective. However, any notification that is made to CRA renders a transaction claimable against the third parties. 12

13 DEMATERIALISATION (cont.) Records of the CRA are also taken as a basis within the context of share transfers conducted in publicly-traded companies in order to record the transfers and transferees in the share ledger. Also, in case the registered shares of a publicly-traded company are sold on a stock exchange, CRA is required to notify the company about the identity of the transferor and the number of shares sold or also to provide technical access to this information. As a final note, according to the TCC, participants to General Assembly meetings in publicly-traded companies are determined according to the list of shareholders that is provided by the CRA. 13

14 DEMATERIALISATION CHART 14 Image is taken from CRA s website MKK = CRA

15 CENTRAL REGISTRY AGENCY (cont.) Central Securities Depository (abbreviated as the CSD ) is an institution established under the roof of CRA and is responsible for operating the Security Settlement System, performing notary services with respect to initial registry of securities and holding securities accounts. Transfer instructions regarding the dematerialized capital markets instruments are executed in a system established under the roof of CRA, which is called as the Securities Settlement System in which securities are issued, held in accounts either at participant or beneficial owner basis, traded, and their respective rights are installed. 15

16 Borsa Istanbul is a private legal entity and subject to private laws. BORSA ISTANBUL IMKB, former stock exchange in Turkey has been re-branded and re-structured as Borsa Istanbul ( in Borsa Istanbul has brought together all the exchanges operating in the Turkish capital markets under a single roof. According to the information provided on Borsa Istanbul s website, main purpose and scope of activity of Borsa Istanbul can be summarized as i) to ensure that capital markets instruments, foreign currencies, precious metals and gems and other contracts, documents, and assets approved by the Board are traded subject to free trade conditions in a facile and secure manner, in a transparent, efficient, competitive, fair and stable environment, ii) to create, establish and develop markets, sub-markets, platforms, systems and other organized market places for the purpose of matching or facilitating the matching of the buy and sell orders for the above mentioned assets, iii) to determine and announce the discovered prices and iv) to manage and/or operate the aforementioned or other exchanges or markets of other exchanges. 16

17 BORSA ISTANBUL (cont.) Products traded on Borsa Istanbul are: i) shares (bearer shares and registered shares only if transfer via blank endorsement is allowed), ii) exchange traded funds, iii) warrants, iv) options, v) futures, vi) certificates, vii) debt instruments, viii) lease certificates. As explained in detail below, markets which operate under the roof of Borsa Istanbul are as follows: i) Share (Equity) Market, ii) Emerging Companies Market, iii) Debt Securities Market, iv) Futures and Options Market and v) Precious Metals and Diamond Markets. In order for companies to have their shares or capital instruments traded on any of the markets of Borsa Istanbul, a formal application must be made to Borsa Istanbul with the requirement documents through intermediary institutions (apart from the application made to Board). There are no restrictions on foreign portfolio investors trading in the Turkey. Real persons and legal entities residing abroad (including investment trusts and investment funds abroad) can freely purchase and sell all sorts of securities and other capital market instruments in Turkey. 17

18 TAKASBANK Takasbank is authorized to provide cash and securities settlement transactions as the central clearing and settlement institution to Borsa Istanbul equities, debt securities, foreign securities, derivatives and precious metals markets. Security delivery/receipt as well as cash obligations of Borsa Istanbul members arising from the buy-sell transactions in the related markets are executed via Takasbank. Takasbank is authorized to perform i) marketing operating, ii) cash credit, iii) custody, iv) clearing and settlement, v) collateral management and vi) other services such as asset transfer, data broadcast, cash correspondence. Web Site: Tel/Fax: +90 (212) / +90 (212) Address: Sisli Merkez Mahallesi, Merkez Caddesi, No: Sisli, Istanbul 18

19 CLEARING AND SETTLEMENT Through the integrated system that is established between CRA and Takasbank, Takasbank provides the following clearing and settlement services: Debt Securities Market Clearing and Settlement Equities and Other Equity Instruments Clearing and Settlement Futures and Options Market Clearing and Settlement Electricity Market Clearing and Settlement Precious Metals and Diamond Market Cash Settlement Turkey Electronic Fund Distribution Platform 19

