The capital market in Panama is primarily a debt one. As of
March 31 2010, total debt issues on the Panama Stock Exchange
(Bolsa de Valores de Panamá or BVP) reached an aggregate
principal amount of $3.3 billion. In contrast, equity issues
reached an aggregate principal amount of $514.6 million.
Of the total debt issues, bonds represented $2.1 billion,
mortgage-backed bonds $197.3 million and corporate notes $40
million. Agroindustrial notes represented $40.5 million and
treasury bills and notes accounted for $515.6 million. Finally,
tourism bonds made up $14.7 million and commercial paper
instruments totalled $308 million.
The securities market in Panama is regulated by the National
Securities Commission (Comisión Nacional de Valores or
CNV), and the only authorised stock exchange is the BVP. Since
its creation in 1990, the BVP has been an important part of the
development of Panama's role as a regional financial centre.
The exchange is the only dollar-based securities market in the
region. Its operations are performed through qualified
intermediaries (stockbrokers) who, with the BVP's prior
authorisation, are entitled access to the floor when in
Transactions can be cleared exactly three days after the
transaction (T+3), or whenever the parties agree to deliver the
funds, the securities, or both, at a future date, within the
limits set by the rules and regulations of the BVP. This is
notwithstanding the fact that the parties may decide to settle
the operation before the expiration of the agreed term.
Electronic trading began to replace the open outcry system in
2003, and the BVP now operates an electronic trading system
with remote trading terminals for all BVP seatholders. In
certain special circumstances where the electronic system
fails, the BVP has adopted open outcry trading norms for use on
the stock exchange floor with a physical presence of the
Methods of raising debt finance
Debt securities are issued on the debt capital market in a
number of ways. The most common forms are bonds and commercial
Bonds are debt instruments issued typically with a maturity
of one year or more. They can be issued in a number of forms
including: fixed rate; floating rate and variable rate bonds;
zero coupon bonds; equity linked bonds; agro-industrial bonds;
and corporate notes.
Commercial paper is a debt instrument with a maturity of one
year or less, which is registered with the CNV and subject to
the registration, disclosure and ongoing requirements of the
Listing debt securities
An application for an offering of debt securities entails a
registration of the securities with the CNV and, in most cases,
also their admission to listing and trading on the BVP. To
register a public offer of debt securities with the CNV, the
issuer must file a registration statement with the CNV. The
registration statement consists of two parts:
The prospectus, including financial statements. These must
- Audited financial statements for the past three fiscal
years, issued by an independent public accountant, and
prepared in compliance with US Gaap or International
Financial Reporting Standards;
- Non-audited interim financial statements issued by a
public accountant, for the quarter ending immediately before
the date when the registration statement was filed with the
CNV, if applicable;
- A comparison of the audited financial statements of the
issuer for the past three fiscal years.
All other information required by the CNV, including:
- A sample of the security to be offered, including its
terms and conditions.
- All material contracts related to the offering,
including, any underwriting agreement, placement agent
agreement and paying agency agreement.
- All material organisational and other corporate documents
of the issuer material to the securities, including, articles
of incorporation, by-laws and corporate resolutions
authorising the issuance of the securities.
- CNV forms regarding disclosure on the corporate
governance practices of the issuer.
- A legal opinion issued by the issuer's counsel.
- Other supporting documents, such as a certificate of
existence and good standing of the issuer, affidavits
regarding the independence of auditors and lawyers and powers
When the issuer is a foreign person or company, additional
requirements apply. For example, the issuer must appoint a
legal representative with offices in Panama and with the
capacity to represent the issuer before the CNV and to receive
administrative and judicial notifications.
Considering that some of the officers and directors of the
issuer, as well as the assets of the issuer, may be located
outside of Panama, the issuer must also prepare a statement
addressing how the rights of potential investors would be
affected if they file claims for civil liability.
If a security interest is created on assets of the issuer, a
legal opinion must be issued by an attorney authorised to
practice law in the jurisdiction where the security interest
has been created. The opinion must address the procedure for
foreclosing on the security interest and any preferences or
priorities affecting the security interest.
Foreign issuers must describe any relevant treaties that
exist between the two countries or issue a statement that none
exists and the CNV may order a due diligence investigation of
the issuer. Finally, the issuer must file a certification
issued by the competent foreign governmental authority stating
that the foreign auditors who prepared the financial statements
of the issuer are duly licensed in their jurisdiction.
