THE IMPORTANCE OF CAPITAL MARKETS IN THE DEVELOPMENT OF INDUSTRIAL SECTOR (CASES OF TURKEY&SERBIA) ALI IHSAN DILER ISTANBUL STOCK EXCHANGE VI. International Belgrade Stock Exchange Conference November - Belgrade

IMPORTANCE OF CAPITAL MARKETS Capital Markets provide – Long term capital for investments –Liquidity for the security holders –Elimination of term mismatch –Reputation for companies

Availability of information for all market participants –Disclosure Policies –Corporate Governance Liquidity –Price Contiunity Price contiunity requires depth Minimal Transaction Costs CHARACTERISTICS OF A GOOD MARKET

TURKISH EXPERIENCE

Sectorial Breakdown of Turkey’s GDP (% of GDP)

IPO Amounts ($ billion)

Sectorial breakdown of IPO Amounts ( )

Secondary PO Amounts ($ million)

Sectorial breakdown of Capital Increases (Rights Issues) in ISE (% of Total)

Sectorial breakdown of Market Value in ISE ($ billion)

Sectorial breakdown of Trading Volume (# of Shares) in ISE (% of Total)

Sectorial breakdown of Traded Value in ISE ($ billion)

Every year Istanbul Chamber of Industry makes a research for the first 500 Industrial Companies of Turkey. 105 of the first 500 industry companies are traded in ISE. 34 of these companies are in the first 100. First 500 Industrial Companies of Turkey

Share of ISE Companies in the first 500 Industrial Companies of Turkey

ISE was established in 1986 No institutional investor at the beginning Few brokerage houses OTC was a big rival Beginning Phase of the ISE

Removing the restrictions from international capital movements (1989) For ISE Members, it is compulsory to make their transactions at ISE markets. (from 1986 onwards) Mutual Funds and Investment Trusts were began to be established and their revenues are exempted from taxes Listed companies have tax exemptions from their profit (till 1999) Evolution of the ISE

Also the capital gains obtained from the transactions on ISE were exempted from taxes till –Between 1999 and 2006, if the shares obtained from ISE are held for 3 months or more the capital gains from the sale of these shares were exempted from tax. –Since 2006 holding period was extended to 1 year. –Still only for individual foreign investors’ capital gains, from trading equity shares on ISE, are exempted from tax. Evolution of the ISE

Privatizations are made through ISE Whole Sales Market. Privatizations increased the liquidity of the ISE markets. Privatization Administration –played a market maker role in early 1990s. –Still using ISE Whole Sales Market for public offerings –Also can sell small amounts of securities in available market conditions Evolution of the ISE

Privatization Sale Methods ( )

Financial Sector takes the biggest stake from the Capital Markets, but they give them as credits. Banking sector’s standards was raised to International Standards after the 2001 crisis. This improvement has increased the credit volume by the help of the economic conjoncture. Evolution of the ISE

Alternative finance resources –Although the domestic saving rates are at low levels, by the help of the banking reform in 2001, the banks and private sector could obtain loans from foreign banks.(Appreciation of Lira is the main driver) Informal Economy Why is the stake of Industry not satisfactory in ISE?

Strong real growth rates in last years Declining Inflation to single digits Appreciation of local currency RDS SERBIA Source:National Bank of Serbia

Source: Sectorial breakdown of BELEX15

FEDERATION OF EURO-ASIAN STOCK EXCHANGES (FEAS) REGION

Source: FEAS Research&Development Task Force Report “FEAS Region IPOs” (September 2007) Number of Respondents

Source: FEAS Research&Development Task Force Report “FEAS Region IPOs” (September 2007) Incentives for Publicly Held Companies

Source: FEAS Research&Development Task Force Report “FEAS Region IPOs” (September 2007) IPO & Privatization

Source: FEAS Research&Development Task Force Report “FEAS Region IPOs” (September 2007) Effect of Privatization to Capital Markets

Source: FEAS Research&Development Task Force Report “FEAS Region IPOs” (September 2007) Macro Economic Conditions

Source: FEAS Research&Development Task Force Report “FEAS Region IPOs” (September 2007) Level of Domestic Deposits

Source: FEAS Research&Development Task Force Report “FEAS Region IPOs” (September 2007) Crowding Out Effect

Source: FEAS Research&Development Task Force Report “FEAS Region IPOs” (September 2007) Equity Culture

Source: FEAS Research&Development Task Force Report “FEAS Region IPOs” (September 2007) Fear of Losing Company’s Control

Source: FEAS Research&Development Task Force Report “FEAS Region IPOs” (September 2007) Taxes

Source: FEAS Research&Development Task Force Report “FEAS Region IPOs” (September 2007) Informal Economy

Very ImportantImportantNot Important Macro Economic Conditions 553 Level of domestic deposits 184 Crowding out effect 218 Equity Culture1321 Fear of losing company’s control 642 Taxes129 Informal economy346 SUMMARY TABLE