20 CLEARING AND SETTLEMENT (cont.) Debt Securities Market Clearing and Settlement: Takasbank conducts the settlement of the transactions performed in i) Debt Securities Market, ii) Outright Purchases and Sales Market, iii) Offering Market for Qualified Investors, iv) Repo-Reverse Repo Market, v) Repo Market for Specified Securities, vi) Interbank Repo-Reverse Repo Market and vii) Equity Repo Market, which are established under the roof Borsa Istanbul. The accounts at CRA are used in the settlement of Private Sector Debt Instruments and chare certificate repo market and the accounts of Central Bank of Turkey are used in the settlement of public debt instruments, liquidity bill and rental certificates. The settlement of the transactions in the Debt Securities Market are performed in the same day, the settlement of the foreign exchange paid securities are performed with at least 1-day value date. 20

21 CLEARING AND SETTLEMENT (cont.) Equities and Other Equity Instruments Clearing and Settlement: The exchange of transactions realized in the Equity and Emerging Companies Markets under Borsa Istanbul are realized under the Delivery versus Payment principle - by clearing the purchases and sales on the second day (T+2) following the performance day of the transactions. As mentioned above, this process is carried out through the integrated system that is established between CRA and Takasbank. 21

22 CLEARING AND SETTLEMENT (cont.) Futures and Options Market Clearing and Settlement: Takasbank is the central clearing and settlement institution of the derivatives transactions executed at the Borsa Istanbul s Futures and Options Market. Takasbank also provides central counterparty services at the Futures and Options Market. Transactions executed at the exchange are centrally cleared and settled within scope of the relevant regulations and Takasbank acts as a buyer against the seller and a seller against the buyer at the time the orders are matched. 22

23 CLEARING AND SETTLEMENT (cont.) 23 Image is taken from CRA s website MKK = CRA

24 TAKASBANK (cont.) Takasbank also operates Money Market and Security Lending Market. Takasbank Money Market (abbreviated as the TMM ) is an organized market established and operated by Takasbank, providing matching of the bids and offers of Intermediary Institutions (banks, brokerage houses) which have cash surplus and/or fund deficits with trading anonymity. All the obligations arisen from TMM transactions are under Takasbank guarantee. Takasbank acts as buyer against seller and as seller against buyer. On the other hand Takasbank does not give bid/ask quotations and also not a participant in the market. Buyer and seller parties can trade within trade limits allocated to each participant by Takasbank. In addition, buyers party must pledge collateral. 24

25 TAKASBANK (cont.) Takasbank Securities Lending Market (abbreviated as the SLM ) is an organized market established and operated by Takasbank, providing matching of the bids and offers of intermediary institutions (banks, brokerage houses and their customers) that want to borrow by pledging determined types and amounts of collateral or lend in order to receive additional revenue for their portfolios. Takasbank provides Central Counterparty Services compliant with globally endorsed standards and regulations. Stocks and Exchange Traded Funds traded in Borsa Istanbul Equity Market are subject to transaction. Also transactions in the SLM can be executed in different maturity terms or without any maturity. 25

26 TURKISH DERIVATES EXCHANGE Turkish Derivaties Exchange (abbreviated as the TURKDEX ) is the first private exchange in Turkey, established on the Cabinet s resolution no. 2001/3025 which has been officially announced through Official Gazette, dated October 19, 2001, following the State Ministry s resolution no. 2381, dated September 3, 2001 on the basis of approval statement no. 9/1101 of Board of Turkey, dated August 17, Web Site: Tel/Fax: +90 (232) / +90 (232) Address: Akdeniz Cad. No:14 Birsel Is Merkezi Daire: Alsancak, Izmir 26

