The Brazilian Securities and Exchange Commission (CVM) has issued Instruction No. 600, which provides for the public offering of Agribusiness Receivables Certificates (CRA) and was implemented on 1 November 2018.
This has been long awaited by the market. Prior to now, the CRA was using the Real Estate Receivables Certificates (CRI) as a parameter for CRA's offerings.
CRA was created by law No. 11.076 in 2004 and had not yet been subject to specific regulations issued by CVM. This, however, did not impede the development of the market for this type of credit. CRA are freely negotiated notes that are issued by securitization companies which are used to raise funds for rural producers, cooperatives and companies in agribusiness production chain. There were not any regulations for CRA until 2008 when it was determined that the same regulation that was being used for Real Estate Receivables Certificates (CRI) would be applicable to the registration of public offers of CRA. During this 10-year period, we have seen a more rapid increase in the volume of public offerings of these securities. The total volume of CRAs offered jumped from approximately R$ 1.2 billion in 2013 to approximately R$ 13.3 billion in 2017.
Specifically, in 2016, the amount of CRA issued in Brazil reached R$ 14.2 billion which was almost three times the amount issued in the previous year. Due to the increasing numbers of CRA public offers and since they are very particular and different than CRI, new rules and procedures will now have to be adopted through Instruction No. 600. This allows a greater number of companies to use CRA to raise funds.
Despite the lack of specific regulations, it had not prevented the development of the CRA market in Brazil. There were many challenges faced by market participants in using rules that had been designed for CRIs to regulate CRAs. It was important to mature the market and the CVM itself, by structuring different types of CRA offers that were registered with CVM.
One example during this time was the case of Burger King. CVM decided that a debenture issued by a company that did not fall under the definition of rural producers could serve as a backing for CRA, provided that the proceeds from the issue were fully destined to payments due to rural producers. This decision was replicated for other offers structured by companies that were not necessarily rural producers, but who had commercial relations with the sector.
CVM Instruction No. 600 will allow for the possibility of revolving the CRA offers, giving the acquisition of new credit rights of the agribusiness with the use of the proceeds from the payment of the original credit rights, subject to certain rules and procedures. Revolving is especially important in the CRA market, as the maturity dates of the receivables in the sector are usually shorter than the CRA maturities.
CVM Instruction No. 600 also recognizes the possibility of debt securities issued by companies that are not rural producers to be used as CRA's backing, provided that the proceeds are fully allocated to commercial operations with rural producers. Although in line with the position adopted in the Burger King case, this makes it necessary to prove by means of a contract or other document between the company and the rural producer. This is a problem because in this sector, in many situations, it is not possible even if the commercial relationship between the parties can be proven through the issuance of invoices. However, the CVM does not agree with only invoices as proof of the relationship between the parties.
Even so, the new regulation will also allow for much more clarity and security for CRA in the agribusiness market. This new regulation will put more investment into the agribusiness sector since there will be the chance for more recovery of the capital investment in this market. It is expected that with this new regulation that CRA will continue its fast growth as an alternative for agribusiness financing.
Brazil is the world's largest producer of sugar, coffee, ethanol, orange juice, animal protein, poultry meat, soybeans and tobacco, as well as one of the biggest producers in the world of corn, cotton, cocoa, timber and many other rural products. The agribusiness in Brazil contributed 23.5 percent to the country's gross domestic product in 2017, the highest in 13 years. Also, job creation was the highest in five years in the agriculture and meat production sectors. They are the only segments of the economy that increased jobs and a main contributor to bringing inflation down in Brazil.
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