Brazilian Companies Can Now Issue Real-Denominated Securities for Placement in the International Market

Resolution nº 3221, of July 29, 2004, of the National Monetary Council addresses an old claim of the financial market and expressly authorizes Brazilian companies to raise funds abroad by issuing real-denominated securities.

Stakeholders of qualifying for that modality of transaction are: (i) foreign investors, lenders willing to acquire real-denominated securities in the international market because they believe in the depreciation of the US dollar and appreciation of the Brazilian real in the Brazilian FX market and therefore, seek a higher remuneration, established based on the interest rates found in Brazil (which have been historically higher than those found in the international market); and (ii) Brazilian companies, borrowers with resources in reals and would rather not face the risk of a FX variance that would result from raising funds in a foreign currency.

The Resolution 3221/2004 lays down the procedures to register funds raised abroad by the issuance of real-denominated securities and placement thereof in the international market, by legal entities domiciled or headquartered in the Brazilian territory. Funds raised abroad and entering the country, under this Resolution, must be registered with the Central Bank of Brazil (Bacen) in the currency that effectively enters Brazil (US dollars, Euros, Yens, or any other foreign currency). Prior to Resolution 3221/2004, registration with Bacen was only possible for transactions with securities denominated in foreign currency, being that issuance of real-denominated securities was connected solely to the domestic public and private debt.

Pursuant to Bacen Circular nº 3250, of July 30, 2004, these transactions must be registered with Bacen as per instructions contained in the Regulation attached to Bacen Circular nº 3027, of February 22, 2001, which regulates the registration of foreign currency loans. It is an Electronic Informational Registration (Registro Declaratório Eletrônico - RDE) made with the Bacen's Information System - SISBACEN, known as Financial Transaction Registration Module (Módulo de Registro de Operação Financeira - ROF) created by Resolution nº 2337 of CMN, dated November 28, 1996. After registration of the loan with the ROF, the transaction repayment schedule will be generated automatically, in national currency, within the term and financial conditions agreed between the parties.

In the case of real-denominated securities, irrespective of the registration currency...