Public offerings, which started 2021 fast, seem to accelerate even more by the end of the year. While 23 new companies entered the stock market this year, the number of companies in Borsa Istanbul increased to 432. These companies provided approximately 11.4 billion TL in resources through the public offering.

In 2020, the question, ”I have some savings. Should I buy dollar or gold?” is replaced with two answers: Cryptocurrencies and public offerings. The increasing popularity of these two answers is not unique to Turkey. According to the data of The Block, which has been conducting research and analysis on digital assets since 2018, the transaction volume in cryptocurrencies has increased by 700 percent in 2020 all over the world. Another investment alternative that has increased interest, such as cryptocurrencies, is the shares of companies offered to the public.

International auditing and consulting company EY (Ernst & Young) has announced the first quarter results of its Global IPO Trends Report 2021. According to the report, the first quarter, known as a typically stagnant quarter in IPOs, showed the highest performance of the last 20 years in terms of number of transactions and revenues generated through IPOs. In addition to the high volatility in traditional public offering markets, record levels were reached in special purpose acquisition company (SPAC) public offerings. In SPAC IPOs, more transactions were completed and revenue was generated in the first quarter than in the whole of 2020. In the first quarter of 2021, the number of public offering transactions increased by 85% compared to the same period of the previous year and reached 430. While the revenue generated through public offerings was 105.6 billion dollars, a 271 percent increase was recorded in revenues compared to the same period of 2020.

Abundance of liquidity and individual investment platforms supported IPOs

According to the report, this dynamism in global public offerings is due to the abundance of liquidity and new opportunities that emerged during the pandemic. It is also stated that the popularization of individual investment platforms among the public, including the younger generation, has made investing more accessible than ever before. Stating that the best performance in 20 years has been achieved in the number of public offering transactions and revenues in global markets where liquidity is plentiful, EY Turkey Country President Metin Canoğulları makes the following assessment: “With the continuation of the pandemic, there are many uncertainties that may affect the global public offering markets and create volatility in the markets during this period. These include the slow pace of vaccination efforts around the world and the disruption of the economic recovery due to new strains in the pandemic. There is also the slowdown in public offerings due to the tightened regulation processes and the risk of destabilization in capital markets as banks reduce leverage. Companies need to be strongly prepared to gain market access when conditions are favourable.”

2021 Was a Record Breaking Year for IPOs

So what happened in Turkey in 2021? The variation between the “initial and today” prices of the companies offered to the public is between 10 percent and 268 percent. Several records followed each other in 2021. Işık Plastik, which exports to nearly 60 countries, was the first public offering of the year and more than 400 thousand requests were received. One out of every five investors in the stock market bought Işık Plastik shares. Türk İlaç ve Serum Sanayi A.Ş., whose main field of activity is the production of human drugs and vaccines, received a demand of 61.9 times the total size of the public offering from over 128 thousand investors. Demand from individual investors alone is 138.6 times the public offering. Qua Granite, Turkey’s largest technical granite producing company, has become the largest of the companies offered to the public in the last three years. The company, which started to be traded on BIST Star Market with the code “QUAGR”, had a public offering of 395 million liras. Incoming demand reached 2.3 billion liras. The demand for the exported shares of Galata Wind Enerji, one of the biggest public offerings of recent years, was approximately seven times higher. A quarter of the shares offered to the public went to foreign institutional investors.

Investment Level Increased

According to Central Registry Agency data, the number of domestic investors in the stock market exceeded 2.2 million in March. Tevfik Eraslan, the President of the Turkish Capital Markets Association (TSPB), states that the investment level is increasing with the use of the fund source created by the public offering of more companies in productive areas within the company, and that these developments create synergies in the economic development of the country.

Gedik Investment General Manager Metin Ayışık says that the most suitable source for companies’ equity financing is the capital market, while Tera Investment’s Chief Economist Enver Erkan says that public offerings open an additional door for companies in terms of providing funds, especially during the pandemic.

So, what kind of a synergy did the companies that went public in the last year create in the economy?

Saying that the public offerings in 2021 provided 11.4 billion TL in resources to the capital markets, Eraslan underlines that capital markets play a very important role in the sustainability of economic growth through direct financing, and adds: “With the increasing public offerings in our country, property and capital spread to the base, the country’s savings level increases with the number of more investors, the investment level increases with the use of the fund source created by the public offering of more companies in productive areas within the company, therefore these developments create a great synergy in the economic development of the country.”