27 TURKISH DERIVATES EXCHANGE (cont.) Following products are traded on TURKDEX: Equity Index Futures (ISE-30, ISE-100, ISE Index Spread) Interest Rate Futures (T-Benchmark Government Bond) Currency Futures (USD/Turkish Lira, EURO/Turkish Lira, EURO/US Dollar Cross Currency) Commodities (Wheat Futures, Cotton Futures, Gold Futures, US Dollar/Ounce Gold Futures, Live Cattle) Energy (Base Load Electricity Futures) International investors are eligible to trade all TURKDEX products without any regulatory restrictions. International investors have a considerable share in trading volume of TURKDEX by holding the majority of open interest. TURKDEX is tax free for foreign and local institutional investors. 27 Both local and foreign investors can hedge their Turkish equity and currency exposure by using TURKDEX futures contracts.

28 PUBLIC DISCLOSURE PLATFORM As mentioned in detail below, in certain occasions, the CMC requires publiclytraded companies, trusts, funds, brokerage houses and independent audit companies to file various information, reports and explanations to an online public disclosure platform: The documents/events that these capital markets players must disclose on-line include independent audit reports, material events/changes, financial reports, general assembly minutes and articles of association. Such players are required to get a certificate for a secure electronic signature from the various authorities approved by Board to make online disclosures. The entities must continue to make public disclosures to the Board and/or Borsa Istanbul in parallel with online public disclosures. 28

29 INVESTOR COMPENSATION CENTER The Investor Compensation Center (abbreviated as the ICC ) - as a public legal identity - is established for the purpose of investor compensation subject to the rules and conditions stipulated under the CMC. The ICC is administered and represented by the Board. In the event that it determined by the Board that an investment company is (or will be within a short period of time) unable to fulfill is obligations of cash payment or delivery of capital market instruments with regard to assets belonging to investors kept or managed by such investment company in the name of the investor in relation to investment services and activities or ancillary service, the Board may decide to provide compensation to the said investors who will suffer from the non-performance of such investment company. This decision is carried out and executed by the ICC. Certain persons mentioned in the CMC (such as members of board of directors, managers, personally liable shareholders of the investment company itself) cannot be compensated. 29

30 INVESTOR COMP. CENTER (cont.) The maximum compensation amount to be paid to each right holder investor is TL. This limit includes all the claims of an investor from the same investment company, regardless of the currency or the number or type of account. The aggrieved investors are required to make an application to the ICC in writing in order to start the compensation process. The rules and regulations regarding how the ICC operates is governed under the Regulation on Investor Compensation which is published in the Official Gazette dated June 6, 2013 and numbered All investment companies are required to register with the ICC and pay certain fees. ( 30

31 PUBLIC COMPANIES Public companies are subject to the rules under the CMC and the regulations promulgated by the Board (in addition to the provisions of the TCC regarding the issues on which the CMC is silent.) Under Turkish law, A.S. is the only type of company that is entitled to become a public company. An A.S. of which the shares are offered to the public ( publicly-traded company ) or an A.S. of which the shares are NOT offered to the public, but which has more than 500 shareholders, are regarded as a public company. Certain provisions of the CMC and the relevant legislation apply to all public companies (including an A.S. which has more than 500 shareholders, but has not offered its shares to the public); whereas some of the provisions only apply to the publicly-traded companies. 31

32 EXEMPTION FROM LIABILITIES The Board is granted with broad authority by the CMC to exempt companies (determined by the Board itself) from certain liabilities and obligations regulated under the CMC and the relevant legislation taking into account various aspects such the volume of the public offering, investors, securities, etc. According to the Communiqué on Exemption of Public Companies from the Requirements under Capital Markets Law (II-16.1), the companies of which the number of shareholders exceed 500 may obtain a decision to not have their shares listed on a stock exchange and therefore be exempt from certain requirements under the CMC, provided that the dissenting shareholders are granted with the right to exit the company (only to be exercised in a determined period of time cannot be less than 2 years). Exiting shareholders must be given fair and reasonable consideration for their shares. The abovementioned decision can only be obtained with the affirmative votes cast by 2/3 of all the shareholders and 3/4 of the voting shareholders in the General Assembly. 32

