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New delisting principles

Gökhan EraksoyOnur Günel

Turkey's Capital Markets Board (CMB) recently announced its principles clarifying the procedures for voluntary delisting from the Istanbul Stock Exchange (ISE). Prior to publication of the Principles in the CMB's weekly bulletin in August, the rules to observe when voluntarily delisting were the Regulation on the Establishment and Working Principles of Stock Exchanges and the ISE Quotation Regulation. According to these regulations, a company could apply to the ISE Board of Directors to request delisting, and the ISE Board was the body authorised to rule on such request. However, these regulations were unclear on what the ISE Board could take into account in an application. Market players thus had no clue as to the possible outcome of an ISE Board evaluation, since delisting from the ISE had not been tested and no comparable data was yet available. With the recently published Principles, companies' voluntary delisting has become more predictable and accessible.

Now, together with the companies already listed on the ISE, companies traded in the Emerging Companies Market of the ISE or other unlisted markets are included in the Principles' scope and referred to as companies eligible to apply for delisting (Applicant(s)). As before, the ISE Board will be the authorised body in terms of delisting applications. However, the Principles oblige the Applicant's majority shareholders to apply simultaneously to the CMB to purchase the minority shareholders' stake via tender offer as set out in CMB regulations. Prior to publication of the Principles, the ISE Board would likely request that the Applicant take measures to prevent minority shareholders from incurring any losses, but the applicable legislation specified no such precautionary measures, and the matter was left to the ISE Board's sole discretion.

As a prerequisite of a voluntary delisting application to the ISE, the Applicant's majority shareholders – through an individual or group of individuals acting in concert, directly or indirectly – must own shares and/or voting rights representing at least 95% of the Applicant's share capital. A general assembly of shareholders resolution should be obtained by means of the Applicant's shareholders ratifying their board of directors' resolution approving the price to be offered in the tender. Upon the Applicant's general assembly's ratification of the delisting application, the Applicant should make a public disclosure to the CMB. Subsequently, but no later than five business days from such shareholders' meeting, applications should be made to (i) the ISE for delisting, and (ii) the CMB for the tender offer. With respect to pricing the Applicant's shares, if the majority shareholders' stake in the Applicant exceeds 95% of total share capital, the offer price will be stipulated in the delisting application submitted within 15 days of the offering period's expiration. For delisting applications that do not qualify under the above conditions, the offer price will be calculated according to an expert report prepared according to the CMB's Communiqué on Principles regarding Mergers, Serial: I, No: 31, and over a five-year period using the Principles' detailed formula. The applicable tender offer price should be paid in cash.

On completion of the tender offer process, the ISE Board will render its decision, and such decision will enter into force within 5 business days from its announcement on the Public Disclosure Platform (Kamuyu Ayd¦nlatma Platformu). To secure the rights of the shareholders who have not responded to the tender offer within the specified offer period, the shareholder(s) making the tender offer will deposit a certain sum – as set out in the Principles – into the ISE Settlement and Custody Bank (Takasbank) on the Applicant's behalf. Takasbank will keep the deposited amount for three years as of the delisting, and the shareholders that could not participate in the tender offer will be able to sell their shares to the shareholder(s) that made the tender offer during the delisting process. At the end of three years, the amount deposited by the shareholder(s) who made the tender offer will be unblocked, and such shareholder(s) will not be obliged to purchase the delisted Applicant's remaining shares, if any.

Finally, the CMB explicitly recapitulates the circumstances requiring public disclosure as (i) adoption of the board of directors' resolution approving the delisting from the ISE and ratification of the same in a general assembly of shareholders meeting; (ii) application to the ISE and CMB; and (iii) each step of the tender offer process. The content of the public disclosure made in relation to these matters should include at least:

(i) the reason behind the voluntary delisting;
(ii) the timing of the delisting application to the ISE and the CMB;
(iii) an explanation of the offer price applicable to the tender offer;
(iv) the time period and pricing envisaged for the tender offer;
(v) the amount allocated for the tender offer; and
(vi) the transactions related to the amount deposited with Takasbank for the shareholders that could not have participated in the tender offer.

The uncertainty surrounding the voluntary delisting process was a major concern for several publicly held companies which either traded only a minor volume of shares on the ISE or enjoyed no benefit from remaining listed but continued to be subject to compliance costs and requirements.

Such uncertainty meant that Turkey had no precedent of a company purchasing sufficient shares from the market by way of tender offer and obtaining the ISE Board's approval to be delisted. With the help of the Principles, the prevailing prejudice – that the ISE has no incentive to delist a public company and would prefer not to set a precedent for other companies considering delisting – needs to be revisited. The coming period will demonstrate whether companies and the ISE achieve constructive results in delisting applications.

Gökhan Eraksoy and Onur Günel

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