All documents issued or executed outside of Panama must be
authenticated by a Panamanian consul or under the 1961 Hague
Convention Abolishing the Requirement of Legalisation of
Foreign Public Documents. In addition, documents drafted in a
language other than Spanish must be translated by an authorised
public translator in Panama.
If the debt issuance is to be traded on the BVP, an
application for listing must be filed with the BVP and a
listing agreement must be signed between the issuer and the
BVP. The BVP has no size limit requirement on the total market
value of securities to be listed, no minimum trading record
requirement, and no minimum working capital requirement for
companies seeking listing on the BVP.
The documentation and information submitted with the listing
application is similar to the one filed with the CNV. The
listing application with the BVP includes a copy of the
prospectus and other material offering documents and
information about the issuer. Any comments by the BVP to any of
the documents presented should be addressed before the CNV
approves the offer and the final version of all documents. The
BVP does not usually impose additional substantive requirements
to those of the CNV, but it does conduct a similar review to
that of the CNV in regard to information requirements.
If the securities will be traded on the BVP, an application
for eligibility and deposit in custody of the securities must
be filed with the authorised clearing house (LatinClear). A
custodian and clearing agreement must be signed between the
issuer and LatinClear.
The approval of a registration statement by the CNV usually
takes between 45 and 60 days from the date of the initial
filing. The CNV often makes comments on the documents presented
within three weeks from the initial filing. Once all comments
are properly addressed, the CNV takes an additional week or two
to approve the offer.
Following approval from the CNV, the issuer deposits the
securities with LatinClear, and completes its application for
admission to trading with the BVP, which must include the CNV's
resolution approving the public offer of the securities. Once
the application is complete, admission to trading occurs
followed by closing.
Marketing debt securities
Following the initial filing of its registration statement,
the issuer may start marketing its public offer and building
the book. Marketing efforts vary depending on whether they are
carried out before, during or after the registration process
with the CNV.
Before a registration statement and a prospectus are filed
with the CNV, the issuer can do very little marketing activity.
Meetings can take place with, and information can be
distributed to, underwriters or potential underwriters.
However, during this period, the issuer cannot, without
justification, carry out activities or disclose information in
a manner that is not consistent with its past practices. These
cannot be consistent with the ordinary course of its business,
if carrying out these activities or disclosing this information
may condition the market in anticipation of the public
Once a registration statement and a prospectus are filed
with, and during the review process by, the CNV, the securities
can be offered to potential investors by the issuer, its
placement agent or underwriters and non-binding purchase orders
can be solicited from potential investors. However, each offer
or solicitation must be made by delivering a copy of the
preliminary prospectus filed with the CNV.
After registration statement becomes
After the registration statement becomes effective, the
issuer, its placement agent and underwriters can publicly offer
and sell the registered securities. All types of public
advertisement can be made, provided that the marketing
materials meet CNV regulatory requirements. Before purchase
orders become final, an approved prospectus must be delivered
to the investors.
There is a registration fee for public offers of securities
of 0.015% of the initial price of the offer (or the total
amount of the offer), with a minimum of $500 and a maximum of
$50,000, payable to the CNV. Additionally, there is an annual
supervisory fee equal to 0.01% of the outstanding number of
debt securities, subject to a $500 minimum and a $15,000
The BVP charges a $250 fee for admission to trading of the
first series of debt securities and a $75 fee for assigning
that series a registration number. Each additional series pays
a $50 admission-to-trading fee and a $50 registration number
fee. In addition, there are other commissions for trades
charged by the BVP and the brokers making the trade on the BVP.
Additionally, there is an annual supervisory fee equal to $100
for the first series, and $25 for each additional series.
Taxation of interest
Interest payable on debt securities is exempt from income
tax or withholding requirements in Panama, provided that the
debt securities are both registered with the CNV and initially
placed through a securities exchange or through an organised
market in Panama. Please note that the only stock exchange
authorised by the CNV is the BVP.
If the debt securities are registered with the CNV but they
are not initially placed through the BVP, interest payments
will be subject to a 5% income tax, which would have to be
withheld by the issuer.
Taxation of dispositions
If the debt securities are registered with the CNV, any
capital gains realised by a holder on the sale or other
disposition is exempt from income tax in Panama, provided that
the sale or disposition is made through a securities exchange
or other organised market. The only stock exchange currently
authorised by the CNV is the BVP.
