João Batista Fraga Listings and Issuer Relations Executive Officer CReCER Creating an Enabling...

João Batista FragaListings and Issuer Relations Executive Officer

CReCER

Creating an Enabling Environment for Growth and Development: the Role and

Responsibilities of Government

2

Background

The Novo Mercado Solution

Novo Mercado´s Consolidation

What is next?

Agenda

3

Background



What is next?

Agenda

4

BOVESPA

An Overview

Brazil’s only stock exchange

Established in 1890

Entity owned by the member brokerage firms

Self-regulatory organization underthe supervision of the Brazilian Securities and Exchange Commission (CVM)

5

415 listed companies

Market capitalization of listed companies:

May/2007: US$ 985 BI

Value traded:

May/2007: US$ 2,07 BI

BOVESPA

An Overview

6

BOVESPA’s Mission Provide liquidity to listed shares Offer an alternative source of financing to companies in Brazil

Brazilian market reality was very different Primary market totally stagnated

BackgroundBack in 2000

7

Performing this mission depended on: Reactivating the primary market. Creating a receptive environment for public offerings, mainly IPOs.

Friendly environment for IPOs depended on the demands and requirements of the investors.

BackgroundBack in 2000

8

ENTREPRENEUR consider price paid in the market very low – no stimulus to new IPOs

INVESTOR low valuation for Brazilian stocks – very low P/Es

A vicious circle to break...

Background Corporate Governance

9 Source: Bradesco Templeton Seminar

Stock prices valuationInvestors discount

Company fair value

Discount due to lack of

informationDiscount due to

inadequate governance

Market value, adjusted to investor

risk

Governance

10

Improve the ‘quality of the product’: Fostering companies to assure good practices of corporate governance related to investor protection. Increase the investors confidence and willingness to acquire stocks and pay a higher price.

BOVESPA’s Strategy

11

Background



What is next?

Agenda

12

Novo MercadoCommitment with good corporate governance

Companies adopt additional corporate governance practices, beyond those established in current Brazilian regulation

Greater transparency Broadening the rights of minority shareholders

13

Novo MercadoCommitment with Good Corporate Governance

Launched in December 2000

Private sector initiative, based on and enforced through a contract with BOVESPA

Voluntary and market-driven adhesion

Set of rules more comprehensive than Corporations Law, reflecting market demands and requirements

Two more corporate governance segments: Level 2 and Level 1.

14


Entry into Novo Mercado is based on a contract between: The company, its controlling shareholders and senior

managers; and BOVESPA

Agreement to comply with the Novo Mercado Listing Rule

Adhesion to an arbitration panel Agreement to settle any shareholder company disputes

through arbitration, in order to ensure the enforcement

15

Only one class of shares, with full voting rights: one share, one vote

Full tag along rights

Delisting: public tender offer at the “economic” value

Board of Directors: 2 year terms and a minimum of 5 members; 20% independents.

25% minimum free-float and adoption of special procedures in public offerings to enhance the dispersion of the company´s shares


16

Much higher standards of disclosure Annual balance sheet in US GAAP or IAS Improved Quarterly Reports, including English version,

consolidated financial statements and cash flow Compulsory information disclosure includes:

related party transactionstrading and ownership of the company’s shares by

the management and the controlling shareholders Annual calendar of corporate events


17

Improved public offering rules Prospectus according to international standards,

with full publicity Retail distribution of new shares required Lock up period for controlling shareholders 100%

in the first 6 months, 60% in the following 6 months after the IPO


18

Nível 1 (Level 1): Higher disclosure standards of Novo Mercado

Nível 2 (Level 2): Higher disclosure standards of Novo Mercado Must comply with all the requirements of the Novo

Mercado Exception:

May continue to issue non-voting,« preferred » shares (PN), but these « preferred » shares will have voting rights in exceptional circumstances

Level 2 and Level 1Commitment with Good Corporate Governance

19

3 listing segments Traditional market 3 Corporate Governance segments: Novo Mercado,

Level 2 e Level 1 (december / 2000)

Traditional Market

Complying with regulation

More disclosure

Rights to investors and more disclosure

Only voting shares, rights to investors

and more disclosure

Commitment with Good Corporate Governance

20

Novo Mercado Enforcement

Surveillance and enforcement by BOVESPA Sanctions for breach of contract can include

fines, delisting and other legal measures Mandatory use of arbitration for

shareholder/company disputes

21

Background



What is next?

Agenda

22

409 441 430 438

676

906

1128

1.545

1.900

194285

225144

985

722

482

337234

127186226228

161

255217

148

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

may

/ 07

In R

$/U

SD

Billion

R$ US$

Novo Mercado´s Consolidation Market Capitalization Evolution

23

24%

24%

37%

48%

58%

79%

67%

2001

2002

2003

2004

2005

2006

May/07

GDP ratio

Novo Mercado´s Consolidation Market Capitalization Evolution

24

Novo Mercado´s Consolidation Daily Average Trading Value

626748

611 558818

1.2211.346

2.056

4.000

2.073

658829

397259

949

589416

272197264411346

569763

395282

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

may

/ 07

In R

$/U

SD

Billion

R$ US$

25

7 9

26

1 1 1 123

2

19

0

10

20

30

40

50

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Actual Running

Novo Mercado´s Consolidation IPO´s Evolution

26

Company Sector Primary US$ MM

Secundary US$ MM

TotalUS$ MM

Foreign Participation

Natura Novo Mercado 0 243 243 67%Gol Level 2 161 122 283 75%All Level 2 86 103 189 71%CPFL Energia Novo Mercado 239 48 287 69%Grendene Novo Mercado 0 216 216 64%DASA Novo Mercado 46 113 158 68%Porto Seguro Novo Mercado 47 90 136 71%

