How To Raise Funds Through Brazilian Capital Market Lia Esposito Roston São Paulo - Rio de Janeiro - Belo Horizonte - Campinas | .

How To Raise Funds Through Brazilian Capital Market

Lia Esposito Roston

São Paulo - Rio de Janeiro - Belo Horizonte - Campinas | www.rfor.com.br


Publicly-Held Companies

OPEN OR PUBLICLY-HELD COMPANIES

(i) must take the form of a corporation;

(ii) must be registered with CVM – the Brazilian Securities and Exchange Commission - and meet the registration requirements imposed by the stock exchange or over-the-counter institutions;

(iii) their securities are admitted for trading on the securities market (stock exchange or over-the-counter market);

(iv) are permitted to raise funds through public offerings of their securities;

(v) are subject to several specific obligations and restrictions imposed by law and by regulations issued by CVM.


Securities Market

PUBLIC OFFERINGS

Publicly-Held companies may make public offerings for distribution of securities, such as shares, debentures, subscription bonuses and commercial papers.

Securities may be distributed in the primary and/or secondary markets:

1) Primary market: the issuing company offers the securities for distribution to the public with the intent of raising funds.

2) Secondary market: one or more of the shareholders offers all or part of the securities they hold to the public.

Primary and secondary offerings often occur simultaneously.


Benefits

BENEFITS OF BECOMING A LISTED COMPANY

1. EXTENSION OF THE FUNDRAISING BASE AND OF ITS GROWTH POTENTIAL.

Access to capital markets in the country, to raise funds for financing projects, expansion, change of scale or diversification of the business, or even for restructuring its liabilities.

Fundraising through the public offering of securities is an alternative to bank financing, enabling access to potential investors, not only in Brazil but also abroad.


Benefits


2. STRATEGIC FLEXIBILITY - LIQUIDITY ASSETS

Margin for administration of its capital structure, balancing the relationship between equity and debt, and consequently, its business risk.

The controlling shareholders increase the liquidity of their assets, having the opportunity to negotiate their equity in the company, which tends to gain value over time through diversification of buyers, especially institutional investors, domestic or foreign.


Benefits


3. CORPORATE IMAGE - GREATER EXPOSURE TO MARKET

The transparency and reliability required in their basic information to allow business attract the consumer, generating greater presence and prestige in the market.

A listed corporation tends to have a competitive advantage and improved corporate image. When bank debt is needed, for example, its financial cost is usually lower than that of a private company.

4. PROFESSIONAL MANAGEMENT

The opening of capital leads to the professionalization of the company’s management.

A professional management is one of the most important features to the investor, given the need for professional training of the occupants of leadership positions.


Registration of Issuers of Securities

CVM INSTRUCTION 480/2009

• Securities may be traded on regulated markets in Brazil only if the issuer of the securities has been registered with the CVM. There are some exceptions such as foreign issuers whose securities are represented by Level I Brazilian Depository Receipts.

• Two types of issuers:

Category A: authorizes the trading of any securities of the issuer.

Category B: authorizes the trading of securities, except the following:

i. Shares and depositary receipts for shares; and

ii. Securities that give the holder the right to acquire the securities referred to in item (i), by virtue of conversion of the securities or rights inherent to them, when issued by the issuer of the securities referred to in item (i) or by a company within the said issuer’s group.


• Detailed, complete and extensive documents and information are required for registration with CVM.

• Through the electronic system available on CVM’s website, issuers shall send periodic and event-related information with the content, in the form and within the time established by the Instruction: issuer information form, reference form, financial statements, standardized financial statements form, quarterly information form, among others.

• The reference form is the main form to be filled and sent to CVM by issuers. It contains information on financial statements, corporate capital and securities,. management comments, shareholders’ meeting and management, profit sharing policy, investment policy, aggregate remuneration of the members of the Board of Directors, Executive Officers and Audit Committee, economic group, risk factors involved in the investment, transactions with related parties.



• A relevant piece of information to be disclosed in the Reference Form is the identity of the controlling shareholders, stating for each of them: (a) name; (b) nationality; (c) CPF/CNPJ (individual or corporate tax number); (d) number of shares held, by kind and class; (e) percentage held of each kind and class; (f) percentage held of total capital; (g) whether the shareholder is party to shareholders’ agreement; (h) if the shareholder is a legal entity, all the information referred to in items (a) to (d) above with respect to its direct and indirect shareholders, up to the controlling shareholders who are natural persons, even if such information is treated as confidential pursuant to a transaction between private parties or by the law of the country of origin of the shareholder; and (i) date of last amendment.



Public Offering


• Public offering of securities in Brazilian territory must be submitted for prior registration with the CVM.

• Reference form contains most of information to be supplied through the prospectus, which must include information on the offer, the offered securities and the issuing company and its financial situation.

• To carry out the public offering, the offeror must engage an underwriter (financial institution) to place the securities to the public.