33 EXEMPTION FROM LIABILITIES (cont.) i) The public companies of which 95% of the capital is owned by maximum of 50 shareholders or ii) of which more than 50% of the capital is directly and indirectly owned by a governmental authority, may apply to the Board to be exempt from the requirements under the CMC. The companies which prove that the number of their shareholders fall below 500 may also apply to the Board to be exempt from the requirements under Capital Markets Law. A public company may apply for exemption also in case it is determined according to its independently audited financial statements pertaining to the last 2 years that: a) Total value of its assets are less than 10 million Turkish Liras or b) Both its net sales revenue and other revenues excluding the net sales revenue are below 5 million Turkish Liras or c) its registered capital together with statutory capital reserves are uncovered. 33

34 EXEMPTION FROM LIABILITIES (cont.) Exemption method may also be applied in cases of bankruptcy, termination, cessation of activities. The Board is authorized to ex officio exempt a public company in any of the above-mentioned cases or in any other cases as stipulated under the CMC (e.g. failure to receive official notices sent by the Board 2 consecutive times) occur. Prior to the exemption of the public company, the Board may require the controlling shareholders to make a bid to the remaining shareholders. 34

35 > 500 SHAREHOLDERS An A.S. of which the shares are NOT offered to the public, but which has more than 500 shareholders (can be determined/proven in anyway), is regarded as a public company. The auditors of a company are under the obligation to report to the Board of Directors of such company (then to be forwarded to the Board) upon determining that the number of the shareholders of the company exceeds 500. In any case, the Board of Directors is under the obligation to inform the Board within 30 days after it becomes aware of the fact that the number of the shareholders of the company exceeds 500. The representatives of the Ministry of Customs and Trade ( Ministry ) attending General Assembly meetings of the companies are under obligation to report to the Board through the Ministry in case they become aware of the fact the number of shareholders of a company exceeds 500. There is a similar requirement also for banks and intermediary institutions. 35

36 > 500 SHAREHOLDERS (cont.) In case an A.S. becomes a public company in the abovementioned way, it must be registered with the Board through an application made with the required documents and must also have its shares listed on a stock exchange, within 2 years after it gains the status of a public company, unless the company is deemed exempt from this requirement as mentioned in the previous slides. The Board is authorized to ex officio decide to have the shares of the public company listed on a stock exchange. Prior to offering the shares to the public, the articles of association of such company must be amended in accordance with the rules of the CMC and the articles of association must not contain any provision which limits or restricts share transfers or the rights of the shareholders. The company must then as mentioned above - apply both to the stock exchange and also to the Board for the approval of its prospectus (mentioned in slide 38). The next step is to register with the Central Registry Agency to have the dematerialized shares created. Finally, an announcement must be made to the public via Public Disclosure Platform. 36

37 PUBLIC OFFERING Public offering is a common way of providing financing to the companies in Turkey. Public offering can be defined as a general call/announcement made through any means for purchase of any capital market instruments and the sale realized after (excluding private placement sales and sales made to qualified investors, which are subject to different rules and procedures). Most common public offering methods in Turkey are: 1. A non-public A.S. s offering new shares to be issued within the context of a capital contribution by restricting the preemption rights of the existing shareholders (initial public offering) and/or public offering of existing shares in such company by the existing shareholders (secondary public offering); 2. A public A.S. s initial and/or secondary public offering. 3. Every kind of appeal to the public for the purchase of capital markets instruments (i.e. securities and derivative instruments as well as other capital market instruments determined by the Board.) 37

38 PUBLIC OFFERING (cont.) Preparation of a prospectus is mandatory for public offerings and/or trading of capital market instruments on a stock exchange. The prospectus is required to be approved by the Board. However, registration of the capital markets instruments with the Board is not necessary. The Board s approval process must be completed within 20 working days for initial public offerings and 10 working days for other public offerings. Prospectuses approved by the Board are valid for a period of 12 months and can be used for issuances made within this period (therefore making further amendments and offering different instruments within same prospectus is possible). For issuances made without public offering, issuers must prepare issuance documents instead of the prospectus. Approved prospectus must be published in compliance with the principles determined by the Board; registration with the trade registry is not required. However, the place where the prospectus is published must registered with the trade registry and must be notified to the public on the Trade Registry Gazette. 38

