A New Alternative for Going Public: Venture Capital Market

The Communiqué on Companies whose Shares will be Traded on the Venture Capital Market (No. II-16.3) (Communiqué) entered into force through publication in the Official Gazette dated 18 May 2023 and numbered 32194. Draft Communiqué on Companies whose Shares will be Traded on the Venture Capital Market (Draft Communiqué) had been previously published by the Capital Markets Board (CMB) on 20 September 2022. The Draft Communiqué, which was made available to the public’s information and opinion, came into force with certain amendments.

You may reach the Communiqué here (only available in Turkish).

Main Scope of the Communiqué

The Communiqué allows non-public companies to (i) sell their shares (to be issued through capital increase) to qualified investors via the venture capital market without publicly offering these shares and (ii) thus qualify as “publicly traded companies”, under the relevant provisions of the Capital Markets Law.

Background of the Communiqué

With the Communiqué, the CMB seeks to establish a secondary market by building a venture capital market within Borsa Istanbul A.Ş. and thereby increase market efficiency.

Companies tend to participate in capital markets through public offerings and gain the status of “publicly traded company” for a variety of reasons, such as enabling financing and boosting the firm's recognition. However, because of the pertinent laws and processes, the public offering procedure might be challenging. At this point, the Communiqué enters the picture and introduces a somewhat “relaxed” approach compared to the terms and procedures mandated by a public offering. The financial thresholds  for both procedures starkly illustrate this point. Accordingly, the financial thresholds for (i) public offering and (ii) trading on the venture capital market are as follows:

The Communiqué requires companies whose shares are traded in the venture capital market to apply to the CMB for a public offering through a capital increase within 5 years. Companies who do not file for a public offering or whose applications are rejected within the specified 5-year term will be regarded to have departed the venture capital market, without the need for any further act or transaction. The Communiqué further specifies that once their shares are being traded on the stock market, the concerned companies may not offer their shares via a public offering for 2 years. Such regulations show that the CMB's goal is to make it easier for individuals to use the venture capital market effectively and to bolster the dynamic nature of the market.

The Main Differences Between the Communiqué and the Draft Communiqué and Key Regulations Under the Communiqué

The CMB amended and refined the Draft Communiqué as a result of the feedback received throughout the consultation process. The Communiqué also contains major amendments and new regulations relating to requirements for trading on the venture capital market and special circumstances disclosure obligations. We have listed such differences and key regulations below.

• The Communiqué sets a higher financial threshold than the Draft Communiqué. According to the Communiqué, for companies whose shares will be traded on the venture capital market, such company must meet the following criteria based on its financial statements from the previous year: (i) total assets must exceed 20 million Turkish Liras, (ii) net sales revenue must exceed 10 million Turkish Liras, and (iii) registered capital must be at least 10 million Turkish Liras, fully paid-up.
• One of the regulations updated by the Communiqué concerns the sales periods in the financial statements to be provided in the prospectus. The Communiqué states that (i) comparative annual financial statements with the previous year will be used if shares are offered for sale between February 1 and August 1 and (ii) comparative annual financial statements with the previous year and comparative interim financial statements for the last six months will be used if shares are offered for sale between August 2 and January 31.
• A company who does not file for a public offering or fails to have their applications approved by the CMB within the specified period will be considered as having departed the venture capital market without the need for any further act or transaction. According to the Communiqué, the regulations addressing companies deemed to have undertaken a public offering due to their number of shareholders exceeding 500 shareholders, as specified in the Share Communiqué (No. VII-128.1), will not be applicable here.
• The venture capital market only allows the trading of newly issued company shares and the existing company shares will not be able to be traded in the relevant market.
• Companies whose shares are traded on the venture capital market will be exempt from the regulations under Tender Offer Communiqué (No. II-26.1), Material Transactions and Exit Rights Communiqué (No. II-23.3), and Corporate Governance Communiqué (No. II-17.1).
• In the Draft Communiqué, it was stipulated that in cases where an individual or legal entity, or other individuals or legal entities acting together, directly reach or fall below the thresholds of 5%, 25%, or 50% of the capital or voting rights of a company, a public disclosure is required. According to the Communiqué, the thresholds of 67% and 95% have been added to these percentages, and a requirement to make a public disclosure within two business days regarding such situations has been introduced.
• Unlike the Draft Communiqué, the Communiqué does not include the need for the use of the stock exchange sales method in the sale of company shares to quailified investors without a public offering. Therefore, it is now possible to use other methods in addition to the stock exchange sales method.
• One of the most significant amendments introduced by the Communiqué compared to the Draft Communiqué is related to cash capital increases. Accordingly, the remaining shares after the exercise of the right to purchase new shares in the cash capital increase can only be purchased by the qualified investors.

Conclusion

The Communiqué enables qualifying companies to have their shares traded on the stock exchange without going through the public offering process. The objective is to increase the dynamism in the stock exchange by making an effective use of the venture capital market.

Tagged with: Gökçe, Görkem Gökçe, Nazlı Nehir Sertbaş, Commercial & Corporate