Turkish Capital Market Board Launches Venture Capital Market

The “Communiqué on the Principles Regarding the Companies Whose Shares will be Traded in the Venture Capital Market No. II-16.3” (the “Communiqué”), which was prepared by considering the opinions received from the market within the framework of the secondary regulation studies carried out by the Capital Markets Board (the “Board”), was published in the Official Gazette dated 18 May 2023 and entered into force. With the regulations introduced by the Communiqué, the shares of non-publicly traded companies issued through capital increases can be sold to qualified investors without a public offer and can be traded on the Venture Capital Market of Borsa Istanbul AŞ. It is important to note that the entities that may issue shares by way of capital increase to companies that wish to be traded on the Venture Capital Market may make this transaction only to qualified investors within the scope of the Communiqué, including those defined in the Board’s regulations on investment institutions and who are considered professionals on the basis of demand. In this context, only qualified investors and corporate investors can acquire issued shares through capital increases within a two-year period for companies wishing to be traded on the Venture Capital Market. Issued shares traded on the Venture Capital Market may only be traded among qualified investors. In other words, shares cannot be traded and offered to the public during this period.

One may claim that this issue is regulated in order to facilitate access to financing for companies that are not listed but plan to go public in the future. Accordingly, through the Venture Capital Market at Borsa Istanbul, which is intended for companies that are not yet ready for an Initial Public Offering (“IPO”) but plan to go public in the future, companies will be able to obtain the financing they need for growth only by issuing shares through capital increases to qualified and corporate investors.

The Communiqué sets out the procedures and principles for the sale of shares without a public offering by way of capital increase, matters to be complied with after the capital increase, financial reports and independent audit, disclosure of material events, exemptions and other obligations of companies. The purpose of the Communiqué is to regulate the procedures and principles regarding the sale to qualified investors of the shares to be issued through capital increase for trading in the Venture Capital Market of non-publicly traded companies without public offering and the obligations and exemptions of such companies.

In order for the shares to be issued by the companies by way of capital increase to be sold to qualified investors without a public offering and to be traded on the Venture Capital Market, an offering circular must be prepared and approved in accordance with the principles established by the Board. In order for the shares to be traded on the Venture Capital Market, the Board of Directors of the Company must make the necessary amendments to the articles of association, pass a resolution at the general assembly and apply to the Board. The determination of the financial statements shall comply with the criteria established with the Communiqué and the preparation of the offering circular should be made in accordance with the principles determined by the Board.  The shares of the companies covered by this Communiqué may not be offered and sold to the public before the expiry of two (2) years from the year in which they were first traded on the stock exchange.

Conclusion

In conclusion, the significance of the Communiqué cannot be overstated. The Communiqué, formulated based on market feedback of the Board, has come into effect, marking a pivotal moment in regulatory advancements. The innovative regulations outlined in the Communiqué empower non-publicly traded companies to offer shares resulting from capital increases exclusively to qualified investors, circumventing the need for a public offering. Furthermore, these shares are now eligible for trading on the Venture Capital Market of Borsa Istanbul, opening new avenues for capital market activities. This strategic move not only enhances the efficiency and flexibility of capital markets but also aligns with the evolving dynamics of the financial landscape. Navigating the future landscape shaped by these regulations may lead to increased market liquidity and diverse investment opportunities, enhancing the vibrancy of the financial ecosystem. The Board’s forward-thinking approach, manifested in this Communiqué, lays a solid foundation for fostering a dynamic and resilient venture capital market.

For more information on the Communiqué and its application, please contact your CMS partner or local CMS expert: Hülya Kemahlı, or Arcan Kemahlı.