Brazil: Brazilian Agribusiness Securities Can Now Be Distributed With Restricted Efforts

The Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM) decided to include certain agribusiness securities in the list of instruments that can be distributed with restricted efforts in the Brazilian regulated markets pursuant to CVM Instruction No. 476, of January 16, 2009. As a general rule, no public offer shall be distributed on the Brazilian securities market without prior registration with CVM1. However, public offers distributed with restricted efforts are automatically waived of this registration.

Public offers distributed with restricted efforts are exclusively destined to qualified investors2 and intermediated by participants of the Brazilian securities distribution system3. The regulations expressly prohibit the search of investors through stores, offices, or establishments open to the public, or with the use of mass or electronic media (pages or documents on the worldwide web or other open computer networks and e-mail), and any form of communication directed to the general public.

Originally, the list contained in article 1 of CVM Instruction 476/2009 comprised solely the following securities: (i) commercial paper (notas comerciais); (ii) banking credit bills without liability of a financial institution (cédulas de crédito bancário que não seja de responsabilidade de instituição financeira); (iii) debentures non-convertible or non-exchangeable into shares (debêntures não-conversíveis ou não-permutáveis em ações); (iv) units of closed-end investment funds (cotas de fundos de investimento fechados); and (v) real state or agribusiness receivables certificates (certificados de recebíveis imobiliários ou do agronegócio).

Now, as a result of CVM Instruction No. 500, of July 15, 2011, other additional instruments have been included as follows: (vi) financial bills, provided that they are not related to linked fund-raising transactions (letras financeiras - LFs, desde que não relacionadas a operações ativas vinculadas); (vii) credit receivables agribusiness certificates (certificados de direitos creditórios do agronegócio - CDCA); (viii) rural product certificates - financial (cédulas de produto rural - financeiras - CPR-F); and (ix) agribusiness warrants (warrants agropecuários - WA).

The LF was created by Provisional Measure No. 472 of December 15, 2009, which was approved by the Brazilian Congress and converted into Law No. 12249, of June 11.2010. LFs are debt instruments issued by certain financial institutions duly authorized to operate in the country by the Central Bank of Brazil (Banco Central do Brasil - Bacen)4. CVM has seen fit to make a small adjustment to item VI, paragraph 1 of Article 1 of CVM Instruction 476/2009, in order to clarify that LFs may be subject to public offers distributed with restricted efforts, provided they are not related to linked fund-raising transactions, which are made with funds delivered or placed at the disposal of this issuing financial institution by a third party5. This condition is already contained in paragraph 1 of article 13 of CVM Instruction 400 of December 29, 2003, and therefore CVM only wanted to eliminate any doubt about the issue. CVM believes that the regulation of public offers of LFs, in which the credit risk relevant to the financial institution issuing the security is transferred to a third party would depend on specific future analysis and study.

The CDCA was established by Law No. 11,076, of December 30, 2004, and it is a nominal credit security, negotiable and backed-by credits originated in the agribusiness sector, which represents a promise to pay in legal tender that may be executed without prior legal proceedings. Pursuant to article 24 of Law 11,076/2004, the CDCA may be exclusively issued by agricultural cooperatives and other companies that commercialize, add-value or industrialize agricultural products and raw materials, or machines and equipment used in the agricultural production. The issuer is responsible for the origin and authenticity of the credit rights that back the certificates.

The CPR was established by Law No. 8,939, of August 22, 1994, as subsequently amended, specially by Law No. 10,200, of February 14, 2001, and it is an instrument that promises delivery of rural products, with or without a guarantee included in the security, and permits farmers, ranchers and their agricultural cooperatives to finance the production and presale of their products. It is an uncontested right to the quantity and quality of products described therein or, the case of a CPR-F (CPR with financial settlement) to the amount calculated by multiplying the price by the quantity of the specified product. The CPR-F may be issued by rural producers and their associations, including agricultural cooperatives. Only the CPR-F is admitted for public offer with restricted efforts.

The WA was originally created by Provisional Measure No. 221, of October 1, 2004, which was subsequently converted into Law No. 11,076/2004. The WA is a credit security promising to pay in legal tender that confers the right of a lien on the corresponding agribusiness certificate of deposit (certificado de depósito agropecuário - CPA)6, as well as on the product described therein. The WA is issued by the depositary, at the request of the depositor. The issuer/depositary is any individual or company legally responsible for the safe-keeping and conservation of products delivered by third parties and, the case of cooperatives, by third parties and associated members. The depositor is any individual or company legally responsible for the products delivered to a depositary for safe-keeping and conservation.

