The CMB, in response to the global economic turmoil and recent fluctuations observed in the ISE, has revised the principles applicable for share buy-backs and paved way for all ISE Listed Companies to conduct share buy-back programs. The Resolution brings the currently applicable legal framework in line with the share buy-back rules of the New Turkish Commercial Code (the "New TCC") which will be in force as from 01.07.2012 and, rather surprisingly, broadens the type of companies which may utilize the so-called share price supporting process.
Fundamental Aspects
Under the new framework, it is possible for all type of ISE Listed Companies to purchase their shares up to %10 of their paid up/issued share capital provided that they are authorized through their general assemblies. However, board of directors (the "BoD") of those companies may conduct share buy-backs without a general assembly authorization in case there is a reasonable cause to do that. The Resolution governs share buy-back processes and consequences arising therefrom in detail.
Swift Market Response
As a prompt reaction to the Resolution, three ISE Listed Company, namely Ersu Meyve ve Gıda Sanayi A.Ş., Martı Otel İşletmeleri A.Ş. and Karkim Sondaj Akışkanları Enerji Mühendislik Hizmetleri Sanayi ve Ticaret A.Ş. have, without obtaining general assembly decisions and by solely depending on the intention of their BoDs, decided to initiate share repurchases due to market's undervaluation of their shares.
Legal Risk Analysis Required
The recent practical initiative taken by the CMB has raised concerns in the market regarding the legal basis of the Resolution. Under the currently applicable Turkish Commercial Code (the "Currently Applicable TCC"), apart from certain exemptions, it is not possible for ISE Listed Companies, excluding listed brokerage firms and investment companies, to buy-back their shares. The Currently Applicable TCC, excluding certain exemptions, clearly declares share buy-back arrangements to be null and void. The New TCC, unlike the Currently Applicable TCC, authorizes all type of ISE Listed Companies irrespective of their type and status, and considers those arrangements valid provided that certain conditions are met. However, such authorization and consideration will be in force as from 01.07.2012 and, accordingly, the New TCC cannot be deemed as a legal backdrop for the Resolution until 01.07.2012.
By taking into account the above described landscape, we advice ISE Listed Companies, excluding listed brokerage firms and investment companies, and their BoDs to consider the legal risks in detail before initiating any share repurchase programs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
