On April 5 2017, the Brazilian Securities Commission (CVM) enacted a new regulation that could enhance the country's equity and capital markets, which have been severely impacted by the recent economic and institutional turmoil.
The new regulation eases rules applicable to the offering of Brazilian depositary receipts (BDRs) by foreign issuers (similar to American depositary receipts in the US) to foster a segment of the Brazilian stock exchange that is struggling to take off when compared to its Latin American peers.
The most relevant change is the permission to offer BDRs sponsored by a foreign issuer with or without registration with the CVM (level II or level I sponsored BDRs, respectively) to a restricted group of professional investors in Brazil. This was not allowed under the previous regulation.
Restricted offerings of securities were introduced in the Brazilian capital markets in 2009, with the enactment of CVM Instruction 476. Initially, they reached only the local fixed income market, and revolutionised it: the volume of restricted offerings of local debentures represented more than 40% of the total amount of offerings in Brazil in 2016, according to ANBIMA, the Brazilian Financial and Capital Markets Association. In 2014, the CVM included shares and sponsored BDRs of companies registered with the CVM and subject to public distribution (level III sponsored BDRs in the scope of CVM Instruction 476). Now, level I and II sponsored BDRs are also included.
Another important change concerns subsequent offerings of BDRs by foreign issuers (follow-ons). Foreign issuers are defined as those that hold 50% of their assets abroad as of the date of the request for the public offering. In the previous regulation, it was unclear whether a foreign issuer that had expanded its activities in Brazil to more than 50% of its assets could make a follow-on offering without having to request a special authorisation from the CVM. With the new regulation, follow-on offerings of BDRs are expressly allowed if the foreign issuer holds at least 35% of its assets outside Brazil.
From a disclosure standpoint, the new regulation exempts level I sponsored BDRs from disclosing specific information required from issuers of securities under the current restricted offering's regulation (for instance, there is no need to prepare financial statements according to Brazilian accounting rules).
Other specific procedures applicable to level I BDRs have also been simplified, including the permission to disclose information either in Portuguese or in the original language of the foreign issuer.
The recent changes aim at promoting the Brazilian stock exchange by fostering new listings and offerings by foreign issuers, bringing back the Brazilian capital markets to the course of becoming the most important hub for domestic and international offerings in Latin America.
|Eduardo Abrantes and Vinicius Sahione|
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