Going public provides companies with the opportunity to reach the long-term, low-cost, non-refundable and permanent financing source they need, as well as providing liquidity, gaining reputation and prestige and various cooperation opportunities as a result of increasing recognition both at home and abroad. It also provides important benefits such as increasing the credibility of its customers, suppliers and financial institutions, thus obtaining easier and cheaper loans and creating added value in the institutionalization process. When we look at it from the point of view of investors, it offers the opportunity to make a profit with long-term investments in the markets that are well regulated and supervised by the authorities. Therefore, the public offering of companies contributes not only to that company and the market, but also to the entire economy of the country.

Despite the number of investors reaching historical record levels in recent years and the increasing public offerings in 2021, it is observed that both the share of capital markets from household assets and the ratio of capital markets to GDP, Turkish capital markets have not reached their potential yet.

The Number of Active Investors in the Stock Increased

Parallel to the global markets, investor interest in Turkish capital markets also increased at record levels. The number of investors with balance in the Borsa Istanbul stock market, which was approximately 1 million 213 thousand at the end of 2019, reached historical record levels of 2 million 674 thousand in April this year, and then decreased to 2 million 517 thousand in May. According to TSPB data, the number of active investors in the stock, which was 786.4 thousand at the end of May last year, reached 1 million 960 thousand, increasing at a record level of 1 million 173 thousand in the last year.

Investors’ interest in the share market has also increased the appetite of companies for public offerings. As a matter of fact, in the last months of the previous year, with the high investor interest in the public offerings, many companies put the topic of public offerings on their agenda. The increase in the number of companies going public since the beginning of this year continues at an accelerated pace. Due to the record demand from domestic investors, many companies also started the public offering process this year.

Bringing New Investors to the Stock Exchange

Metin Ayışık, General Manager of Gedik Investment, emphasizes that companies will not only remain connected to the banking system through public offerings, but also gain very important advantages such as providing long-term and low-cost resources through the capital market, strengthening working capital and, more importantly, improving the corporate structure, such as reputation, transparency and awareness. Ayışık says that companies believe that the capital market is the most suitable source for equity financing and that the share of banking in the financial sector in Turkey is over 80 percent; companies use their bank limits to the fullest, but they hesitate when they need more resources for growth. Saying that companies’ applications to the capital market are especially beneficial for companies that make public offerings through capital increase, that is, companies that use the resources from the supply in the growth of the company and in need of working capital, Ayışık also emphasizes that public offerings are important for attracting new investors to the stock market.

Public Offerings are Options for Access to Financial Resources

Tera Investment Chief Economist Enver Erkan says that public offerings opened an additional door for companies in terms of providing funds, especially during the pandemic, “While introducing investors to companies, IPOs also provided companies with recognition and reduced the cost of finding money. An IPO is an option to access financial resources. A public offering company also undergoes official audit and surveillance. It is necessary to look at this situation cyclically and see the motivation for companies to go public. Factors such as the institutionalization and transparency of more companies, the increase in the brand awareness and value of companies, the competitiveness of companies in international markets, and their access to cheap financing sources are, of course, positive. Apart from these, companies can use the financing they obtain in areas such as R&D activities, production and capacity increase, digitalization, and opening up to new markets. Such situations provide an advantage to the company, the sector, the market and has an impact on the perspective of the investor.”

E-Data Teknoloji, one of the companies we asked why they preferred the public offering, says that one of the most important reasons for choosing the public offering is to become institutionalized and to increase awareness for the company. E-Data Technology General Manager T. Fatih Mutlu, who saw in various sectoral reports that the IT sector will continue to grow for many years, says that the digital transformation, which accelerated during the pandemic, will continue to guide all sectors after the pandemic. He predicts that especially the network products, data centers, server, storage products and cybersecurity will be at the center of this growth. Mutlu says that they will strengthen their equity capital with a significant part of their income, and they will continue to grow by adding new brands, products and solutions to their existing brands, products and solutions required for the digital transformation of businesses. Stating that the strong equity capital is the biggest supporter of growth in technology distribution companies, Mutlu says, “Therefore, we have allocated most of the funds obtained from the public offering to strengthen our equity capital. One of the reasons for going public is our desire to get more out of this growth by strengthening our equity capital. In the new period, we aim to continue to offer the technology solutions required for digital transformation with the philosophy of business continuity and to undertake the distributorship of brands for new solutions.”