Since the publication of CVM Instruction 476/2009, the volume of public offers with restricted efforts has been growing solidly, reflecting patterns of acceptance in respect of such offerings by market participants. The proliferation of such offers has shown an increase in expertise of the issuers, intermediaries and investors on how to implement the rules contained in CVM Instruction 476/2009. The total volume of public offers with restricted efforts reached R$ 26.247 billion and R$ 57.113 billion in 2009 and 2010, respectively7. Therefore, CVM concluded that other agribusiness securities (CDCA, CPR-F and CDA/WA) can also be offered with restricted efforts.

It is expected that the possibility of offering CDCA, CPR-F and WA with restricted efforts will consolidate the use of these instruments in the market. The volume of CDCA registered in the CETIP8 was R$ 2,078,182,558.00 on December 31, 2007; this volume varied in recent years and corresponded to R$ 1,366,338,431.00 on December 31, 2010. The total quantity of rural products evidenced by CPR-F registered in the CETIP increased from 367,013,048 on December 31, 2007 to 1,204,308,563 on December 312, 2010. The quantity of WA registered in the CETIP was 506 on December 31, 2007, varied in recent years and corresponded to 361 on December 31, 20109.


1.This rule is contained in the head of article 19 of Law nº 6.385, of December 7, 1976 (which governs the Brazilian securities market and creates CVM).

2.The following investors are deemed to be "qualified investors": (i) financial institutions; (ii) insurance companies and capitalization societies; (iii) private welfare opened or closed capital organizations; (iv) individuals or legal entities that hold financial investments in an amount superior to R$ 300 thousand, attest in writing their qualified investor condition and subscribe or acquire, in the offer, securities in the amount of at least R$ 1 million; (v) all investment funds, regardless as to whether they are directed exclusively to qualified investors or not. This means that investment funds destined to non-qualified investors are also considered qualified investors; (vi) portfolio administrators and securities consultants authorized by CVM, in relation to their own monies; and (vii) own social security regimes instated by the Federal Government, by the States, by the Federal District or by Municipalities. In public offers distributed with restricted efforts, it is allowed the search of up to 50 qualified investors and the offered securities shall be subscribed or acquired by no more than 20 qualified investors. For the purpose of this limit, investments funds whose investment decisions are taken by the same manager shall be counted as one sole investor.

3.According to the provisions of article 15 of Law 6385/1976, the securities distribution system in Brazil comprises the following participants: I - financial institutions and other corporations engaged in the activity of distributing securities issues: (a) as agents of the issuing corporation; or (b) for their own account, underwriting or purchasing the issue in order to place it on the market; II - corporations engaged in the activity of purchasing securities available on the market, in order to resell them for their own account; III - corporations and independent agents engaged in intermediation activities in the trading of securities, on Stock Exchanges or the Over-The-Counter (OTC) market; IV - Stock Exchanges; V - organized OTC markets; VI – commodities brokers, special operators and the commodities and futures exchanges; and VII – securities clearing and settlement entities.

4.The financial institutions authorized to issue LFs are multiservice, commercial and investment banks (bancos múltiplos, comerciais e de investimentos); savings banks (caixas econômicas); loan, finance and investment companies (sociedades de crédito, financiamento e investimento); mortgage companies (companhias hipotecárias), real estate loan companies (sociedades de crédito imobiliário); and the Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social – BNDES).

5.Linked fund-raising transactions are presently regulated by the Brazilian Monetary Council (Conselho Monetário Nacional -CMN) by means of CMN Resolution No. 2,921, of January 17, 2002.

6.The CDA is not a security. It is a credit instrument that evidences a promise of delivery of agriculture products, derivatives, by-products or residues of economic value, deposited at a company in the business of safe-keeping and conservation of agricultural products (the warehouse, which is the depositary).

7.Source: CVM/Brazilian Association of Entities of the Financial and Capital Markets (Associação Brasileira das Entidades dos Mercados Financeiros e de Capitais - AMBIMA).

8.CETIP S.A. - Balcão Organizado de Ativos e Derivativos (CETIP) is a society that manages over-the-counter markets, in other words, it manages automated environments of negotiation and registration of securities, public and private fixed income securities and over-the-counter derivatives. The Company operates the leading marketplace for private fixed income securities and over-the-counter (OTC) derivatives in Latin America. It also is the largest private securities chamber of Brazilian's financial market. CETIP holds 96% of the private fixed income assets and about 75% of the notional value of OTC derivatives held in custody in Brazil. This performance ensures the necessary support to the hole operating cycle involving fixed income assets, securities and OTC derivatives.

9.Source: CETIP.

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.

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Walter Stuber
Adriana Maria Gödel Stuber
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