The Capital Markets Board (the “CMB”) introduced rules concerning distribution principles and sale methods for initial public offerings of non-public companies in order to meet investor demands in an efficient way through its Principal Decision No. i-SPK.128.23 (dated 19 September 2024 and numbered 1508) published in its bulletin dated 19 September 2024 and numbered 2024/48 (the “Principal Decision”). With this Principal Decision, the previous Principal Decision No. i- SPK- 128.21 (dated 30 March 2023 and numbered 20/412) published in the CMB bulletin dated 30 March 2023 and numbered 2023/21 (the “Previous Principal Decision”) has been abolished. However, it should be noted that certain rules on the Previous Principal Decision have been retained in the new Principal Decision.
Public Offerings with a Market Value of TL 750,000,000 or Less
In public offerings where the market value of the shares is TL 750,000,000 (seven hundred fifty million Turkish Lira) or less, the sale should be made on the stock exchange. This sale method initially introduced in the Previous Principal Decision has been preserved in the Principal Decision as well and it will continue to contribute to the transparency of the public offering process, facilitating retail investors' participation in such offerings.
Public Offerings with a Market Value Exceeding TL 750,000,000
In public offerings where the market value of the shares exceeds TL 750,000,000 (seven hundred fifty million Turkish Lira), the following principles will apply if the bookbuilding process is carried out outside the stock exchange (off-exchange):
It is mandatory to allocate shares equally to domestic retail investors, and therefore, a proportional distribution will not be applied to domestic retail investors.
For the investor group outside of institutional investors having high demand, a distribution of up to 10% (ten percent) of the total public offering may be made, and in this case equal or proportional distribution methods may be used. If the proportional distribution method is conducted, investors should provide cash collateral equal to the entire amount they have requested and/or collateral as shares listed on the BIST-30 index which is equal to 120% (one hundred twenty percent) of the requested amount. Furthermore, the amount of shares that can be subscribed by an investor cannot exceed one-quarter of the total shares allocated to that group.
In distributions to the domestic institutional investor group, if there is sufficient demand, at least 50% (fifty percent) of the allocated shares should be distributed to mutual funds, pension funds, and/or pension funds having automatic participation system. In this case, the amount of shares to be distributed to each institutional investor should not exceed 1% (one percent) of the total public offering shares. This limit is set at 3% (three percent) for funds established and/or managed by a portfolio management company (“PMC”). The demands of PMCs and legal entities related to them in terms of management, supervision, or capital, which are made in the name and for the account of themselves, cannot exceed 2% (two percent) of the total shares offered to public.
Orders submitted by PMCs, brokerage firms, and investment and development banks on behalf of their clients having discretionary portfolio management contracts, as well as real estate and venture capital investment funds, hedge funds and/or private funds will not be classified within the institutional investor group. This is also applicable to organizations considered as professional investors which meet at least 2 (two) of the following criteria: total asset value of TL 50,000,000 (fifty million Turkish Lira), annual net turnover of TL 90,000,000 (ninety million Turkish Lira), or shareholders' equity exceeding TL 5,000,000 (five million Turkish Lira).
Individuals with access to insider information along with their spouses and first-degree relatives, are prohibited from requesting shares from any distribution group other than the domestic retail investor group.
If sufficient demand is received to meet the amount allocated to an investor group at the end of the bookbuilding process, the distribution ratio for that group cannot be reallocated to other groups. However, for groups where insufficient demand is received, the remaining shares can be freely reallocated to other groups.
Distribution to Foreign Investor Groups
In distributions to foreign investor groups, it is prohibited to engage in any actions aimed at circumventing or evading the distribution principles outlined in the Principal Decision. Non - compliance with this provision will result in liability for the issuers and underwriters managing the public offering, or the consortium leader, where applicable, in accordance with their responsibilities and the applicable legal requirements. For transactions involving foreign investors, the issuer and the underwriter/consortium leader intermediating the public offering should provide an undertaking to the CMB that they will comply with the relevant provisions of the Principal Decision and conduct the necessary assessment regarding foreign investors.
Responsibilities of Institutional Investors
In parallel with the Previous Principal Decision, shares subscribed by the institutional investors for their own accounts cannot be transferred to retail investor accounts. Orders submitted by brokerage firms, investment and development banks, and PMCs in the name of their clients should be made within the investor group to which such client belongs.
Restrictions on the Sale of Shares
Investors who acquire shares through the distribution are prohibited from selling these shares outside the stock exchange, transferring them to other investor accounts, or executing special orders and/or wholesale transactions on the stock exchange for a period of 90 (ninety) days from the date the shares are credited to their accounts. Additionally, for the shares held by existing shareholders that are not included in the public offering, same restrictions will apply for 180 (one hundred and eighty) days following the approval of the prospectus, which will also include any transactions conducted on the stock exchange.
Liabilities and Responsibilities
Failure to comply with the provisions of the Communiqué on Sales of Capital Market Instruments numbered II-5.2 and the Principal Decision during the bookbuilding and the distribution process will result in liability for the issuer, the public offeror, underwriter, and the consortium leader and co - leaders, where applicable. These parties will be held accountable to the extent of their fault, in line with the applicable circumstances and legal obligations.
Conclusion
This Principal Decision introduces a new set of rules governing the distribution and sale of shares, aiming to enhance transparency and fairness in the distribution process, especially in cases of public offerings with high demand.
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