Share Repurchase (Buybacks) Or Pledge Of Shares

August 2011
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Preamble

The new Turkish Commercial Code (“New TCC”), which will enter into force in 01.07.2012 accepts new provision regarding share repurchase -also known as share buybacks-, which means repurchasing of or pledging of its own shares by the companies. The Capital Markets Board of Turkey (“Board”) amended its resolution ‘Principles Regarding the repurchasing or Accepting as a Pledge of its Own Shares by the Companies Traded in Istanbul Stock Exchange’ on 11.08.2011 numbered 26/767 (“Resolution”).

Article 379 of the New TCC

According to article 379 of the New TCC, a company cannot repurchase its own shares as well as accept as a pledge exceeding the 10% of the outstanding and issued capital. This provision also applies to the third persons who purchase its own shares as well as accept as a pledge on behalf of the companies.

Within the limit of the foregoing, the board of directors shall be authorized by the general assembly for the execution of the transaction to repurchase or pledge of the shares. This authorization can be valid for five (5) years. The number of the shares and percentage of share capital to be purchased or pledged shall be stated, the total nominal value and the maximum and minimum threshold of the amount to be paid in consideration for the issued shares shall be determined in the authorization.

The equity component, after deducting the amount to be paid in consideration for the shares shall at least equal to the amount paid-in/issued share capital and reserved funds not to be distributed in accordance with the law and articles of association of companies.

It should be also noted that, only the fully paid-in shares could be purchased.

The foregoing shall also be applicable for the parent company in case of a purchase of shares of its subsidiary.

Article 379 of the New TCC also states that the Board shall make necessary regulations for the companies traded in Istanbul Stock Exchange (“ISE”) with respect to the transparency and payment rules. The Board has made necessary amendments in the Resolution accordingly.

Amendments to the Resolution

Not only the intermediary institutions and investment companies but all companies traded in the ISE are included to the Resolution for the principles regarding the repurchasing or pledging of own shares by the company.

The total amount of the shares to be repurchased (including the shares purchased before) cannot exceed the 10% of the outstanding and issued capital. The threshold of 20% has been reduced to 10% in accordance with the New TCC.

The equity component after deducting the amount to be paid to the shares shall at least equal to the amount paid-in/issued share capital and reserved funds not to be distributed in accordance with the law and articles of association of companies.

For the repurchasing transaction in the ISE, the rule of only one intermediary institution to be used for each transaction day by the companies has been eliminated.

The shares owned by the company and the parent company shares purchased from the fixed assets under consolidation cannot be taken into consideration for the calculation of the general meeting quorum. The repurchased shares, do not grant any shareholding rights. The voting rights, attached to the shares of parent company, which are purchased by the companies under consolidation, cannot be used.

For the transactions of the repurchasing of the shares; the rule of information disclosure that had to be made prior to 2 days of the transaction, in relation to the intermediary institution and its commissions, has been abolished by the Resolution.

General Provisions of the Resolution

Summary of the provisions of the Resolution which have not been amended:

(i) Repurchase transactions can be effectuated by the board of directors within the framework of repurchase programme which is approved by the general assembly and within the limits of the authority granted for 18 months at the most.

(ii) The shares to be repurchased shall be able to be traded in the ISE and the transactions shall be effectuated in the ISE.

(iii) Repurchase order cannot be issued within last 15 minutes of opening session and first session; and first and last 15 minutes of the second session. The price order may not be higher than the present price proposals or the last sale price. The total amount of shares which will be repurchased in one day by the companies may not be more than 25% of the average of the daily transaction amount within last three months. These rules shall be applied additionally to the rules stipulated by the ISE.

(iv) Holding period for repurchased shares and unpaid shares acquired within the framework of abovementioned shares may be freely determined by the company provided however such period cannot exceed 3 years. The shares which are not disposed within this period shall be redeemed by way of capital decrease.

(v) The repurchased shares shall be added to the balance sheet as a figure for deduction within the framework of Turkish Accounting Standards no. 32 and necessary explanations shall be added in the footnotes of the financial statement. The revenues and losses resulting from disposal of the abovementioned shares cannot be related to the income statement.

(vi) Regarding repurchase transactions;

  • Board of directors of the companies shall draft a repurchase programme including the purpose of the repurchase, the resources and total amount of the fund reserved for repurchase, maximum number of share to be repurchased, maximum and minimum prices, authorised persons for repurchases (including legal entities and their representatives), authorisation period to be requested from the general assembly and date of the general assembly in which the authorisation shall be voted for and a summary of the last completed repurchase programme and this programme shall be published on the web site of the company 15 days prior to the general assembly and therefore shall be announced to the public.
  • In case the programme is amended in the general assembly, the amended programme shall be announced to the public on the next business day and shall be simultaneously published on the web site of the company.
  • The company shall disclose each transaction in scope of repurchase programme including nominal value of the shares subject to transaction, transaction price, its ratio in the share capital, the privileges of these shares and the date of the transaction within the business day following the date of the transaction.
  • The company shall disclose including each of the redeemed and owned shares, maximum and average repurchase price, the cost of repurchase, total amount of the repurchased shares, its ratio in the share capital, the privileges of these shares and the date of the transaction within 5 business days following the last day of the programme. This information shall be submitted to the shareholders in the first general assembly.
  • In case the programme has been amended by the general assembly, such amendments as well as the reasons for the amendments shall be announced to the public.

(vii) The repurchase shares may be disposed only by the way of sale in the stock exchange and following the end of the repurchase programme. The unpaid shares acquired with the repurchased shares shall be subject to the same principles.

(viii) Each sale transaction effectuated in case of disposal of the repurchased shares including nominal price of the shares, transaction price, its ratio in the share capital, privileges and transaction date shall be announced to the public by the company within the business day following the transaction date.

(ix) Within the periods following repurchase transaction until the relevant shares are disposed, the unit share value for investment partnerships shall be calculated on the basis of share amount which is in circulation to be stated as the difference between total shares and the repurchased shares.

(x) In case of existence of insider information the announcement of which was postponed by the company or existence of material situations, no transaction of sale and purchase may be effectuated.

(xi) The board of directors may make a repurchase without the authorisation of the general assembly with reasonable reasons. For such repurchases;

  • The repurchase transaction, its reasons and purposes, share amount and maximum price to be paid shall be announced to the public by the company 2 business days prior to beginning of repurchase transaction.
  • The effectuated repurchases shall be announced to the public including nominal price of the repurchased, transaction price, its ratio in the share capital, its privileges and transaction date within the business day following the transaction date.
  • The board of directors shall inform the general assembly regarding the reason and purpose of the repurchases, transaction dates of the repurchased shares, nominal price, transaction price, cost of the repurchase, its ratio in the share capital and the privileges of the shares.

(xii) Any repurchase transaction may not be effectuated until the end of capital increase transactions as of the date of general assembly resolution regarding capital increase for the companies having principal capital system and as of board of directors resolution in companies having registered capital system.

Conclusion

In accordance with the above the companies traded in the ISE should follow the Resolution in order to purchase or accept shares as a pledge. With the amendments to the Resolution the harmony with the provisions under the New TCC has been provided and therefore all the confusion has been eliminated.

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