The Capital Markets Board (the "Board" and “CMB”) had introduced the “Communiqué on the Companies Whose Shares will be Traded on the Venture Capital Market” (the “Communiqué”) on 18 May 2023 with immediate effect regarding the issuance and sale of shares of private companies to qualified investors without a public offering to be traded on the newly established Venture Capital Market (the “VCM”) under Borsa Istanbul (“BIST”). The Communiqué regulates the general principles regarding the sale of shares of private companies to qualified investors through capital increase without public offering, the obligations of the companies after the issue, the rules on financial reporting, independent audits and material events disclosures, and exemptions. As per the announcement dated 29 September 2023, BIST announced that the Venture Capital Market was established to enable companies that wish to obtain the financing they need through equity by issuing shares through capital increases only to qualified and institutional investors and to enable such shares to be traded on the BIST Equity Market, and that the necessary amendments were made to the Listing Directive and Equity Market Directive in accordance with the Communiqué. Accordingly, the Venture Capital Market was defined in both directives and started to be used instead of the Qualified Investor Trading Market where relevant.

We present to you a summary of the Communiqué and the parallel changes made in the relevant BIST procedures as below:

What is the Purpose of the Communiqué?

The Communiqué introduces the procedures and principles regarding the issuance of shares of private companies to qualified investors, which will be traded on the newly established VCM, as well as liabilities and exemptions foreseen for such companies. In accordance with the Communiqué, companies whose shares are traded on the VCM will be considered as public companies. Pursuant to the VCM, issuances can only be made through capital increases and share sales by existing shareholders will not be possible at the initial public offering. 

General Principles Regarding the Sale of Newly Issued Shares through Capital Increase without Public Offering

As per the Communiqué, private companies will be able to sell their shares to be issued through capital increase to qualified investors in the VCM without offering them to the public. Accordingly, in order for the shares to be sold and traded on the VCM, a prospectus whose principles are determined by the Board must be prepared by the relevant company and approved by the Board. Before the application for the approval of the prospectus:

• Companies must apply to the Board for the compliance of their articles of association with the Board’s regulations and the purposes and principles of the Capital Markets Law No. 6362 (“Law”) together with the draft amendment text to be prepared and the documents listed in the addendums of the Communiqué, and following the Board approval, they must hold a general assembly for amendment of their articles of association within a maximum of 6 months following the approval of the Board; and
• A resolution must be taken for capital increase and for partial or complete limitation of the right to purchase new shares. Upon completion of the above procedures, companies will apply to the Board for approval of their prospectus, which will be prepared in accordance with the relevant regulations of the Board, together with the documents listed in the Communiqué.

Upon completion of the above procedures, companies will apply to the Board for approval of their prospectus, which will be prepared in accordance with the relevant regulations of the Board, together with the documents listed in the Communiqué.

In addition, companies to be listed in the VCM must meet certain criteria in terms of total assets, net sales revenue and capital. Accordingly, as of the financial statements of the year before the year in which the shares will be sold (for the year 2023):

• Total assets of the companies must be at least 20,000,000 Turkish Liras,
• Net sales revenue of the companies must be at least 10,000,000 Turkish Liras, and
• The registered capital must be at least 10,000,000 Turkish Liras and fully paid up in order to switch to the registered capital system.

The financial statements to be included in the prospectus within the scope of the Communiqué will be determined based on the following table:

The provisions of the Communiqué on Sale of Capital Market Instruments numbered II-5.2. regarding sales to qualified investors shall be applied by analogy in the sale of the shares of the companies whose shares will be traded on the VCM by issuance to qualified investors without a public offering. 

Principles to be Followed After the Sale of Shares Without Public Offering

Shares of companies within the scope of the Communiqué cannot be subject to a public offering for two years following the year they started to be traded on the stock exchange. In addition, companies must apply to the Board with a prospectus to be prepared for their shares to be traded on other markets of the stock exchange through capital increase without public offering, within a period not exceeding five years following the year in which their shares started to be traded in the VCM. Companies whose prospectus is not approved by the Board or which do not apply to the Board for the approval of the prospectus within the specified period will be deemed out of the scope of the Law and their shares will be removed from the VCM without the need for any further action. The provisions regarding the companies deemed to have made a public offering of their shares due to the number of shareholders within the scope of the Equity Communiqué numbered VII-128.1 shall not apply to the companies that have left the scope of the Law. Companies that are excluded from the VCM will not be able to apply for public offering of its shares within the scope of the Communiqué on Shares numbered VII-128.1 for two years from the date of exclusion.

