According to the Brazilian newspaper Valor Econômico of April 7, 2016, the Public Company Supervision (Superintendência de Relações com Empresas – SEP) of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) issued an opinion determining that BNDES Participações S.A. (BNDESPar)[1] cannot vote to elect representatives of minority shareholders in the Administrative Council (Conselho de Administração) and Audit Council (Conselho Fiscal) of Light S.A. (Light)[2], which is a private company of the electricity sector. This opinion was sent to the main shareholders of Light at the end of March of 2016.

In the SEP´s opinion, BNDESPar is prohibited from voting on this subject because Banco do Brasil S.A. (BB), which is also controlled by the Union, indirectly holds the control of Light, through its participation in the Brazilian Equity Investment Fund (Fundo de Investimentos em Participações - FIP) called Redentor Fundo de Investimentos em Participações (FIP Redentor)[3].

Based on this opinion, CVM understands that government bodies cannot participate in the election of representatives of minority shareholders on the Councils of private companies in which the Union holds direct or indirect participation. This is also CVM´s position about similar cases involving mixed economy companies (sociedades de economia mista), which now has been extended to private companies.

The same reasoning is applied to other private companies in which the Union holds a direct or indirect participation, such as Eletropaulo Metropolitana Eletricidade de São Paulo S.A. (AES Eletropaulo) and Braskem S.A.

This decision reinforces a recent understanding of CVM about the existence of formal conflict of interest (and no material) in this kind of situation.

The case at hand relates to the Extraordinary Shareholders´ Meeting of Light, held on November of 2015, to reset the Administrative Council. At that time BNDESPar appointed and managed to elect André Teixeira Mendes for the position of representative of the minority shareholders in the Administrative Council of Light. However, a group of minority shareholders questioned CVM about the legitimacy of BNDESPar to elect representatives in the Administrative Council because BB would be the indirect controller of Light.

After reviewing the topic, SEP gave a favorable opinion to the group of minority shareholders and concluded that BNDESPar cannot participate in the elections for the representatives of minority shareholders in the Administrative Council and the Audit Council of Light because BB holds indirect participation in Light through vehicles that already ensured representation in such bodies[4]. Separate voting procedures seek to ensure the representation for those shareholders who are not able to elect candidates.

This decision will have little practical effect to the result of the Extraordinary Shareholders´ Meeting of November of 2015 but will be paramount to the next Ordinary Shareholders´ Meeting of Light, scheduled for April 28, 2016, and for similar meetings of other companies, that will occur in the same period.

Although having a reverse position, BNDESPar shall follow the interpretation of CVM. This decision will not affect BNDESPar´s strategy concerning Light.

[1] BNDESPar is the holding company of the Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social – BNDES) created to administer the equity interest of BNDES in other companies.

[2] Light is a holding company that controls subsidiaries and affiliated companies in three main business segments: energy distribution, generation and commercialization/services.

[3] BNDESPar owns 9.39% in the share capital of Light and BB has 28.5% of FIP Redentor, which holds 75% of Participações em Ativos de Energia Elétrica (Parati), an investment vehicle that controls RME, that it is one of the members of the controlling group of Light.

[4] The Administrative Council and the Audit Council of Light.

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