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What is Initial Public Offering (IPO)?

What is Initial Public Offering (IPO)?

An Initial Public Offering (IPO) is the activity of a company announcing that its shares are for sale, opening the way for all investors to become shareholders. The public offering is the sale of companies and their assets by dividing them into small shares.

Companies may apply to the public offering method for different reasons. Successful companies with high growth rates aim to expand their activities and fund their investments; on the other side, companies with financial resource deficits are offered to the public to make investments or pay off their debts without resorting to bank loans or borrowing.

Additionally, investors can invest in the values ​​of companies traded in the stock market by purchasing stocks. Public offering is a method that has positive results, especially in the long term.

Two types of public offerings are divided into primary and secondary public offerings. A primary public offering is a public offering by companies that were not publicly traded. A secondary public offering is a second public offering, which has been offered to the public before, but due to the low rate of public offering in the first.

What Are The Public Offering Conditions?

There are certain conditions required for the public offering to realise:

Contacting Intermediary Institutions

First, companies aiming to make a public offering must contact intermediary institutions and sign an underwriting agreement. The institution in question must be an authorised intermediary institution for the public offering. With the signing of the contract, the public offering process is realised.

Contacting the Capital Markets Board of Turkey

Companies that want to open their capital to the public must sign a contract with the Capital Markets Board of Turkey (“CMB”). In this way, they are liable to the supervision and decisions of the Capital Markets Board of Turkey.

After the company has complied with the CMB legislation, it can be offered to the public. Following the realisation of these transactions, the underwriting party applies to the Capital Markets Board and Borsa Istanbul to initiate the public offering of the company in question.

Examination of Company Data by Borsa İstanbul and Capital Markets Board of Turkey Experts

Borsa Istanbul and CMB officials examine the company’s head office, general activities, market value and features, and these institutions are informed. After the compliance of this data is checked and confirmed, the company’s public offering officially starts.

IPO Preparation Process in Turkey

There are some preliminary preparations that companies need to make before applying to Borsa Istanbul and the Capital Markets Board of Turkey:

Constitution of an Internal Working Group

The Working group in question should consist of employees in the finance department, public relations department and middle managers. The working group should list actions that need to be done before applying to the Borsa Istanbul and Capital Markets Board of Turkey.

Selection of Investment Firm and Consultants

The underwriting party must be one of the intermediary institutions authorised by the Capital Markets Board of Turkey. Companies aiming to be publicly traded must make a “Market Advisory Agreement” with a market advisor to make the necessary preparations.

The Stock Exchange determines the minimum requirements of this agreement. The underwriting agreement can be made with a single intermediary institution or a consortium with more than one intermediary institution depending on the amount of the public offering.

Ordinance of the General Assembly and the Amendment of the Articles of Association

The company, which has committed to going public, submits its draft amendments to the CMB to make the necessary changes in its Articles of Incorporation.

Suppose any provisions in the company’s Articles of Incorporation (AKA Articles of Association) restrict the transfer and circulation of shares to be traded on the Exchange and prevent the shareholders from exercising their rights. In that case, these provisions should be removed from the Articles of Incorporation.

Preparation of Financial Statements and The Selection of an Independent Auditor

Companies applying for the public offering have to prepare their financial tables in accordance with the Capital Market Legislation and pass the audit of an authorised independent audit company. In this context, companies should choose an independent audit company authorised by the CMB and sign an “audit engagement agreement”.

IPO Price Determination

Setting the IPO price is one of the most important parts of the IPO process and depends on company-specific developments and circumstances beyond the company’s control. Reflecting the public offering price realistically is very important for a successful public offering and for the price performance of the shares after they are presented in Borsa Istanbul.

The intermediary institution calculates the public offering price of the company’s shares, and Borsa Istanbul and CMB have no intervention in the price. The public offering can be started at the earliest on the third day following the publication of the price determination report and registration statement.

Public Offering Methods

The public offering can be made in three ways:

  1. Sale of Existing Stocks: In this method, the Company’s shareholders offer some of the shares they hold to the public on or outside the Stock Exchange.
  2. Public Offering Through Capital Increase: Companies issue new stocks and provide new financing resources by capital increase.
  3. Combination of The Two Methods: Companies can use the public offering methods described above together.

Public Offering Sales Methods

A. Book Building

Book Building at Fixed Price Method

In the fixed-price book-building method, the issuer/shareholder determines a certain price and the number of shares to be offered in light of the preliminary examinations. This is presented to the relevant investor groups, and investor bids are received. Finally, the shares are distributed to the investors who have invested in the shares.

Book Building with Price Bids

In this method, the issuer/shareholder sets a minimum offer price and receives bids above that level.

Book Building within a Price Range

Book Building within a certain price range sets a base and a ceiling price in which the difference between the ceiling price and the base price shall not exceed 20%.

B. Sales in The Exchange

In the method of selling on the Exchange, it is necessary to apply to the Exchange at least 20 working days before the public offering date, and the application must be accepted and announced.

C. Sales Without Book Building

In the sales without the Book Building method, a certain price is determined for the stocks and sold through public offering without collecting demand from investors.

The Obligation of Publicly Traded Companies

Dividend Payment Method

Public-held corporations are obliged to distribute profits not lower than the rates determined by the Capital Markets Board of Turkey.

Public Disclosure of Special Conditions

Public joint stock companies (JSC) are obliged to send the special condition disclosure they will prepare to the Board, and joint-stock companies whose shares are traded on the Exchange are obliged to send them to the Exchange in case of special condition.

Preparation of Financial Statements and Reports, Submission to the Board and the Exchange, and Announcement Obligation

Partnerships whose shares are traded on the Exchange must submit their annual financial statements and independent audit reports to the Board and the Exchange to be published in the Exchange bulletin within the specified periods.

Independent Audit Obligation

Joint-stock companies whose shares are traded on the Stock Exchange must keep under constant audit for their annual financial statements. For semi-annual financial statements, they are required to have a limited independent audit. The audit report is disclosed to the public together with the financial statements.

What is The Contribution of Public Offering to Companies?

  • It supports the financial needs of the company without borrowing. The resources obtained can be converted into new investments. Publicly traded companies obtain resources at a lower cost and longer-term resources than alternative financing methods. Additionally, after the public offering, associated company shares begin to be traded on the Stock Exchange. Now, companies can collateralise shares to obtain financing and loans and benefit from debt instruments at more affordable costs.
  • Shares offered to the public are traded in an organised market. Prices, which are formed according to the supply and demand of the market, are transparently allowed for buying and selling. That way, existing shareholders obtain a significant liquidity opportunity.
  • Disclosure of company information to the public enhances the company’s visibility and publicity domestically and internationally and supports investor sentiment of transparency.
  • Companies whose shares are traded on the stock exchange become institutionalised faster with the control mechanism of the capital market.
  • Accessibility to international markets increases. Companies can easily issue and list the capital market instrument in foreign markets.


  • <https://www.borsaistanbul.com/en/sayfa/3273/sales-methods>
  • <https://www.spk.gov.tr/Sayfa/Dosya/73>
  • <https://www.contractscounsel.com/t/us/underwriting-agreement>
  • <https://www.gureli.com.tr/wp-content/uploads/2021/02/4-halka-ar.pdf>
  • <https://dergipark.org.tr/tr/download/article-file/309372>
  • <https://www.alnusyatirim.com/halka-arz-nedir>
  • <https://www.borsaistanbul.com/data/kilavuzlar/Halka_arz_ve_borsada_islem_gorme.pdf>
  • <https://www.researchgate.net/publication/284772074_Initial_public_offerings>

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