On the other hand, except for the shares that are previously traded on the VCM, the shares of the companies, whose shares started to be traded on other markets of the stock exchange after the approval of the prospectus and the public offering of their shares, that are not subject to public offering shall not be converted into shares that are traded on the stock exchange within two years from the date their shares started to be traded on other markets of the stock exchange.

Issues Regarding Financial Reporting, Independent Audits and Special Circumstances Disclosures 

Joint stock companies within the scope of the Communiqué will be accepted as companies whose capital market instruments are traded on a stock exchange and/or other organized markets in terms of the implementation of the Communiqué numbered II-14.1 on Principles Regarding Financial Reporting in the Capital Markets and the Communiqué on Independent Auditing Standards in the Capital Markets Serial: X, No: 22. That being said, companies whose shares will be traded on the VCM will be exempt from the obligation to issue first and third quarter interim financial reports.

Within the framework of the Communiqué, it is mandatory to publish general information of the companies on the Public Disclosure Platform and to publish the necessary updates within two business days at the latest in case of any change. In cases where the capital shares or total voting rights in the company are reached or below 5%, 25%, 50%, 67% or 95% or in case of a direct change of control, the relevant persons will make a public disclosure. It is mandatory to make a public disclosure in relation to the issues listed in the Communiqué in detail including dividend distribution of the companies within the scope of the Communiqué, issues related to the general assembly, capital increases/decreases, resolutions and transactions on merger/demerger/change of type of the company, changing the field of activity or production being suspended or becoming impossible or other similar situations, issues on the dissolution of the company, transfers or acquisitions of assets corresponding to 10% or more of the total assets.

Exemptions

In the event that the companies listed in the VCM pursuant to the Communiqué become subject to the merger or demerger, these companies will be deemed out of the scope of the Law and their shares removed from the VCM upon the registration of the merger or demerger transaction, without the need for any further transaction. It is not possible to apply for approval of the prospectus for the sale of company shares in VCM before two years from the registration date in merger transactions and from the date of the general assembly in partial demerger transactions.

On the other hand, companies within the scope of the Communiqué will not be subject to the provisions of the Communiqué on Share Purchase Offer numbered II.26.1, Communiqué on Material Transactions and the Right to Leave numbered II.23.3 and Communiqué numbered II-17.1 on Corporate Governance. The relevant provisions of the Communiqué on Shares numbered VII-128.1 shall be applied by analogy to the extent appropriate to the nature of the capital increases of these companies through rights issues and/or through internal resources or dividends.

Venture Capital Market and BIST Directives 

Pursuant to the amendments in the BIST Listing Directive, shares that are sold to qualified investors will be traded on the VCM. Non-publicly traded companies that issue their shares through capital increase to qualified investors without public offering may apply for listing of their shares to be traded on the VCM. The following conditions must be met for the listing of these shares:

• The prospectus must be approved by the CMB,
• The articles of association of the company must not contain any provisions restricting the transfer and circulation of the shares to be traded,
• There must be no significant legal disputes that will affect the production and operation of the company and the legal status in terms of establishment and operation must be confirmed by an independent legal expert report,
• Board of Directors of BIST must adopt an affirmative decision for the shares to be traded on the VCM as a result of the evaluation made by taking into consideration the financial status and activities of the company,
• The most recent annual and related interim independent audit reports must contain an affirmative opinion, and
• The ratio of the shares issued by the company to be purchased by qualified investors through capital increase to its capital should be at least 10%.

The relevant provisions of the Communiqué will also be applied in relation to the sale of the shares of the companies whose shares are listed on the VCM, other than the shares sold to qualified investors through capital increase and the shares offered to the public within the scope of Article 5 of the Communiqué.

Moreover, in parallel with the provisions of the Communiqué, it is regulated that the shares of the companies that do not apply to the Board for the approval of the prospectus to be prepared for the public offering of their shares within the period specified in the Communiqué or whose application is not approved by the Board, and the shares of the companies that are party to a merger or demerger transaction while they are traded in VCM will be deemed to be delisted from the stock exchange. For the re-listing to the relevant market of the shares of the companies that were delisted due to merger and demerger transactions, the periods specified in the Communiqué will be required to expire. In addition to foregoing, it was reiterated that it is essential for companies traded on the VCM to be traded on the relevant markets by offering their shares to the public in compliance with the periods specified in the Communiqué, and for this purpose, it was reminded that the prospectus must be approved by the Board and the listing requirements of the relevant market must be met.

BIST also replaced the name of the “Qualified Investor Trading Market” with the “Venture Capital Market” as per an amendment to the Equity Market Directive.