If the debt securities are not sold through a securities
exchange or other organised market:
- The seller is subject to income tax in Panama on capital
gains realised on the sale of the debt securities, calculated
at a fixed rate of 10%.
- The buyer must withhold from the seller an amount equal
to 5% of the purchase price, as an advance in respect of the
capital gains income tax payable by the seller, and it must
pay it to the tax authorities within ten days of
- The seller can consider the amount withheld by the buyer
as payment in full of the seller's obligation to pay income
tax on capital gains.
- If the amount withheld by the buyer is greater than the
amount of capital gains income tax payable by the seller, the
seller can recover the excess amount as a tax credit by
filing a special sworn income tax declaration with the tax
Stamp and other taxes
If debt securities are registered with the CNV, neither the
securities nor any transaction agreements related to the
offering of such securities are subject to stamp taxes. There
are no sales, transfer or inheritance taxes applicable to the
sale or disposition of debt securities.
A person domiciled outside of Panama is not required to file
a tax return in Panama, solely by reason of his investment in
debt securities registered in Panama, provided that gains
realised on the sale and disposition of those debt securities
are, in effect, exempt from income tax as indicated above.
All issuers of registered securities must comply with the
continuing obligations set out in the securities laws as well
as with applicable BVP rules.
Some of these continuing obligations include filing annual
reports and quarterly reports, which discuss the issuer's
financial and operating results, accompanied by audited
financial statements for the respective period. Annual reports
must be filed within three months from the end of the fiscal
year and quarterly reports must be filed within two months from
the end of each fiscal quarter.
Issuers must also put out immediate press releases of
certain material events identified in the Securities Act.
Reports of material events should be filed with the CNV and
disclosed to the market within one business day from the
occurrence of the event (when the event is deemed
Issuers of registered securities are also subject to other
provisions of the securities laws which prohibit:
- Entering into certain fraudulent or deceiving
- The misuse of privileged information by insiders.
- The making of false or misleading statements of material
- The manipulation of the price or the market of a
- The forging of any accounting or financial
|Timetable for an issuance
Below please find an indicative timetable for an
offering of debt securities in Panama, where "T" is the
date on which the securities are offered on the
T-4 months. Advisers are engaged, a basic term sheet
for the offer is prepared, lawyers and accountants are
hired, the company begins preparation for listing and
any necessary corporate reorganisation is carried
T-3 months. Begin preparation of registration
statement, prospectus, terms and conditions of the
security and material transaction agreements.
T-2 months. File registration statement including
preliminary prospectus with the CNV for review and
Between T-8 weeks and T-4 weeks. CNV issues comments
on the preliminary prospectus. Continue negotiation and
drafting of final transaction agreements. Listing
application is filed with BVP. Registration form is
filed with LatinClear.
Between T-4 weeks and T-1 week. Re-filing of the
prospectus with the CNV. File all material agreements
and other supporting documentation in final form with
the CNV. Obtain listing approval from the BVP and
eligibility of the securities from LatinClear.
T-1 day. Price the offer. Execute underwriting
agreement. File final underwriting agreement with CNV.
Registration statement becomes effective.
T. Securities offered through the BVP.
T+2. Sales made through the BVP settle.
Ricardo M Arango
Arias Fábrega &
Ricardo M Arango joined the firm in 1987 and became a
partner in 1995. He is a member of the firms
executive committee and operations committee. He is
also head of the firms capital markets and
banking practice group. Arangos practice focuses
on securities regulations, banking and finance,
mergers, acquisitions and joint ventures, corporate and
tax. In the area of capital markets and banking, Arango
regularly advises clients in connection with medium
term note programmes, commercial paper programmes,
syndicated term and revolving loan agreements, 144-A
Reg-S notes, securitisations and initial public
offerings. He has also acted as lead counsel in
connection with the largest M&A transactions in the
country and regularly advises clients in connection
with stock purchase agreements, asset purchase
agreements and merger agreements. He is fluent in
Spanish and English.
Arias Fábrega & Fábrega
Listed among leading players identified by the top
publication LatinLawyer 250 in its 2009 and 2010
editions, ARIFA associate Julianne Canavaggio received
top reviews from clients and peers alike for its
sustained achievements and was praised asa rising
star and a lawyer increasing in
prominence. Canavaggios practice focuses on
mergers, acquisitions and joint ventures; corporations;
banking and finance; and securities regulation. Prior
to joining the firm, she worked as an associate with
Baker & McKenzie in Houston. Canavaggio is fluent
in Spanish and English.