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Turkcell Iletisim (TKC) Risk Analysis
Risk Overview Q4, 2023
Source: the company's latest filing for the period ended Dec 31, 2023, filed May 13, 2024
Risk Change Over Time
- Share Price & Shareholder Rights - Risk 1Summary of Risk Relating to our American Depositary Shares
- We have two major shareholders whose interests may not be aligned with those of other shareholders. - The price of our American Depositary Shares may be volatile, and purchasers of American Depositary Shares could incur substantial losses. Holders of American Depositary Shares are not entitled to attend shareholders' meetings, and they may only vote through the depositary.
- Share Price & Shareholder Rights - Risk 2We have two major shareholders whose interests may not be aligned with those of other shareholders.
In October 2020, Turkiye Varlik Fonu ("TWF"), the wealth fund of the Republic of Turkiye, acquired control of 26.2% of the outstanding shares of our Company. This stake is held through its wholly owned company, TVF Bilgi Teknolojileri Iletisim Hizmetleri Yatirim Sanayi ve Ticaret A.S. ("TVF BTIH"), now our largest shareholder. The current Chairman of TWF is the President of the Republic of Turkiye. TWF is an important investor in the Turkish economy and holds important stakes in numerous other major Turkish companies, including companies with which that we have business relationships with. This includes several major banks and financial services companies, including Borsa Istanbul A.S. ("Borsa Istanbul" or "BIST"), the operator of the Istanbul Stock Exchange, Turksat, and certain energy and infrastructure operators. In 2022, TWF acquired an additional 55% stake in our main competitor Turk Telekom, in addition to 6.68% they held in the past, and the Ministry of Treasury and Finance of the Republic of Turkiye has a golden share in that company. Turk Telekom is our main competitor in the Turkish fixed line business and is one of our two main competitors in the mobile business. We can give no assurance regarding the positions that TWF will take as a controlling shareholder of Turk Telekom and of our Company, and that it will not in some instances favor Turk Telekom or decisions which are impacted by its positioning across the Turkish economy. Following the amendment of our Articles of Association at the general assembly on October 21, 2020, a new class of Group A shares was created with special rights. TVF BTIH, as the sole holder of shares in this class, has the right to appoint a total of five of the nine members of our Board of Directors, including its Chairman. Under the Board's current quorum rules, the affirmative vote of at least five members is required for a decision to be taken. In the event that the Group A shares cease to be held by a single shareholder, all privileges in voting and nomination for the election of the Board of Directors members granted under the Articles of Association to the Group A shares shall automatically terminate. The Group A shares owned by TVF BTIH were subject to a three-year lock-up agreement, during which TVF BTIH was required to use its reasonable endeavors to cause Turkcell not to terminate its ADR program. The three-year lock-up agreement ended in October 2023. The Turkish law establishing TWF exempts it from a number of laws, notably certain capital markets and competition laws, which may negatively affect minority shareholders' rights. For example, mandatory takeover rules will not apply to TWF's group and TWF group companies are not to be bound by a commercial law that requires compensation of minority shareholders if the controlling shareholder pursues detrimental policies. Our other main shareholder is IMTIS Holdings which is part of the LetterOne group, holding a 19.8% share in Turkcell. Two of the indirect beneficiaries of IMTIS Holdings and LetterOne have recently been added to the lists of persons subject to US, EU and UK sanctions on Russia arising from the situation in Ukraine. While IMTIS Holdings has assured us that it believes that it is not controlled by these persons and that it is thus not itself subject to such sanctions, no assurance can be given that US, EU and/or UK authorities will not take a contrary position or that the scope of the US, EU, UK or other sanctions will not evolve in a way that would subject IMTIS Holdings to sanctions. Furthermore, no assurance can be given that the relevant beneficiaries of IMTIS Holdings or IMTIS Holdings itself or other LetterOne group entities directly or indirectly controlling IMTIS Holdings will not be added to the EU, UK, US or other sanctions lists. If IMTIS Holdings or other LetterOne group entities directly or indirectly controlling IMTIS Holdings were to be subject to sanctions, we could be deemed to be in violation of such sanctions as a result of our interactions with it in its capacity as a shareholder of our Company, including the payment of dividends to IMTIS Holdings and, although we believe that it is highly unlikely, we too could be subject to sanctions. In addition, we have been subject to shareholder activism campaign in the past. We believe that such actions may be damaging to our reputation and that responding to such actions could be costly. Perceived uncertainties as to our future direction as a result of such shareholder activism may lead to the perception of a change in the direction of the business or other instability and may make it more difficult to attract and retain qualified personnel and business partners and may adversely affect our relationships with vendors, customers and other third parties.
