Back to Basics in Buyback

Recent Developments

With the resolution of the Capital Markets Board (the “CMB“) numbered i-SPK.22.8 (dated 1 August 2024 and numbered 41/1198) (the “New Resolution“), the resolution numbered i-SPK.22.7 (dated 14 February 2023 and numbered 9/177) (the “Resolution“)  which was taken to minimize the negative impacts of the earthquakes on 6 February 2023 on the financial markets and to facilitate the share buybacks of companies whose shares are traded on the stock exchange and their affiliates — has been revoked, considering that approximately 18 months have passed since the earthquakes. You can access our previous legal alert on the Resolution here.

What Does the New Resolution Bring?

With the Resolution, in line with its announcements dated 21 July 2016 and 25 July 2016, the CMB regulated that public companies whose shares are traded on the stock exchange and their affiliates can initiate a share buyback program with a resolution of the board of directors without needing the general assembly’s approval.

With the New Resolution, the buyback program prepared by the board of directors will need to be approved by the general assembly of the public company whose shares are traded on the stock exchange, in accordance with the CMB’s Communiqué on Share Buybacks numbered II-22.1 (the “Communiqué“).

The board of directors’ practice of initiating a buyback without a resolution of the general assembly, which was permitted prior to the publication of the Resolution, can now only be carried out to avoid an imminent and serious loss in accordance with the Communiqué. Affiliates cannot conduct buyback transactions on the shares of a public company whose shares are traded on the stock exchange without the approval of the public company’s general assembly, even if it is to avoid an imminent and serious loss.

The obligation under the Resolution not to sell the shares subject to buyback for a period of 30 days from the date of the buyback transaction will no longer be applicable.

Reinstated Rules

With the New Resolution, certain provisions of the Communiqué that were no longer applicable pursuant to the Resolution have come back into force. Accordingly:

— The nominal value of the shares subject to buyback will not exceed 10% of the paid-in or issued capital, including previous purchases. Shares disposed of during the program will not be taken into account as a discount item in calculating this rate. Any amount exceeding 10% of the paid-in or issued capital will be disposed of as soon as their transfer is possible without any loss and, in any event, within three years of their acquisition. Shares that are not disposed of within this period will be immediately redeemed through capital reduction.

— The total value of the shares subject to buyback cannot exceed the total amount of the resources that can be subject to dividend distribution within the framework of the CMB’s regulations.

— The price order for buyback cannot be higher than the current highest bid price pending in the order system.

— The total amount of shares that may be subject to buyback in one day cannot exceed 25% of the average trading volume of the shares for the 20 days prior to the trading day.

— Shares purchased in violation of the provisions of the Communiqué will be disposed of within one year at the latest from the date of the repurchase. Shares that cannot be sold during this period will be redeemed through capital reduction.

— Shares subject to buyback can only be disposed of through sale on the stock exchange. Sales transactions carried out in the wholesale market of the stock exchange will also be considered sales in the stock exchange.

— Shares subject to buyback will be redeemed in accordance with the CMB’s capital reduction procedures that do not require an outflow of funds.

Transition Period

Pursuant to the New Resolution, buyback programs initiated by a board resolution and in effect as of the date of the New Resolution will be valid until the first general assembly meeting. However, it is also possible to terminate the buyback program before the expiry date by taking a board decision and disclosing it to the public.

Transactions to be carried out within the scope of buyback programs initiated by a board resolution and in effect as of the date of the New Resolution must comply with the limitations and principles stipulated in the Communiqué. However, the obligation to dispose of the shares purchased in violation of the provisions of the Communiqué, which were decided not to be implemented by the Resolution, within one year at the latest from the date of repurchase, or to redeem these shares by capital reduction at the end of this period, will not be applied.

On the other hand, the three-year disposal period for the portion of the shares purchased in this manner exceeding the 10% limit described above will continue to be calculated by taking into account the date that these shares were acquired.

Conclusion

The CMB has returned to the principles set out in the Communiqué regarding the implementation of buyback transactions.