Turkey gets ready for capital markets revival in 2018

Publication January 2018


This article was written by Ekin Inal, lawyer at İnal Kama Attorney Partnership, affiliate firm of Norton Rose Fulbright in Turkey.

In late 2017, Turkish government initiated a number of programs and revised legislative and regulatory framework to boost capital market activities and the Turkish economy. As part of this initiative, requirements for initial public offerings have been eased, and a gold-backed bond and lease certificate issuance program has been launched. Last but not least, the legislative framework of equity-based crowdfunding activities has been laid out, creating an alternative financing tool.

Requirements eased for initial public offerings (IPO) in Borsa Istanbul

Following a robust period of high activity between 2000 and 2013, in which 162 initial public offerings were completed with an aggregate volume of 19 billion Turkish Liras (US$ 5 billion), IPO activity has slowed down in recent years.

On December 1, 2017, in order to incentivize Turkish companies to go public in Borsa Istanbul instead of foreign stock exchanges, Capital Markets Board made an amendment to the communiqué regulating the sales of capital market instruments. Under the previous rules, issuers had to allocate at least 30% of the nominal value of the shares to domestic investors (20% to institutional and 10% to individual). The percentage is now 20% (comprised of 10% to domestic institutional investors and 10% to domestic individual investors); and the Capital Markets Board is authorized to decrease the domestic allocation requirement as low as 0%. As with the previous regime, this allocation requirement only applies to sale of shares through book building.

The above mentioned amendment follows a set of amendments in Borsa Istanbul Listing Directive made on July 31, 2017. Before the amendment, the issuing entity had to have an equity to capital ratio of at least 0.75 for listing in Star Market Group 1, and 1.00 for listing in Star Market Group 2 of Borsa Istanbul.1 Following the amendment, entities which have an equity to capital ratio of 0.5 are eligible for listing in Borsa Istanbul’s Star Market.

Also, before the amendment, the issuing entity was required to record net profits in the last two financial periods (dönem kârı), which is net of financing expenses, taxes and provisions, as opposed to operating profits (faaliyet kârı), gross of such expense items. Accordingly, many companies with operating profits could not go public because of these cost items, especially the financing expenses, which prevented them from fulfilling the “net profit” condition. Following the amendment, entities which have recorded operating profits in the last two financial periods will be eligible for listing in Borsa Istanbul’s Star Market.

Note that above eligibility criteria are only applicable if the offering involves issuance of new shares, other requirements of listing in Borsa Istanbul’s Star Market are met, and the board of Borsa Istanbul approves the listing of the company.

Gold-backed bond and lease certificate issuance

In an effort to promote diversification of financing instruments, broadening of the investor base, and inclusion of gold reserves that are kept outside of the financial system, the Treasury resolved to issue gold-backed bond and lease certificates.

The Treasury initiated book-building rounds in the first week of October 2017 and collected bids from individual investors who will deposit their savings in the form of physical gold (which traditionally is a very prevalent form of saving in Turkey) in return of bonds or Sharia-compliant lease certificates. The bonds and lease certificates, which will be recorded electronically with Central Securities Depository (Merkezi Kayıt Kuruluşu), will have a maturity of 728 days with bi-annual coupon payments of 1.2%. In a further effort to boost investments in gold-backed bond and lease certificates, certain tax exemptions have also been introduced.

Treasury’s initial program included four issuances of gold-backed bond and lease certificates between October 11, 2017 and November 1, 2017. As per the Treasury statistics, the bonds are backed by 1,145 kilograms of gold and lease certificates are backed by 1,318 kilograms of gold.

Equity-based crowdfunding in Turkey

In comparison to the general volume of the credit market, crowdfunding activities have been relatively limited in Turkey as the concept of crowdfunding was not defined under the capital markets legislation and collecting money from public unless permitted under the capital markets legislation is prohibited.

On December 5, 2017, a set of amendments to the Capital Markets Law No. 6362 were promulgated. By virtue of these amendments, the legal definition of “public corporation” now carves out crowdfunded project entities. This is to ensure that crowdfunded companies will not be deemed as public corporations. In Turkey, joint stock companies with more than 500 shareholders are deemed to be public, even if their shares are not traded on Borsa Istanbul. Additionally, crowdfunded project entities are carved out of the definition of “issuer” and are not required to issue prospectus or offering circulars to launch crowdfunding campaigns. They are also exempt from extensive book keeping and disclosure requirements that are applicable to public entities and issuers.

The amendments set forth that crowdfunding activates may only be conducted over crowdfunding platforms, whose establishment and operations will be subject to the authorization by the Capital Markets Board.



Star Market is comprised of BIST 100 index constituents and free float shares with market capitalization of 100 million Turkish Liras (US$ 26 million) or higher.

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