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.