- Corporate Activity and Growth - Risk 3Risk Factors Summary Summary of Risks relating to Turkiye
- The majority of our business and assets are in Turkiye, and thus deterioration in the economy in Turkiye, any devaluation of the Turkish Lira, or any instability in the political environment, may have an adverse effect on our business and financial condition. - If the current levels of inflation continue, the Turkish economy and our financial position and business could be adversely affected. - Since March 2022, the Turkish Lira has been qualified as a currency of a hyperinflationary economy under IAS 29, and we are required to apply inflationary adjustments to our financial statements. Any further adjustments could adversely affect our results of operations and financial condition and those of our Turkish subsidiaries. - Foreign exchange rate risks could affect the Turkish macroeconomic environment and could significantly affect our results of operation and financial position in future periods.
Risk Highlights Q4, 2023
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 28
- Share Price & Shareholder Rights - Risk 1AddedSummary of Risk Relating to our American Depositary Shares
- We have two major shareholders whose interests may not be aligned with those of other shareholders. - The price of our American Depositary Shares may be volatile, and purchasers of American Depositary Shares could incur substantial losses. Holders of American Depositary Shares are not entitled to attend shareholders' meetings, and they may only vote through the depositary.
- Share Price & Shareholder Rights - Risk 2AddedWe have two major shareholders whose interests may not be aligned with those of other shareholders.
In October 2020, Turkiye Varlik Fonu ("TWF"), the wealth fund of the Republic of Turkiye, acquired control of 26.2% of the outstanding shares of our Company. This stake is held through its wholly owned company, TVF Bilgi Teknolojileri Iletisim Hizmetleri Yatirim Sanayi ve Ticaret A.S. ("TVF BTIH"), now our largest shareholder. The current Chairman of TWF is the President of the Republic of Turkiye. TWF is an important investor in the Turkish economy and holds important stakes in numerous other major Turkish companies, including companies with which that we have business relationships with. This includes several major banks and financial services companies, including Borsa Istanbul A.S. ("Borsa Istanbul" or "BIST"), the operator of the Istanbul Stock Exchange, Turksat, and certain energy and infrastructure operators. In 2022, TWF acquired an additional 55% stake in our main competitor Turk Telekom, in addition to 6.68% they held in the past, and the Ministry of Treasury and Finance of the Republic of Turkiye has a golden share in that company. Turk Telekom is our main competitor in the Turkish fixed line business and is one of our two main competitors in the mobile business. We can give no assurance regarding the positions that TWF will take as a controlling shareholder of Turk Telekom and of our Company, and that it will not in some instances favor Turk Telekom or decisions which are impacted by its positioning across the Turkish economy. Following the amendment of our Articles of Association at the general assembly on October 21, 2020, a new class of Group A shares was created with special rights. TVF BTIH, as the sole holder of shares in this class, has the right to appoint a total of five of the nine members of our Board of Directors, including its Chairman. Under the Board's current quorum rules, the affirmative vote of at least five members is required for a decision to be taken. In the event that the Group A shares cease to be held by a single shareholder, all privileges in voting and nomination for the election of the Board of Directors members granted under the Articles of Association to the Group A shares shall automatically terminate. The Group A shares owned by TVF BTIH were subject to a three-year lock-up agreement, during which TVF BTIH was required to use its reasonable endeavors to cause Turkcell not to terminate its ADR program. The three-year lock-up agreement ended in October 2023. The Turkish law establishing TWF exempts it from a number of laws, notably certain capital markets and competition laws, which may negatively affect minority shareholders' rights. For example, mandatory takeover rules will not apply to TWF's group and TWF group companies are not to be bound by a commercial law that requires compensation of minority shareholders if the controlling shareholder pursues detrimental policies. Our other main shareholder is IMTIS Holdings which is part of the LetterOne group, holding a 19.8% share in Turkcell. Two of the indirect beneficiaries of IMTIS Holdings and LetterOne have recently been added to the lists of persons subject to US, EU and