Do you have a good and fast growing company in Turkey with liquidity (cash) issues to grow further ? In that case it can be an option for your company to do an IPO.
In this article we try to explain you what an IPO (Initial Public Offering) is and why it can be beneficial for your company. We also explain some of the disadvantages of raisings funds via an IPO compared to other sources like Private Equity or bank financing. We tell you something about the practical experience of our local partners on the ground in Turkey related to the Istanbul Stock Exchange (ISE). We have good experience with the main securities regulator, the Capital Market Board (CMB).
It is not all gold that shines at the stock exchange in Turkey as quite a few IPO’s over the last years were no success. This has resulted in the Turkish Capital Market Board imposing more restrictions and more strict regulations to protect investors and ensure successful IPO’s. You can read more in the section of this article on legal issues and requirements around IPO’s in Turkey. Altogether you should get a feel if an IPO in Turkey is the right way to bring your company forward. We are mostly working in the lower end of the IPO market (valuations up to 200m Euro). We are happy to discuss with you if an IPO can be good for you. The strength of the Corporate Finance in Europe team locally on the ground in Turkey is the combination of in depth practical knowledge of IPO’s in Turkey combined with speaking the local language.
Firstly, your company needs to be a good company and have a need for fresh capital. Debt financing is difficult for you as you can’t provide a bank with sufficient guarantees. Hence, you need an equity investment. The most obvious alternatives in that case are to find private investors or investor groups (see our article on Private Equity in Turkey) or do an IPO. An IPO will bring you funds to grow your business. Further, it is a good marketing tool as it generates free publicity. Another important positive effect is the trust it gives. If you are a stock listed company you have to comply with lots of regulations. Hence, being a stock listed company shows signs of trust to your business partners. A clear disadvantage is that it is very expensive due to the costs, regulations and detailed accounts you have to publish. This means you have to free up resources and funds to be a public company on an ongoing basis.
Which industries are most suited for IPO’s in Turkey? In theory all kind of industries can be suited for IPO’s in Turkey. There is not a clear exemption for particular industries. If you want to discuss your company and how it suits from an industry perspective please get in touch.
In 2013, the Capital Markets Board changed Turkish Capital Markets Regulations to improve investor confidence. The most important new requirement is for advisors to underwrite 100% of transactions under 20 million TRY and up to 50% of tranches between 20 million TRY and 40 million TRY. This will make a difference for underwriters that are able to perform this task well like our team can in Turkey and other underwriters that will have difficulties. Hence, it may reduce IPO activity for smaller companies as underwriters become hesitant to take this market risk. Our local partners can handle these new requirements so please investigate with us if you are interested in an IPO in Turkey.
Other requirements that have been introduced are obligations to give more transparency around the use of proceeds, related party transactions, requirements for additional valuation reports from other banks or brokers and share dealings for significant shareholders. New rules regarding a valuation cap of 20% above the bottom of the target range for the maximum valuation of shares may also result in issuers being hesitant to come to market if they feel that the 20% premium does not represent a sufficient valuation.
It is important to get good legal advice when doing an IPO in Turkey. An IPO must be channelled through a joint-stock company. With the enactment of the New Commercial Code, as transfer restrictions cannot be included in the articles of associations of joint-stock companies, it is expected that most private equity investors will prefer to invest through limited liability companies. Therefore, it is likely that private equity companies will establish a limited liability company that will later be reorganised into a joint-stock company before an IPO is launched.