CVM Relaxes The Criteria For Fund Raising By Brazilian Small And Medium-Size Companies

The Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) found a way to facilitate fund raising for Brazilian small and medium-size companies with the issuance of shares, without changing the applicable law or regulations.

At a Board meeting held on November 13, 2012, CVM decided to communicate to the market that it will assess on a case by case basis the possibility to grant an exemption (waiver) from the requirements of CVM Instruction No. 400, of December 29, 2003 (CVM Instr. 400/2003), which regulates the public offers for distribution of securities in the primary and secondary markets. This waiver intends to facilitate the access of small and medium-size companies to raise funds through the placement of shares with the investors in the Brazilian securities market.

CVM understands that is part of its institutional mission initiatives such as this, since Law No. 6,385, of December 7, 1976, that disciplines the Brazilian securities market and created CVM, establishes among the purposes of CVM in the exercise of their duties: (i) to stimulate the creation of savings and their investment in securities; and (ii) to promote the expansion and the regular and efficient operation of the stock market, and to stimulate permanent investments in the capital stock of publicly-held corporations controlled by private Brazilian capital.

For the purpose of giving this waiver, CVM is willing to consider applications for registration of public offers for distribution of securities by simplified analysis procedure, granting an exemption of the requirement relating to the non-compliance with the maximum limit of placement of shares in an amount equivalent to up to 1/3 of the outstanding shares in the market, provided that certain requirements are present.

In practice the bidder would be exempted from presenting the prospectus for distribution (prospecto de distribuição), which would be replaced by a notice (edital) of public offering on the stock exchange. In this way, the formation of price is kept in a transparent trading environment through auctions in the regulated market. Therefore, CVM can authorize distribution deals through auction, even when the offered shares exceed the 1/3 of the outstanding shares limit. This exemption would allow an initial public offering of shares (IPO) through an auction on the stock exchange.

Although the information available in the set represented by the auction notice and by the form of...