• Underwriter’s role: the underwriter will act as coordinator of the public offering, giving instructions to the offeror during the whole process, specially with reference to marketing of the offer, investors to be visited, material to be used, content of the presentations and of the prospectus. In addition, the underwriter will assist the company in defining the characteristics of the offer and the company valuation for defining the estimative of price for the potential investors.


Public Offering

STEPS OF THE PUBLIC OFFERING

1 – Defining the characteristics of the offer

2 – Celebrating the agreement with the distribution of the securities with the underwriter

3 – Adapting the by-laws and adopting legal procedures required for a publicly-held company

4 – Drafting the prospectus

5 - Registering the offer with CVM

6 – Registering the offer with BOVESPA


Public Offering

STEPS OF THE PUBLIC OFFERING

7 – Notice to the market and roadshow

8 – Reserve period and bookbuilding

9 – Obtaining the registration with CVM and announcement

10 – Subscription and liquidation of the new securities

11 – Starting negotiation at BOVESPA

TOTAL TERM: AROUND 10 WEEKS


Public Offering


• The offeror has the possibility of authorizing the underwriter to distribute a supplementary lot of securities (not more than 15% of the initial lot), if demand is greater than expected, at same price as the initial lot of securities.

• Securities Distribution Programs may be filed to facilitate the registration of future offerings.


Public Offering

EXEMPTION FROM THE LISTING

INSTRUCTION CVM 476/2009

• Exemption from both listing (of the company and of the offeror) is acceptable under certain conditions. The rule allows issuers that are not listed as a public company to raise funds via similarly unlisted public offerings. The goal of the Instruction is to reduce costs and facilitate access to the capital market.

• Similar to 144-A of SEC

• Conditions:

(i) sales limited to no more than 20 qualified investors with a minimum investment of R$ 1 million each;

(ii) limited secondary trading, which can take place exclusively among qualified investors;


Public Offering


INSTRUCTION CVM 476/2009

(iii) only the following securities can be issued: commercial paper, Bank Credit Notes (CCBs) that are not held by a financial institution, debentures that are not convertible or exchangeable for shares, shares of private investment funds, and Realty Receivables Certificates (CRIs) or Agribusiness Receivables Certificates (CRAs) (stock offering is not possible);

(iv) lock up of 90 days after subscription.


Public Offering


Registered Issuers X Non-registered Issuers – volume of Offers 2009 a July, 2010:

Debentures Companies Offers Values (R$ millions)

Registered 49 59 17.467

Non-Registered 30 31 9.185

TOTAL 79 90 26.652

Commercial Papers

Companies Offers Values (R$ millions)


Non-Registered 32 41 6.011

TOTAL 59 72 20.766


Public Offering


Registered Issuers X Non-registered Issuers – volume of Offers 2009 a July, 2010:

Realty Receivables Certificates

Companies Offers Values (R$ millions)


Non-Registered 0 0 0

TOTAL 10 53 2.757


LEGAL PROTECTION

LEGAL PROTECTION OF SHAREHOLDERS OF LISTED CORPORATIONS (Traditional Market)

• Fiduciary duties and obligations for corporation’s administrators and controlling shareholders.

• Five essential rights of the shareholders:

(i) the right to receive dividends;

(ii) the right to participate in the sale of the corporation’s assets upon liquidation;

(iii) the right to supervise the corporation’s bodies;

(iv) right of first refusal in case of subscription of shares, debentures convertible into shares and subscription bonuses;

(v) right of withdraw from the corporation under certain circumstances, such as reduction of the percentage of compulsory dividends, change in the rights granted to the preferred shares, change in the corporate purpose.


LEGAL PROTECTION


• Shareholders may participate in the shareholders’ meetings and must be previously informed about the issues to be decided.

• Dividends: at least 25% of the corporations’ yearly net profits must paid as dividends, as a general rule.

• Limit of preferred shares (nonvoting) to 50% of the total capital stock.

• Tag along rights for holders of voting stocks and limited to 80% of the price paid for the controlling stocks.


LEGAL PROTECTION


• Tender offer to minority shareholders in case of delisting.

• Minority shareholders (10% of the voting shares or 5% of nonvoting shares) can request the installation of the audit committee.

• Lawsuits against officers can be brought to court by the corporation upon the request of the minority shareholders.

• Disclosure of relevant information to be periodically submitted to CVM.


Brazilian Depositary Receipts – BDR’s

Foreign corporations may trade their securities in the Brazilian securities market through the issuance of securities deposit issued by Brazilian institutions, which represent securities issued by foreign publicly-held companies.

The certificate is issued by a depositary institution in Brazil, backed by stocks of a foreign company not registered as a publicly traded company in Brazil.

Depositary institutions are authorized by the Brazilian Central Bank and the Brazilian Securities and Exchange Commission (CVM).

BDRs

Source: BM&F BOVESPA


Contact Information

THANK YOU!

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How To Raise Funds Through Brazilian Capital Market Lia Esposito Roston São Paulo - Rio de Janeiro - Belo Horizonte - Campinas | .

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