Goodyear Lastikleri plans to turn a €100m parent loan into shares

Goodyear Lastikleri, the Istanbul-listed Turkish arm of the Goodyear group, plans to issue new shares only to its controlling shareholder Goodyear SA for TL 5.56 billion and to settle the price by cancelling a €100 million loan, the company said on 26 October.

The board resolved to raise the issued capital of TL 1.52 billion, within the registered capital ceiling of TL 7.6 billion, by fully restricting existing shareholders' pre-emptive rights, so that the total sale proceeds come to TL 5,559,332,811.60. All of the new shares go to Goodyear SA by private placement. Each share has a nominal value of TL 0.01, and its sale price will be no lower than a base price set under Borsa İstanbul's procedure for wholesale transactions; the nominal amount of the increase follows from that price, the resolution says. It sets no price yet, so the number of new shares is not known.

A loan already spent

The money behind the shares has already been used. As it disclosed on 20 October, the company took an interest-free loan of €100 million from Goodyear SA, a group company domiciled in Luxembourg, in four tranches, each maturing three years and one week after it was drawn, to strengthen working capital, taking into account a valuation report of that date by Kuzey Yeminli Mali Müşavirlik ve Bağımsız Denetim. Under an agreement reached on 26 October, the loan is now deemed due and payable at TL 5,559,332,811.60, and Goodyear SA's obligation to pay for the new shares will be set off against that debt, a related party notice filed the same evening says, on the basis of a declaration, undertaking and consent given by Goodyear SA. The two figures put the euro at about TL 55.59, a Data Desk calculation.

A report dated 26 October by Mert Öner, a sworn certified public accountant at KPMG Yeminli Mali Müşavirlik, established that the debts arose from cash transferred to the company and are due and payable, the resolution says. A second KPMG report, prepared under Article 33 of the Capital Markets Board's Share Communiqué VII-128.1, concludes that the borrowing "was used to repay the Company's due and payable and liquid trade debts owed to Goodyear Operations S.A." The board accepted that finding as the use of proceeds of the capital increase.

The part of the proceeds above the nominal value of the new shares will be booked as share premium and treated as exempt from corporate income tax under Article 5, paragraph 1, subparagraph (ç) of the Corporate Income Tax Law, the board decided. The new shares will be dematerialised and eligible for trading on Borsa İstanbul. The board also approved a declaration prepared for the increase under Article 457 of the Turkish Commercial Code.

What other shareholders hold

Goodyear SA owns TL 1,133,925,574.93 of the capital, or 74.6 per cent, and other holders the remaining 25.4 per cent, the company's KAP profile shows, with a free float of 25.20 per cent. Because only Goodyear SA buys new shares, its stake will rise and the other holders' share will fall, by an amount that depends on the sale price. The profile lists two independent members on the board, Muzaffer Gülten Özseven, who chairs the audit committee, and Mustafa Taylan Baykut. The resolution notice does not record how the board voted. The role of independent directors in Turkish listed companies is set out in Boards and Capital's explainer on how the regulator vets them.

The approval path

The company applied to the Capital Markets Board on 28 October, a further notice says. Once the Capital Markets Board approves the issuance document, the company will apply to sell the shares on the relevant Borsa İstanbul market within the periods the law sets, through an intermediary chosen under the exchange's wholesale procedure. The resolution is also to be registered with the Istanbul Trade Registry Directorate and announced in the Turkish Trade Registry Gazette. The company has given no timetable, and said it will announce further developments.

The structure differs from a conventional rights issue such as Şekerbank's TL 1 billion offer at par, where existing holders keep the right to buy. Here no cash changes hands: the parent's claim on the company becomes equity, and the company's debt to its shareholder falls by the same TL 5.56 billion.