Turkiye has recently witnessed a surge in initial public offerings. White & Case affiliate law firm GKC Partners’ Head of Capital Markets Practice Derin Altan and Kolcuoglu Demirkan Kocakli Partner Hasan Yasar explore this phenomenon and what it means for the wider market conditions.
Do More IPOs Point to a Stronger Market?
Turkiye’s economy seems to be booming with an increasing number of companies opting for IPOs. Is this a sign of market growth and success though?
Altan, for one, challenges the suggestion that it is. “Unfortunately, while this would be the fair and popular statement, I strongly disagree with this,” he says. “We all know the cliche of ‘quality over quantity.’ However, when it comes to our professional lives, this is less of a popular motto,” he argues. According to him, the increasing number of companies opting for IPOs is not a representation of a strong Turkish economy: “This is pretty evident from the 2004-2013 era when the Turkish economy went through its best decade. Albeit the fact that there was a huge government push for IPOs, the total number of IPOs in that decade was less than in 2022 alone.”
Chiming in, Yasar advises caution while also acknowledging the IPO uptick. “According to the Capital Markets Board of Turkiye – the authority regulating the IPOs – the CMB approved eight IPOs in 2020, 32 IPOs in 2021, 35 IPOs in 2022, and 39 IPOs in 2023. As of today, in 2024, 30 companies went public and many companies are awaiting approval, which indicates that a higher number of IPOs may be approved by the end of the year,” Yasar reports, providing a framework for further observation. “Accordingly, these numbers reflect a strong upward trend in IPO activity in Turkiye over the past few years. That said, an increase in the number of IPOs does not on its own mean a revival of the economy, and the broader economic indicators should also be taken into account,” he stresses.
Factors Driving the IPO Surge
To understand the reasons behind this surge, Altan and Yasar focus on challenges in private equity financing as influencing IPO’s popularity.
“Very low interest rates with a record-breaking hyperinflation created significant negative interest rates, and people flocked to other options for investment,” Altan says. “Some traded real estate, some traded automobiles, and some traded securities with IPOs being the most famous option. At some point, the number of retail investors in IPOs reached 8 million, which is lower than 1 million investors in recent IPOs,” he reports.
“The system created what I call ‘IPO-hopping’ where people invested in IPOs for very short periods of time with a goal to double the funds in two weeks. You can have a graph where you overlay the Central Bank interest rates over the BIST100 index in USD (not in TL, but USD), and you will be able to see what I mean,” Altan adds.
Yasar, on the other hand, sees multiple factors at play here. “Access to traditional financing (especially from banks) tightens as borrowing from the banks becomes more expensive due to high interest rates,” he explains. Moreover, he feels that strong retail investor participation has bolstered demand for new stocks during and after the COVID-19 pandemic and that the “presence of government policies that promote capital markets (e.g., tax incentives or sector-specific advantages in energy, chemical, agriculture, defense, and advanced technology industries)” was also beneficial.
Yasar also points to the struggles of the potential alternative for funding – private equity: “the challenges faced by private equity financing such as increased costs of private capital and stricter lending conditions in the private market make IPOs a more attractive route for companies seeking growth capital. In addition, currency volatility also adds pressure on private equity investors, who may prefer liquid markets.”
Market Impact Bottom Line
Exploring whether a high volume of IPOs reflects a healthy market, Yasar provides a nuanced perspective. “An increase in the number of IPOs certainly indicates economic growth as certain financial conditions are required to be met to go public.” That said, in addition to the number of IPOs, he again feels that broader economic indicators should be factored in. There are positive developments and regulatory efforts according to Yasar: “the number of IPOs successfully completed in Turkiye is very high in recent years, and companies going public have generally seen positive market reactions, even though some of these companies have faced struggles in post-IPO price stability.”
In this respect, he indicates that certain trends emerged in the country through decisions of the CMB and amendments made to the overall legislative framework. “For instance, the CMB requires higher turnover and asset size for IPOs so that only financially strong and stable companies go public. It is also worth noting, as sectoral trends, that technology, real estate, food, and energy companies are trending in the IPO market in recent years.”
As for Altan, he laconically points to recent market performance as the best indicator. “The IPO index of BIST is -20% in the past six months, whereas the BIST100 index is up 10% in the same period. Nothing else to comment.”
Ultimately, offering a general prognosis for the Turkish market, Yasar forecasts that, on the one hand, “in the short-term, IPO activity in Turkiye is likely to increase as companies leverage investor appetite and prefer obtaining financing in a regulated market.” On the other hand, he feels that “long-term prospects depend on various other global and local factors.”
This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
