IPOs And Listings On International Stock Exchanges – A Brazilian Perspective

Under Brazilian law solely Brazilian publicly-held corporations can participate of initial public offerings (IPOs) and listings on stock exchanges.

A Brazilian corporation will be publicly held or closely held depending on whether its securities are accepted for trading in the securities market. Only securities issued by a corporation registered in the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM) may be traded in our local securities market. No securities may be publicly distributed in the market without previous registration with CVM. In addition to the registration for public issue and distribution of securities, CVM maintains a registration for trading on the stock exchange.

Pursuant to CVM Instruction No. 480, of December 7, 2009, there are two different categories of registry:

category A, which authorizes the trading of any types of securities; and category B, which excludes shares and share certificates of deposit as well as securities which attribute to the holder the right to acquire shares and share certificates of deposit as a result of the conversion or the exercise of inherent rights, provided that these securities are issued by the same issuer or by a company belonging to its economic group. The placement of shares of Brazilian companies abroad occurs by means of the Depositary Receipts (DRs) mechanism, which is governed by the Regulation attached as Exhibit V to Resolution No. 1289, of March 20, 1987, issued by the Brazilian Monetary Council (Conselho Monetário Nacional - CMN). These companies must be registered in category A. CVM is the regulatory body responsible for examining and approving the DRs' programs.

To better understand how the DRs' mechanism works in Brazil it is important to define certain terms as used in the CMN Regulation as follows:

DRs are certificates that represent shares or other securities representing rights to shares issued abroad by a depository institution, with ballast in specific securities deposited in custody in Brazil. Therefore, the shares or other securities representing rights to shares evidenced by the DRs issued by the depository institution are kept in custody in Brazil by the custodian institution; depository institution, also known as depository bank or issuing bank, is the institution abroad that based on the securities deposited in custody in Brazil issues the corresponding DRs; custodian institution is the institution that in Brazil is...