39 PUBLIC OFFERING (cont.) Pursuant to the CMC, approval of the prospectus by the Board does not mean that the Board guarantees the accuracy of the information given in the prospectus and the approval cannot be construed as a recommendation for the capital market instruments either. With the approval system, the capital instruments are no longer required to be registered with the Board as mentioned above. Public offerings are regulated in detail under the Communiqué on Public Offering of Shares (VII-128.1). This communiqué sets the rules and conditions required for each type of public offering and also the procedures required to be followed in each one. Below are the few examples of the principles that the companies are required to follow within the context of public offerings: 1- For companies initiating an initial public offering for the first time, the ratio of all noncommercial receivables from related parties must not exceed 20% of all receivables or 10% of its total assets. 39

40 PUBLIC OFFERING (cont.) 2- For companies initiating an initial public offering for the first time, the intermediary institution is required to underwrite the initial public offering at the sale price; i) for all shares to be offered to the public if the market value of such shares is below 20 million TL; OR, ii) when the market value exceeds 20 million TL, but is under 40 million TL, for all shares up to 20 million and for half of the shares exceeding 20 million. There is no such requirement if the market value for the shares is above 40 million TL. 3- For companies initiating an initial public offering for the first time, the entire capital of the company must be fully paid in. 4- In secondary public offerings, there must be no encumbrances or restrictions on the shares to be offered to the public. 5- For companies initiating a public offering for the first time, the shareholders holding 10% or more shares and the shareholders holding the control in the management as of the date of the public offering are prohibited from selling their shares below the public offering price for a term of 1 year following the date on which the trading of the shares starts. Shares to be acquired after the trading date are exempt from this prohibition. 40

41 PUBLIC OFFERING (cont.) 6- For companies (initiating an initial public offering for the first time) of which the total value is lower than 40 million TL (to be calculated based on the initial public offering price), additional shares corresponding to 25% of the nominal value of the shares to be offered to the public must also be made available for public offering by way of restricting the preemption rights of the existing shareholders. Until such shares are entirely sold, the shareholders holding 10% or more shares in the company and the shareholders holding the control in the management of the company are prohibited from selling their shares on a stock exchange. In case the market price of initial public offering shares is above 25% of the initial public offering price, these shares may be offered to the public within 1 year after the publication of the prospectus. 7- In initial public offerings for both non-public and public companies, the companies are required to undertake to buy back the unsold shares offered to the public. 8- In initial public offerings for public companies, the required capital must be subscribed in cash (with certain exceptions). 41

42 PUBLIC OFFEFING PROCEDURE In order for companies to initiate public offering and to be listed on Borsa Istanbul, the following general procedure must be followed: 1- Getting ready for public offering within the company, establishing a work group in the company, 2- Appointing intermediary institutions and counsels as a mandatory requirement, 3- Appointing independent audit companies for preparing and auditing required financial statements, 4- Preparing the necessary corporate records (amendment of the articles of association, obtaining a General Assembly resolution), 5- Determining the public offering price, 6- Preparing the application documents (prospectus, etc.), 7- Application to the Board and Borsa Istanbul (simultaneous application is advised to expedite the process), 8- Determining the advertising activities to attract to investors, 9- Application to Takasbank to obtain an ISIN code (which is compulsory), 10- Review of the application documents by the Board and Borsa Istanbul, 42

43 PUBLIC OFFEFING PROCEDURE (cont.) 11- Application to CRA (required for dematerialization according to the CMC or the relevant legislation), 12- Determining the market in which the shares will be traded, 13- Obtaining the Board s approval on the prospectus, 14- Offering and sale of the shares to the public, 15- Informing the Board and Borsa Istanbul regarding the results of the sales, 16- Completion of the registration with Borsa Istanbul, 17- Announcement on the Public Disclosure Platform. 43

