A new Principle Decision on Sales Methods and Distribution Rules Applicable to Initial Public Offerings of Shares (the "New Principle Decision") has been issued by the Capital Markets Board and published in its Bulletin on 30 March 2023 amending its Principle Decision dated 11 November 2021 and numbered 59/1669 (the "Former Principle Decision"). As per the New Principle Decision, the relevant provisions of the Communiqué on the Sale of Capital Markets Instruments numbered II-5.2 (the "Communiqué") will be implemented according to the New Principle Decision in order to protect the rights and interests of investors in initial public offerings and to ensure an equal treatment among them in case of an excess demand until a new decision is made by the Capital Markets Board.
This Monthly Update aims to provide a brief explanation on the New Principle Decision and highlight the essential novelties introduced therein.
Amendments Introduced
The New Principle Decision has changed certain thresholds applicable in initial public offerings of equities and introduced certain mandatory sales methods for initial public offerings with offer size below certain thresholds and certain distribution rules for initial public offerings above certain thresholds.
Firstly, the New Principle Decision has increased threshold of TL 250,000,000 market value of the issuer as stated in the Former Principle Decision to TL 750,000,000. Accordingly, initial public offerings of companies with a market value less than TL 750,000,000 are required to be made on-exchange. Furthermore, initial public offerings of companies with a market value exceeding TL 750,000,000 may be made off-exchange provided that the distribution rules stated in the New Principle Decision are applied.
Distribution Rules Applicable to Companies Valued 750 million Turkish Liras or More
When the market value of companies going public is equal or more that TL 750,000,000 and the off-exchange method is chosen as the sale method, the following distribution rules shall apply:
- Offered shares shall be distributed equally to retail investors as per Article 20/2 of the Communiqué and no proportional distribution as stated in Article 20/3 of the Communiqué will not be made.
- Total demand that each investor can made shall not be more than 1/4 of the total amount allocated to such investor's group.
- In case of sufficient demand, in principle each domestic institutional investor's allocation shall not exceed 1% of the total amount of offered shares, provided that such limit is 3% of the total amount of offered shares for each fund in which a portfolio management company is the founder and/or manager.
- Any demand by portfolio management companies, brokerage houses investment and development banks for their customers under portfolio management agreements as well as demands by real estate investment funds, venture capital investment funds shall not be taken into consideration in the demands made by institutional investors.
- Persons who have access to insider information and named in the relevant section of the prospectus, and their spouses and first-degree relatives by blood or marriage cannot not make demands from any allocation group other than the domestic retail investor group.
- In case sufficient demand is received at the end of the book-building period to meet the amount allocated to an investor group, the allocated portion cannot be shifted to other groups. In the case there is no sufficient demand for an investor group, the remaining allocated portion can first be transferred to the domestic retailer investor group in order to meet any unmet demands. If there is still remaining portion after reallocating to domestic retail investors or there is no unmet demand of the domestic retail investors, remaining portion may freely be allocated to other investor groups.
- The request form attached to the Communiqué regarding the shares offered for sale will be arranged with consecutive serial numbers indicating the date and time. If the request forms received in the electronic environment, the obligations regarding the orders received in the electronic environment in the document registration regulations of the Capital Markets Board shall apply.
Restriction for Institutional Investors
Shares purchased by institutional investors for their own portfolios shall not be transferred to individual investor accounts under any circumstances. In the event of brokerage houses, investment and development banks, and portfolio management companies make a request for the portfolio of their customers, the request shall be made from the investor group to which the customer belongs, and the required documents indicating that the customer has the required qualifications for the relevant investor group in accordance with Article 18/3 of the Communiqué must be attached to the request form.
Restriction for Re-sale (lack-up Period)
For a period of 90 days following the closing of the offering, investors cannot sell the shares so acquired off-exchange or transfer them to other investor accounts or sell them on-exchange through a special order and/or wholesale transaction.
This lock-up period is 180 days for the existing shareholders and covers sale of all non-trading shares held by them through on and off-exchange. The lock-up period starts from the day the prospectus is approved.
Liability of Issuer
The Capital Markets Board has re-emphasized the liabilities of the issuers and/or the selling shareholders as well as the authorized brokerage houses, if any, the consortium leaders and co-leaders to the extent damages can be attributable to them if they fail to apply the principles of collecting demands and allocation of shares in accordance with the provisions of the Communiqué and the prospectus. The same provision was also included in the Former Principle Decision.
Conclusion
The New Principle Decision is significant since it sets critical changes regarding the sale methods and distribution rules to be applied in initial public offerings of equities. It demonstrates the methods of sales on initial public offerings and differentiates the rules that will be implemented for investors according to the amount of offered shares. On the other hand, liabilities of parties involved in the offerings are not changed but re-emphasized by the New Principle Decision to show its importance. Eventually, while some of the rules in the Former Principle Decision have been changed, others are kept as set forth by the Former Principle Decision.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.