UK sanctions on Russia arising from the situation in Ukraine. While IMTIS Holdings has assured us that it believes that it is not controlled by these persons and that it is thus not itself subject to such sanctions, no assurance can be given that US, EU and/or UK authorities will not take a contrary position or that the scope of the US, EU, UK or other sanctions will not evolve in a way that would subject IMTIS Holdings to sanctions. Furthermore, no assurance can be given that the relevant beneficiaries of IMTIS Holdings or IMTIS Holdings itself or other LetterOne group entities directly or indirectly controlling IMTIS Holdings will not be added to the EU, UK, US or other sanctions lists. If IMTIS Holdings or other LetterOne group entities directly or indirectly controlling IMTIS Holdings were to be subject to sanctions, we could be deemed to be in violation of such sanctions as a result of our interactions with it in its capacity as a shareholder of our Company, including the payment of dividends to IMTIS Holdings and, although we believe that it is highly unlikely, we too could be subject to sanctions. In addition, we have been subject to shareholder activism campaign in the past. We believe that such actions may be damaging to our reputation and that responding to such actions could be costly. Perceived uncertainties as to our future direction as a result of such shareholder activism may lead to the perception of a change in the direction of the business or other instability and may make it more difficult to attract and retain qualified personnel and business partners and may adversely affect our relationships with vendors, customers and other third parties.
- Share Price & Shareholder Rights - Risk 3ChangedThe price of our American Depositary Shares may be volatile, and purchasers of American Depositary Shares could incur substantial losses. Holders of American Depositary Shares are not entitled to attend shareholders' meetings, and they may only vote through the depositary.
The market price of our American Depositary Shares ("ADSs") may be highly volatile and could be subject to wide fluctuations, in particular due to the fact that trading in the ADSs take place in different currencies (U.S. dollars on the New York Stock Exchange ("NYSE") and Turkish Lira on the Borsa Istanbul), and mostly at different times (resulting from different time zones, different trading days and different public holidays in the United States and Turkiye), resulting in different trading prices of these securities differing on the two markets. Securities markets worldwide experience significant price and volume fluctuations. Market volatility, as well as general economic, market or political conditions, could reduce the market price of our ADSs, regardless of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including changes in our quarterly operating results or dividends, additions or departures of key management personnel, failure to meet analysts' earnings estimates, publication of negative research reports about our industry, failure of securities analysts to cover our stock or changes in financial estimates by analysts, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industry we operate in or individual scandals. Consequently, in response to these events, the market price of our ADSs could decrease significantly, and purchasers of ADSs could incur substantial losses. In addition, share sales by major shareholders, and the perception that significant sales could occur, may have an adverse impact on the price of our shares and ADRs. In addition, holders of ADSs may face more difficulties in exercising their voting rights as shareholders than they would if they held ordinary shares directly. For instance, under the Turkish Commercial Code and the relevant provisions of our Company's internal regulations, the shareholders whose names are stipulated in the attendance list or the representatives thereof shall have the right to attend a shareholders' meeting by submitting their ID cards and/or their letter of proxy at the place of meeting. A holder of ADSs will not be able to meet these requirements and, accordingly, is not entitled to attend shareholders' meetings. Instead, a holder of ADSs is entitled to instruct the depositary as to how to vote the shares represented by ADSs, in accordance with procedures provided for in the deposit agreements, but a holder of ADSs will not be able to vote its shares directly at a shareholders' meeting. Because of the extra procedural step involving the depositary, the process for exercising voting rights will take longer for holders of ADSs than for holders of ordinary shares. ADSs for which the depositary does not receive timely voting instructions will not be voted at any meeting.
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