44 MARKETS National Market: National Market is the biggest market of Borsa Istanbul where the equities of companies that satisfy the listing requirements of National Market are traded. Second National Market: Second National Market enables Small and Medium Sized Enterprises that promise a growth potential and those companies that fail to meet the listing criteria of National Market, to have their equities traded on the equity exchange. Emerging Companies Market: Securities of the companies registered by the Board, but do not Borsa Istanbul listing requirements are traded on the Emerging Companies Market (abbreviated as the ECM ) Admission to the ECM Directory (refers to the list of securities, which can be traded on the ECM) is done only for shares to be issued as a result of capital increase through partial or full restriction of the pre-emptive rights of the existing shareholders (initial public offering). Companies, whose shares will be traded on the ECM must use sales on the exchange method. 44 Source: Borsa Istanbul

45 SALE METHODS Three methods are utilized during the sale of the shares to the investors: 1- Book Building, 2- Sales in the Exchange, 3- Sales without book building. All companies seeking to sell their shares via a public offering have to utilize either the book building or the sales in the exchange methods. Book building method can be utilized in 3 different ways: i) Book building with a fixed price, ii) Book building by collecting buyers requests, iii) Book building with a price range Book building methods are only utilized, when the shares are offered to the public off the exchange by an assigned brokerage/investment house. However, the issuers may opt to publicly offer their shares directly in the Borsa Istanbul's primary market. Any company seeking to utilize this method must file an application with Borsa Istanbul. Source: Borsa Istanbul 45

46 PRELIMINARY REQUESTS The investment/brokerage house authorized by the issuer company may opt to collect preliminary requests from buyers within a pre-determined price range prior to the approval of the prospectus by the Board. However, these efforts are non-binding and they do not create a liability on the buyers side. In order to process preliminary requests, the prospectus must already be submitted to the Board pending approval. If desired, the collection of the preliminary requests could be processed without a public announcement. The articles of association, financial statements from the last 3 years, as well as the corresponding auditors reports, and annual reports of the issuer company must be readily available at the location(s) where the preliminary requests are to be collected, and they must be provided free of charge upon request. 46 Source: Borsa Istanbul

47 PRELIMINARY REQUESTS (cont.) In the case an announcement is made prior to the collection of the preliminary requests, priority and/or an incentive may be bestowed on the requesters during the actual sale of the shares. The inception and conclusion dates of the preliminary request collection period must be reported to the Board by the investment/brokerage house at least one day before the inception date. The duration of the preliminary request collection period may not exceed 10 business days. The results of the preliminary requests must be reported to the Board within the following 2 business days after the conclusion of the collection period. The public disclosure of these results and/or their utilization for promotion/publicity purposes are prohibited by the Board. 47 Source: Borsa Istanbul

48 ADDITIONAL SALES In the event that finalized purchase requests exceed the amount of shares publicly offered, and providing that the prospectus includes the required disclosures regarding the right to offer additional shares, if appropriate, companies are eligible to offer additional shares in the amount up to 20% of the nominal value of the shares primarily offered in order to fulfill the requests. However, the amount of incumbent shares available for such an additional offering must be pre-defined and included in the prospectus and the sales announcement. Shares allocated for the additional sale could be directly offered by the incumbent shareholders or they could be borrowed from them by the investment/brokerage house. The amount of shares allocated for the additional sale may not exceed the 20% of the nominal value of the shares primarily offered. 48 Source: Borsa Istanbul

49 TIME FRAME 49 Source: Borsa Istanbul

50 COSTS 1- Fees Paid to Investment/Brokerage House(s) 2- Fees Paid to the Board 3- Fees Paid to Borsa Istanbul 4- Fees Paid to CSD 5- Others Costs 50

