In Türkiye, the price determination reports (PDRs; Turkish: fiyat tespit raporları, FTR) prepared for companies’ public offerings (IPOs) are of particular importance for retail investors who lack professional valuation expertise and detailed financial-analysis capabilities. A PDR is not merely a technical document that explains the IPO price in mathematical terms; it is a core disclosure instrument that enables the investor to understand the assumptions, methods, and data used to determine company value. For this reason, the purpose of the report should be less to justify a predetermined IPO price than to demonstrate that the price reached is reasonable, explainable, and reproducible.
For the protection of retail investors, company value and the IPO price must first be clearly distinguished from one another. Approval of the prospectus by the Capital Markets Board of Türkiye (CMB) does not mean that the IPO price has been certified as economically appropriate, nor that the investment is guaranteed to generate a return. This distinction should be explained in the PDR in a way that the investor can readily see. The theoretical share value obtained from the valuation, any IPO discount, and the final offer price should be presented as separate stages; a perception of a price advantage that does not in fact exist must not be created through a “high theoretical value–high discount” device.
A second important issue is that forward-looking financial projections must be realistic and verifiable. Under the discounted cash-flow (DCF) method, sales growth, the EBITDA margin, capital expenditure, working-capital requirements, and the terminal growth rate can materially affect company value. If a company that has grown only modestly in the past is assumed to grow very rapidly after the IPO, that assumption must be supported by capacity expansion, an order backlog, contracts, an investment programme, or reliable industry data. An assertion of “management expectations” alone should not be regarded as sufficient; base, upside, and downside scenarios, together with their effects on share value, should be disclosed to the extent possible.
Third, the calculation of the WACC / discount rate used must be detailed and consistent. The sources of inputs such as the risk-free rate, beta, the market and country risk premiums, the cost of debt, the tax rate, and the target capital structure should be shown. A discount rate that is unduly low relative to economic conditions can inflate company value artificially. Consistency must also be maintained between the currency and inflation character of the cash flows and the discount rate; for example, nominal Turkish-lira cash flows should be discounted at a nominal Turkish-lira WACC. Especially in high-inflation periods, this consistency constitutes an important safeguard for the retail investor.
In the market-multiples method as well, the selection of peer companies must be conducted so as not to mislead the investor. Peers should not be chosen solely from companies with high multiples; comparability should be sought with respect to line of business, scale, geographic market, growth, profitability, leverage, and risk profile. Where companies are removed from the peer pool, the rationale should be disclosed, and the effect on value of preferring the mean, the median, or another statistic should be shown. Different period definitions such as LTM (last twelve months), NTM (next twelve months), or forward-looking EBITDA should also be stated explicitly, and the same measurement basis should be used for the company and its peers to the extent possible.
Where more than one valuation method is used in the PDR, the weights assigned to the methods should likewise be justified. For example, assigning a 60 percent weight to the DCF method and a 40 percent weight to market multiples must not serve merely as a means of reaching a desired IPO price. Weighting should be explained by reference to data quality, the company’s operating characteristics, the reliability of the projections, and the suitability of each method for the valuation subject. Sensitivity analyses showing how reasonable changes in the WACC, terminal growth, the EBITDA margin, and the selected multiples affect share value should also be included in the report.
Another important matter for the protection of the retail investor is that the language of the report be intelligible. While technical calculations are necessary, the principal value drivers, risks, and critical assumptions should be explained in a plain summary section. Issues that may affect share value—such as net debt, non-operating assets, related-party transactions, dependence on a single customer, foreign-exchange risk, and material litigation and liabilities—should not be glossed over with a mere cross-reference to the prospectus; their effects on the valuation should be set out to the extent possible.
Moreover, investor protection should not end on the IPO date. Comparing the forecasts used in the price determination with subsequent realised results, explaining the causes of deviations, and communicating material differences to investors in a transparent manner are important. In this way, the quality of the assumptions used in the valuation can be tested retrospectively. Such accountability will not only improve the quality of future price determination reports but also impose discipline against the use of excessively optimistic forecasts.
In protecting retail investors, the objective is not to keep the IPO price as low as possible, but to ensure that the price is determined through a valuation process that rests on reliable information and is impartial, reasoned, and auditable. Price determination reports should be designed not merely as documents that defend the offer price, but as value-and-risk disclosure documents capable of answering the investor’s questions: “Under which assumptions was this value calculated, and what happens if those assumptions change?” Such an approach will both reduce information asymmetry and strengthen confidence in Türkiye’s IPO market.
References
- Capital Markets Board of Türkiye, Share Communiqué (VII-128.1) and related regulations. https://spk.gov.tr/data/61e3664d1b41c61270320801/73793d5c-b73a-4da7-81c5-0aedf963ae99.pdf
- IVSC International Valuation Standards. https://ivsc.org/standards/
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