Sales Of Foreign Capital Market Instruments And Depository Receipts In Turkish Capital Markets

December 2010
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Preamble

The “Communiqué Regarding the Sale and Registration with the Capital Markets Board of Foreign Capital Market Instruments and Depository Receipts Serial: III, No: 44 (“Communiqué”), which regulates principles regarding registration with the Capital Markets Board of Turkey (“CMB”) of public offerings and sales of foreign capital market instruments and depository receipts, came into effect upon publication in the Official Gazette dated 23.10.2010 and numbered 27738. By this Communiqué, the previous Communiqué regarding the Sale and Registration with the Capital Markets Board of Foreign Capital Market Instruments Serial: III and No: 20 published in the Official Gazette dated 20.03.1996 and 22586 was abolished (“Abolished Communiqué”).

A brief summary of the changes brought by the Communiqué and its differences from the abolished Communiqué are given below:

Changes, Differences

The Communiqué regulates and sets forth the rules regarding a) public offerings of foreign capital market instruments and depository receipts, b) allocations or sales of these foreign capital market instruments and depository receipts to qualified investors, c) the issuance of shares of foreign companies which are listed on the Istanbul Stock Exchange (“ISE”).

The substantive change in the Communiqué is that the public offering of foreign stocks in Turkey is no longer required to be conducted within the framework of depository receipts.

Foreign capital market instruments to be offered to public: (1) a) must be listed on at least one stock exchange in the issuer’s country (the provision regarding the stock exchange which must be acceptable to the CMB is abolished) b) if they are not listed, the application of such issuer must not have been rejected in order to protect the investors’ rights or for any similar reason. (2) Foreign capital market instruments must be denominated in Turkish Lira or in foreign currencies whose daily exchange rates are announced by the Central Bank of the Republic of Turkey, (3) There must be no restriction on the sale of such instruments, on their financial and administration rights to be used and payments to be made in Turkey, the country where such capital markets instruments are issued, (4) There must be no restriction on their transfer or their issuance or there must be no encumbrance on them, (5) The company which issues foreign capital markets instruments must have a recent rating that at least suggests “an investment can be made” rating other than a “at least middle grade” rating. (6) The CMB may require and set additional conditions in order to protect the investor’s rights. It must be noted that the Communiqué does not cover offerings of foreign investment fund shares, and the issue has been left to the Communiqué on Principals Regarding the Registration of Foreign Investment Fund Shares Serial: VII No: 14.

By this Communiqué, the conditions for the foreign companies of (i) a minimum two-year operating period, (ii) having made profits according to a recent annual financial statement prepared in accordance with internationally accepted accounting rules, and (iii) a minimum one (1) year stock exchange listing together with a minimum hundred (100) day stock exchange trading are no longer required.

In addition, the provision regarding the capital of the foreign company to be not less than the capital requirement for Turkish investment corporations on the date of application was abolished.

Representative is a newly used term in the Communiqué. The abolished Communiqué only uses intermediary institutions (meaning banks and intermediary institutions) whereas the Communiqué uses the representative definition. According to the Communiqué, “the representatives” means intermediary institutions and banks (which do not accept deposits in Turkey) having both public offering and investment consultancy licenses from the CMB. Such representatives must have an agreement with the foreign companies[1] requesting registration of their foreign capital markets instruments with the CMB or will hold a proxy.

The application regarding the request to register foreign capital markets instruments and depository receipts with the CMB can be made by the foreign companies and depository institutions in addition to representatives.

The foreign companies must execute an agreement with the depository institutions[2] or the representative in the event of a public offering of depository receipts or foreign capital market instruments. There is no change in the Communiqué with respect to the term of the agreement; the term of the agreement must be at least until the maturity date of the foreign capital markets instruments.

According to the Communiqué, the foreign companies and representatives will be jointly liable if the information in the prospectus and the circular have errors and do not give accurate information to the investors.[3]

The preliminary CMB filing process granting foreign issuers and their representatives the opportunity to obtain a CMB opinion before the actual registration as to whether the foreign capital markets instruments or depository receipts and the issuers are appropriate was abolished.

The representatives are no longer required to announce the general assembly date and agenda of the foreign company and the actions to be performed by the persons who have the depository receipts, in two (2) different newspapers and to submit such newspapers to the CMB. In addition, a depository institution can no longer in its capacity or as a proxy holder use the voting rights of foreign stocks by stating it is for the benefit of the investors.

The application to ISE by the foreign companies for their listing will be made simultaneously with the application for the registration to the CMB, not within fifteen (15) days after the sale term as stipulated in the abolished Communiqué.

The website of the foreign companies can be referenced for their financial statements and for similar issues in case of public offerings.

Conclusion

We believe that the Communiqué promotes the public offering of foreign stocks that are issued by the foreign companies, in Turkey and the entrance of foreign capital markets instruments into Turkish capital markets.

[1] The companies or investment corporations which are not deemed to be resident in Turkey (legal or real persons) and which issue capital markets instruments in accordance with their legislation.

[2] Depository institutions are the banks which issue depository receipts and which are members of Central Registry Agency.

[3] Prospectus is a legal document (can be used as legal evidence) whereas circular is a commercial document. A circular is prepared to give information to the investors. In any case, there may not be any difference between the prospectus and circular.

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