In July 2022, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – “CVM”) enacted Resolutions Nos. 160, 161, 162, 163 and 173, which reformulated the regulatory framework for public offerings in Brazil (the “CVM Resolutions”).
Beginning on January 2, 2023, the CVM Resolutions came into effect, which resolutions provided for a number of innovations including, among others:
- All offerings will be subject to registration with the CVM. Offerings exempt from registration with the CVM (formerly referred to as “476 Offerings”) will be subject to an automatic registration process without prior review by the CVM (“Automatic Registration”). Unlike 476 Offerings, offerings subject to the Automatic Registration are not restricted to a limited number of participants. In addition, offerings subject to Automatic Registration can include a prior analysis by self-regulatory entities accredited by the CVM. Depending on the characteristics of the issuer, the underlying securities and the targeted participants (e.g., IPOs and follow-ons by non-frequent issuers), offerings will be subject to an ordinary registration process with prior review by the CVM, which resembles the current standard registration process for public offerings in Brazil.
- Offering coordinators are now required to register with the CVM.
- The maximum number of securities that may be distributed in the hot issue (additional securities issued as a result of an offering being oversubscribed) was increased from 20% to 25%.
- Rules on pilot fishing (consultations now can be made with any number of “professional investors” in Brazil (which include, among others, investors with financial investments in excess of BRL10 million as well as certain financial institutions, investment funds/clubs, pension funds, insurance companies and other institutional investors) – as opposed to a limit of 50 investors prior to the enactment of the CVM Resolutions), the publication of roadshow materials (all materials used in roadshow presentations must be publicized except in offerings restricted to professional investors) and the quiet period (the CVM Resolutions clarify that a quiet period starts on the earliest of the engagement of the underwriter(s) or the 30th day before the registration request is filed with the CVM).
In addition, the CVM Resolutions brought important innovations that are of particular interest to foreign entities, such as a safe harbor permitting Brazilian professional investors to participate in international offerings.
The prior absence of a safe harbor for international offerings represented insecurity as to whether international offerings could target Brazilian institutional investors; as a result, Brazilian institutional investors have in practice been excluded from international offerings listed on foreign stock exchanges. The CVM Resolutions provide that international offerings will not be subject to Brazilian laws or review by the CVM or other local regulators to the extent (i) underlying securities are listed on a foreign stock exchange and are offered to Brazilian “professional investors” rather to the Brazilian public at large; and (ii) the offering is settled in foreign currency outside Brazil.
The CVM Resolutions provide a modernization of the regulatory framework for public offerings in Brazil after a difficult year when higher interest rates and political instability interrupted the unprecedented surge in the number of public offerings executed in 2020 and 2021. A rebound of the Brazilian capital markets still depends on several other factors, including more visibility regarding the fiscal and monetary policies of the new government that came into power on January 1, as well as whether Brazil will pass key structural reforms, such as certain tax and administrative reforms.
*Hogan Lovells is registered and licensed as a foreign legal consultancy with the Brazilian Bar Association. In accordance with Brazilian Bar Association rules, Hogan Lovells does not practice Brazilian law and the discussion above regarding Brazilian laws, rules and/or regulations has been obtained from publicly-available sources and is for informational purposes only. The discussion above is limited by the nature of our practice in Brazil and is solely derived from publicly-available information. The information contained herein not to be construed as legal advice or otherwise be a substitute for advice provided by practitioners licensed to practice Brazilian law.
Authored by Isabel Costa Carvalho, David Tyler, and Felipe Lacerda.
