The debate over debt pushdown mechanisms in secured financing of listed company acquisitions has been going on in Turkey since the late nineties. With increasing investment by foreign private equity funds, the scope of this debate is broader, and covers the use of a target company's assets for securing the financing of an acquisition. The CMB's approach to this structure is controversial. Recently, it had an unpleasant experience when a private equity fund backed out of a deal due to a lack of financing. According to public disclosures made by the target, a fund that had agreed to purchase the company's shares terminated its agreement with the sellers on the ground that it had financing-related problems caused by economic fluctuations. The CMB's position was that such problems would not have occurred had the financing not been secured by the target company's assets. Reportedly, this led to the CMB's position that investors who wish to acquire shares in Turkish companies should secure their own financing instead of relying on the target's assets as collateral. The reasoning is that the use of the assets puts the minority shareholders in a difficult position.
De-listing has always been a hot issue in capital markets. Recently, there have been a few examples of de-listing publicly held companies (but not listed on a stock exchange) from the CMB. All of these resulted from publicly held companies having fewer than 200 shareholders consistently for two years. However, while there are publicly held companies listed in the Istanbul Stock Exchange (ISE), to date there have been no actual de-listings, as the rules for de-listing are not clear, and the procedure is at the discretion of the ISE's board.
Another hot issue was the transfer of assets of publicly held companies. If such an asset transfer does not fall within the terms of a spin off, the CMB generally prefers to obtain approval from a general assembly of shareholders, and an independent third-party evaluation of the value of the assets. If these conditions are met and satisfactory to the CMB, the CMB does not intervene with the transfer. If the asset transfer results in the change of activity of the company (transfer of all machinery and equipment for example), the CMB may also request amendment of the articles of association of the company.
Another recent regulation was adopted regarding grading activities and grading institutions. The regulation concerns grading institutions in Turkey that are authorized by the CMB and the international institutions authorized by its board to perform grading activities in Turkey. Under the regulation, grading activities constitute credit grading activity and grading activity as compliance under corporate governance principles. Under a separate provision, the obligations of notice to the CMB and of public announcement are regulated. Pursuant to this provision, grading institutions must submit any and all required documents under Article 26, such as their articles of association and all information regarding their partners, managers, personnel and controllers. The international grading institutions entitled by CMB to operate in Turkey are required to submit all information regarding grading notes, monitoring and updating of the same.
In 2007 the CMB will continue its efforts to regulate and monitor the capital markets, but its major challenge will be the protection of minority rights, as the number of minority shareholders filing lawsuits against the CMB, due to allegations of neglect while monitoring the market, increases.
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