Acquisition of Foreign Investors is A Must

Stating that foreign investors should also increase their interest in Turkish capital markets in order to strengthen investor interest in public offerings, Eraslan also says that in the last year, foreign investors have exited the stock market.

While the rate of foreign investors in Borsa Istanbul was 50 percent as of the end of June 2020, this rate has decreased to 42 percent today due to the exit of foreign investors despite the interest of individual investors. We see that the public offering price is lagging behind in some of the public offerings that have taken place due to the growth in the scale of the companies that have been offered to the public recently and the funds allocated by the individual investor for this business are not enough for the supply. It is possible to say that for the next period, it is necessary to increase the interest of foreign investors in capital markets and to regain the interest of foreign investors.

Tevfik Eraslan

President of the Turkish Capital Markets Association

“In order for the capital markets to deepen, the number of investors and public offerings need to increase. In fact, in order for our capital markets and therefore our economy to develop and reach the desired level, more of our companies, especially Turkey’s largest companies, need to be traded on the Borsa Istanbul stock market. In addition to large companies, we need to better explain the possibilities of capital markets to companies operating all over Turkey. As a matter of fact, Borsa Istanbul has been calculating City Indices over the shares of companies whose main production or activity center is in the same city since 2009. In order to calculate the “BIST City Index” of a city, at least 5 companies from that city must be traded on Borsa Istanbul. Today, we have 13 cities that fulfill this requirement and the BIST City Index is calculated. We need to increase the number of these cities in the future. When we achieve this, we can spread the added value created by the capital markets to companies and ensure that the capital is spread to the base.”

Metin Ayışık

General Manager of Gedik Investment

‘There is great interest in public offerings’

“In the last year, more than 25 public offerings have happened and it will continue. With the unprecedented increase in the number of investors, the participation of approximately 1,400,000 new investors, the demand for public offerings has also increased. I strongly recommend that investors participating in the public offering examine the companies well, not only the leading institutions, but also the reports of other brokerage houses on the price determination report, read the prospectus and seek advice from the brokerage house. While making their investments, I recommend that they choose companies that have high growth potential, sell products or services that will appeal to both domestic and international markets, and will use the income of the public offering for the growth of the company.”

Enver Erkan

Tera Investment Chief Economist

‘’Demand of local institutional investors increased’

“The success of an IPO depends on several conditions. The general condition of the market is just as important as the conditions specific to the company to be offered to the public. In other words, while evaluating the financial situation and operations of the company in the last few years, as well as its financial position, the position and advantages of the sector in the current conjuncture; factors such as the general mood of the market and volatility are also taken into account. Therefore, companies may change the timing of their IPOs to allow for more favorable market conditions even though they are confident in their own operational data. Most of the publicly traded companies were in low-mounted companies, and the demand from domestic institutional investors in particular was higher. The decrease in liquidity in the market and the continuation of public offerings decreased the demand for the latest public offerings. We can say that the market is at the saturation point and the decrease in criteria of the companies that went public were also effective in this.”

T. Fatih Mutlu

E-Data Teknoloji General Manager

‘We are focused on fast growth’

“E-Data Teknoloji is a company with a strong capital structure and extremely low financial indebtedness. We will focus on rapid growth, both organically and inorganically, by focusing on ensuring that our company has an even stronger capital structure with the resources to be obtained from the public offering. In addition to organic growth, inorganic growth by investing in companies with certain specifications is among our priority targets. We especially plan to invest in companies that operate in different areas of information technology security and distribute strong brands. In this sense, we will use a large part of the resource we will obtain from the public offering for working capital in the rapid growth we aim, and a part of it for warehouse investment and reorganization studies.”

What are the Advantages of Public Offering?

The advantages of a public offering can be common for both the investors and the company. As a result of the stock market sale organized to protect the interests of both parties, risks are eliminated. We can list the advantages of public offering for investors as follows:

• Owning shares even in large companies thanks to the price advantage,

• Providing investment diversity,

• Less risk, more diverse returns,

• Ensuring a continuous and constant flow of correct information,

• Continuation of cash money while audits and controls also continue.