In the November 2014 announcement that Turkey's largest natural gas distributor, IGDAS, would be privatized, it was expected that the tender would take place in the form of a block sale. In his latest press statement, however, the Mayor of the Istanbul Metropolitan Municipality, Kadir Topbas, announced that, instead of a block sale, an initial public offering (“IPO”) would soon be initiated and that IGDAS' shares would first be offered to natural gas consumers in Istanbul in the context of an IPO.
IGDAS is the largest natural gas distribution company in Turkey in terms of customers (5.1 million) and consumption and, thus, is expected to generate significant interest among local and international investors.
Under Turkish securities laws, the following limitations apply with respect to the distribution of shares in a public offering:
- Shares representing at least 30% of the nominal value of the issuance must be allocated to domestic investors: at least 10% allocated to domestic retail investors and at least 20% to domestic institutional investors.
- Once the minimum 30% has been offered to domestic investors, the remaining 70% may be allocated among different groups of domestic and international investors, provided that these groups are defined in the offering documents.
The major difference in converting from a block sale to a public offering is that privatization through a public offering is regulated under the Capital Markets Law and related regulations. Since the capital markets regulations impose certain procedural steps, such as applying to the Capital Markets Board for approval of the offering circular and to the Istanbul Stock Exchange for quotation on the relevant market, converting to a public offering will extend the privatization period.
As we mentioned in our previous legal alert on November 7, 2014, the draft Natural Gas Market Law, which is still under parliamentary commission review, includes provisions and exemptions intended to increase bidders' appetite for IGDAS' privatization. The two major benefits under the draft Natural Gas Market Law -- fixed usage and transportation fees for 10 years and exemptions from cumbersome obligations -- will not be affected by a change in the method of privatization.
Given the recent return of political stability and predictability in the market and the fact that IGDAS's privatization had been expected to conclude earlier this year, we expect the enactment of the law and the commencement of the privatization process to gain speed. Uncertainty, however, as to whether the Istanbul Municipality or the Privatization Authority will be in charge of conducting the tender will remain until the tender is officially announced.