Turkish companies going public have raised more than $2 billion (TL 54 billion) this year and are on track for their highest total in 16 years, as strong demand from local retail investors gives companies a vital funding option.
The unprecedented momentum in initial public offerings (IPOs) has lured a record number of investors to the Turkish stock market this year.
Smaller companies are leading the IPO spree, driven to list shares in search of alternative sources of financing after Türkiye’s years-long policy of slashing interest rates and curbs on credit made it harder for them to secure bank loans.
The Turkish central bank has embarked on a cycle of large back-to-back rate increases to curb domestic demand that has been a major driver of inflation over the past two years.
Still, high inflation complicates analysis of companies’ profit margins and valuations, analysts say.
The rush of smaller firms that have held initial public offerings this year has, on average raised around $60 million each and catered almost exclusively to local retail investors, company filings show.
Istanbul has been the most active among 16 listing exchanges in Europe,the Middle East and Africa, tracked by the World Federation of Exchanges.
Some 130 companies have gone public in the last three years, raising about TL 93 billion, Borsa Istanbul Stock Exchange (BIST) General Manager Korkmaz Ergun said on Monday.
Larger firms have not been so fortunate with initial public offerings, though. A lack of engagement by foreign funds and balance sheet uncertainty stoked by high inflation have made it harder for investors to value Turkish assets.
Annual inflation rose to more than 61% in September and is expected to edge higher into next year.
After winning the May election, President Recep Tayyip Erdoğan named a new economic team of technocrats with Wall Street experience and broad support among foreign investors to embrace more conventional economic policies, including aggressive monetary tightening, to try to reduce inflation expectations.
Last month, the central bank raised its key interest rate by 500 basis points to 30%, tightening policy for four straight months. Since the June policy U-turn, it has hiked rates by 2,150 basis points to rein in inflation.
Another avenue for funding, Eurobonds, is open to a few big companies and has recently opened after a year-long hiatus.
But companies in the middle ground in their industries have few options, one local corporate finance adviser said.
“They either have to resort to expensive bank borrowing or contract their operations, which is the goal of economic policies. The government has hit the brakes; no more easy financing,” the adviser said, declining to be named.
The dynamics of Turkish IPOs have changed markedly in recent years. The share of foreign institutional investors in new IPOs has fallen to just 8% from 78% in 2018, with local retail investors’ share up to 69% from 11%.
Musfik Cantekinler, a veteran of Turkish corporate finance now running a private practice, points to constrained bank financing as the reason as to why many Turkish companies have rushed to public offerings.
“The taps of bank financing have been closed for some time now and IPOs are now a funding source. However, some of those which vie for one are not actually ready.”
A surge in retail stock investors, which has more than doubled over the past year to more than 10% of the adult population, has been a boon for IPO hopefuls.
The Borsa Istanbul Stock Exchange saw 36 IPOs in the first nine months of the year, the second-highest figure since records that go back to 1990, with at least 20 more awaiting regulatory approval.
In 2022, there were 40 IPOs worth about TL 19.3 billion, compared to a record of 52 listings in 2021, according to the BIST data.
The total value of the IPOs has exceeded $2 billion and is on track to be the highest since 2007. The average size, however, has been getting smaller as IPOs have been geared toward retail investors who mostly buy fewer than 100 shares.