The Brazilian Securities and Exchange Commission
("CVM") enacted on September 25th, 2014 the CVM Rule No.
551 ("CVM Rule 551/14"), which, among others, amended CVM
Rule No. 476, as of January 16th, 2009, allowing public offerings
of certain equity securities distributed with restricted placement
Such new rule was subject to a public hearing stated in January 2014, having the main purpose of improving the regulatory environment in order to allow smaller companies to access the capital markets and finance through public share issuance.
CVM Rule 551/14 included – among others – the following items in the list of securities that may be offered with restricted placement efforts: (i) stock; (ii) debentures convertible into or exchangeable for stock; (iii) warrants; and (iv) certificates of securities issued within the Level III Sponsored BDR Program.
Moreover, CVM Rule 551/14 increased the number of investors that may be contacted, from 50 to 75, as well as the limit of investors entitled to subscribe or acquire the securities from 20 to 50 investors. Such limits are also applicable for securities which were already stated in CVM Rule 476/09.
It is important to point out that foreign investors contacted through sales efforts outside the Brazilian territory do not count for purposes of the above limits. Former stockholders that exercise priority or preemptive rights are also excluded from the limits indicated above.
As a general rule, securities offered with restricted placement efforts are only negotiated among qualified investors (such as financial institutions, insurance companies, investment funds for qualified investors and individuals and companies which have investments over BRL 300,000.00, which shall subscribe or acquire a minimum of BLR 1,000,000.00 in the offer). However, CVM Rule 551/14 established an exception to such rule in case of a settlement of a public offering of stock of the same type and class registered before CVM or after 18 months since the admission for negotiation of securities of the same class and type in the stock exchange.
This limitation is also applied for securities issued by pre operational companies, those that have not generated revenues resulting from their operations in annual financial statements or, if any, in consolidated annual financial statements prepared pursuant to the rules issued by the CVM and audited by an independent auditor registered with the CVM. Nevertheless, such restriction ceases to apply when, cumulatively, the issuing company becomes operational, after 18 months since the end of the offer and 18 after the admission for negotiation of securities in the stock exchange.
Another relevant aspect of the new regulation is the possibility of offer with exclusion of the preemptive rights or with preemptive rights with less than 5 days term, provided that priority right is granted to former shareholders in the subscription of 100% of the issued securities, proportionally to their stake; or the totality of shareholders waives the priority right.
Thus, with the changes brought by CVM Rule 551/14, we believe that a major additional step was taken towards the development of the Brazilian Capital Market.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.