51 LIABILITY According to the CMC, the issuer (i.e. companies which issue (or apply to the Board to issue) capital market instruments or of which the capital market instruments are offered to the public and also the mutual funds subject to the CMC) are responsible for any losses arising from inaccurate, misleading and incomplete information included in their prospectus. If the loss cannot be compensated or when it is clear that the loss cannot be compensated at all, i) those who act as the public offeror, ii) the leader intermediary institution which act as intermediary during the issue, iii) the guarantor if any, and iv) the members of the Board of Directors of the issuer may be held responsible to the extent of their fault and to the extent that the losses can be attributed to them. Persons and institutions such as independent audit, rating and appraisal firms preparing the reports that are included in the prospectus may also be held liable due to the inaccurate, misleading and incomplete information included in the reports they have prepared. 51

52 CORPORATE GOVERNANCE The CMC and Communiqué on Corporate Governance Principles (II-17.1) (abbreviated as the "Communiqué") sets out special corporate governance principles for publicly-traded companies of which the shares are traded on a stock exchange (excluding companies traded on markets other than national market, second national market or collective products market). The publicly-traded companies are required to follow the principles which are mandatory according to the said Communiqué. The companies are not however required to apply the non-mandatory principles that are also stipulated under the Communiqué; provided that they disclose to the public the reasons for their non-compliance with such rules, on an annual basis in their compliance reports (included in the annual activity report). Publicly-traded companies are classified into three groups in the Communiqué First Group: Companies of which the market value is above 3 billion TL and average value of free floating shares is above 750 million TL. Second Group: Among the companies not included in the first group, those of which the market value is above 1 billion TL and average value of free floating shares is above 250 million TL. Third Group: Companies which do not belong to the 1st and 2nd Group above and which are traded on national market, second national market or collective products market. 52

53 CORPORATE GOVERNANCE (cont.) According to Article 9 and Article 10 of Communiqué, a Board of Directors decision must be obtained in order to carry out the transactions set forth under the said articles, with the affiliated parties. Within the context of the Communiqué, an affiliated party means the party which is defined as an affiliated party according to the Turkish Accounting Standards. Such transactions may also trigger the requirement to obtain a valuation service from an institution determined by the Board. According to Article 12 of Communiqué, publicly-traded companies and their subsidiaries are not permitted to grant collateral, pledge, mortgage or surety in favor of i) third parties except for those granted in favor of i) themselves or ii) partnerships included in full consolidation in their financial statements or iii) those granted to other third parties within the ordinary course of business. Publicly-traded companies however are allowed to grant collateral, pledge, mortgage or surety in favor of their affiliates or business partners only in the amount of such affiliates or business partner s direct capital contribution. 53

54 CORPORATE GOVERNANCE (cont.) In any case, in order for publicly-traded companies to grant collateral, pledge, mortgage or surety in favor of other third parties within the course of ordinary business, a Board of Directors decision with affirmative votes of majority of the independent members must be obtained. Affiliated members cannot participate in such meetings. In case majority of the independent Board of Directors members does not approve the related affiliated-party transaction, the meeting resolution and dissenting opinions must be disclosed in the Public Disclosure Form. A separate item regarding revenues and interests gained from granting collateral, pledge, mortgage or surety in favor of third parties, must be added to agenda of the General Assembly meetings. Investment trusts, banks and financial institutions are exempt from the said Article 12. In case a company is conducting a public offering for the first time, all transactions carried out in violation of the said Article 12 prior to the public offering must be cleared within 4 years. 54

55 CORPORATE GOVERNANCE (cont.) Mandatory corporate governance principles that publicly-traded companies are required to follow pursuant to the Communiqué are as follows: (In case such rules conflict with any of the general rules of the TCC, the mandatory rules in the Communiqué will prevail). On the company s corporate website and the Public Disclosure Platform, - together with the announcement of the General Assembly meeting and the information that are required to be published and made available to shareholders inspection according to the TCC, following issues must also be announced to the shareholders, at least 3 weeks before the date of the General assembly Meeting (excluding the meeting and publishing date) : (Art of the Communiqué) a) Total number of shares which indicate the current shareholding structure of the company and the voting rights, and the number of shares and voting rights of each privileged group in case there are any privileged shares and types of such privileges, all as of the publishing date, b) Changes in the management and activities of the company or its subsidiaries which took place during the preceding accounting period or which is planned to take place in the upcoming accounting period, and which may have a significant effect on the company s or subsidiary's activities, together with the reasons for such changes, 55

56 CORPORATE GOVERNANCE (cont.) c) In case a removal, change or election of a Board of Directors member is on the General Assembly meeting agenda, the reason of such removal or change, information about the candidates who are nominated to the Board of Directors, their resumes, information about the last 10 years of their employment and the reasons for leaving their previous jobs, their relationship with the company and the affiliated parties of the company and the level of importance and the nature of such relationship, information about whether or not they meet the criteria for independency, and other important information in similar nature which may affect the activities of the company in case such candidates are elected to the Board of Directors. d) The issues that the shareholders request from the Investor Relations Department formed in the company to be added in the agenda of the General Assembly meeting and in case any requests are rejected, the reasons for such rejections. e) In case an articles of association amendment is on the agenda, the new and the previous wording of the amended articles of the articles of association, with the relevant resolution of the Board of Directors. 56

57 CORPORATE GOVERNANCE (cont.) At the General Assembly meeting, the chairman must show utmost attention to discussing the issues on the agenda in a detailed and impartial manner with a clear and understandable method. All shareholders must be given opportunity to express their opinions under same conditions. The chairman must ensure that all questions raised by the shareholders, which are not considered as trade secrets, are answered at the meeting. In case a question raised by a shareholder, is not related to the agenda of the meeting or is so comprehensive that it cannot be answered immediately, such question must be answered in writing by the Investor Relations Department within 15 days following the meeting. All questions raised and the answers given to such questions during the General Assembly meeting, must be declared to the public on the Company's website by the Investor Relations Department, within 30 days following the date of the meeting at the latest. (Art of the Communiqué) 57

58 CORPORATE GOVERNANCE (cont.) In case the i) shareholders having the power to control the Board of Directors, or ii) members of the Board of Directors, or iii) directors of a company entrusted with administrative powers or iv) spouses, relatives (affinity in blood or marriage and up to second degree) of the same: 1- enter into a transaction that is material enough to cause a conflict of interest with the company or its subsidiaries AND/OR 2- carry out a commercial transaction on their behalf which falls within the scope of the activities of the company and/or its subsidiaries OR 3- become a shareholder (with unlimited liability) to a company which carries out transaction of such nature, the General Assembly of the company must be informed accordingly and such issue must be discussed in the meeting as a separate agenda item. (Art of the Communiqué) 58

59 CORPORATE GOVERNANCE (cont.) a) For asset or service procurement-like transactions and liability transfer transactions; in case the ratio of the transaction value to the total asset value that is declared to the public in the latest financial statements or to the total revenue amount that is declared to the public in the latest financial statements or to the company value which is calculated based on arithmetic average of daily corrected weighted average price pertaining to the period which is 6 months prior to the relevant Board of directors Meeting, exceeds %10 OR b) For asset or service procurement-like transactions and liability transfer transactions, in case the ratio of the transaction value (net book value of the relevant asset if higher than the transaction value) to the total asset value that is declared to the public in the latest financial statements or to the total revenue amount that is declared to the public into the latest financial statements (in case of transfer, lease of the asset or establishment of real rights on such asset; the ratio of the profit made from such asset according to the latest annual financial statements to the pre-tax profit of the company for the ongoing activities, excluding establishment of real rights conducted within the ordinary course of business of banks and financial institutions) or to the company value which is calculated based on arithmetic average of daily corrected weighted average price pertaining to the period which is 6 months prior to the relevant board of directors meeting, exceeds %10 OR c) in case of cessation of the above-mentioned activities, in order for the such transactions to be carried out, affirmative votes of majority of the independent Board of Directors members must be obtained. In case the relevant Board of Directors decision is not obtained unanimously, the meeting resolution and dissenting opinions must be disclosed in the Public Disclosure Form. 59