TOTAL 2004 578 935 1.513

Company Sector Primary US$ MM

Secundary US$ MM

TotalUS$ MM


Renar Novo Mercado 6 0 6 5%Submarino Novo Mercado 50 126 176 75%

Localiza Novo Mercado 0 108 108 93%Tam Level 2 158 68 226 74%Energias BR Novo Mercado 498 6 505 26%OHL Brasil Novo Mercado 58 154 212 70%Nossa Caixa Novo Mercado 0 419 419 71%Cosan Novo Mercado 399 0 399 72%UOL Level 2 138 129 267 71%TOTAL 2005 1.308 1.010 2.318

Novo Mercado´s Consolidation IPO in 2004 and 2005

27

CompanyListing

Segment Primary US$ MM

Secundary US$ MM

Secundary US$ MM


Copasa Novo Mercado 370 0 370 74%Vivax Level 2 27 214 241 69%Gafisa Novo Mercado 233 204 438 72%Company Novo Mercado 98 35 133 64%Totvs Novo Mercado 160 53 213 69%Equatorial Level 2 119 132 251 77%ABNote 0 0 228 228 80%CSU Cardsyst 0 48 116 165 83%Brasilagro 0 282 0 282 82%Lupatech 0 88 120 208 78%GP Invest BDR 311 0 311 78%Datasul 0 67 74 140 80%MMX Miner 0 511 0 511 76%Abyara 0 75 0 75 83%Medial Saude Novo Mercado 215 121 336 76%Klabinsegall Novo Mercado 167 77 244 69%Santos Bras Level 2 432 4 436 80%M.Diasbranco Novo Mercado 0 193 193 72%Brascan Res Novo Mercado 439 116 555 87%Profarma Novo Mercado 146 43 188 70%Terna Part Level 2 196 98 294 65%Ecodiesel Novo Mercado 175 0 175 68%Odontoprev Novo Mercado 75 166 241 63%Positivo Inf Novo Mercado 31 252 283 69%Lopes Brasil Novo Mercado 0 221 221 71%Dufrybras BDR 0 395 395 69%

TOTAL 2006 4.265 2.862 7.127

Novo Mercado´s Consolidation IPO in 2006

28

CompanyListing

SegmentPrimary US$ MM

Secundary US$ MM

TotalUS$ MM


PDG Realt Novo Mercado 202 101 304 93%Rodobens Novo Mercado 212 - 212 67%CC Des Imob Novo Mercado 225 20 246 56%Tecnisa Novo Mercado 278 94 372 68%Iguatemi Novo Mercado 263 - 263 72%Sao Martinho Novo Mercado 123 77 200 53%GVT Holding Novo Mercado 515 - 515 76%Anhanguera Level 2 204 41 245 77%JBS Novo Mercado 592 195 787 84%Pine Level 1 174 78 253 90%Even Novo Mercado 225 - 225 53%BR Malls Part Novo Mercado 324 - 324 74%Fer Heringer Novo Mercado 110 63 172 65%JHSF Part Novo Mercado 213 - 213 89%Metalfrio Novo Mercado 150 75 224 57%Bematech Novo Mercado 134 68 201 70%CR2 Novo Mercado 152 - 152 0%Agra Incorp Novo Mercado 371 17 387 67%Cremer Novo Mercado 103 168 272 80%Wilson Sons BDR 129 219 348 74%Sofisa Level 1 241 3 245 76%Tarpon* BDR 209 - 109 Inpar S/A* Novo Mercado 338 - 172 TOTAL 2007 5.485 1.220 6.440

Novo Mercado´s Consolidation IPO in 2007

29

27% of total listed companies 60% of total market capitalization 66% of total trading value

18 24 31 33 37 36 3733 7 10 14 157

18

6444

22

2001 2002 2003 2004 2005 2006 2007N1 N2 NM

116 companies

Novo Mercado´s Consolidation 6 years later...

30

IGC x IBOVESPA x IBRX 50Compared performance

since 06/ 26/ 01IGC 433%

IBOVESPA 216%IBRX50 316%

5.329

4.163

3.155

500

1.500

2.500

3.500

4.500

5.500

jun-01

out-01

fev-02

jun-02

out-02

fev-03

jun-03

out-03

fev-04

jun-04

out-04

fev-05

jun-05

out-05

fev-06

jun-06

out-06

fev-07

IGC IBOVESPA IBRX 50

31

Background



What is next?

Agenda

32

What is next?Listed companies migration

In 2001/2007: adhesion of 55 listed companies The structural barriers for listed companies are

bigger than those for the companies that are going public

Main leverages: Investors Initiatives like Companies Circle

33

What is next?Increase the number of companies going public

BOVESPA MAIS New corporate governance listing segment Natural path to Novo Mercado

For companies that want to access the market gradually, with more concentrated or smaller offerings, particularly small and medium enterprises

Basically aimed at medium term investors Segment counts on BOVESPA’s programs to support

companies in terms of their market exposure and in building the internal culture of public company

34

0% 20% 40% 60% 80% 100%

MedialSão Carlos

Romi

PerdigãoRossi Residencial

CyrellaKlabin Segall

TotvsDasa

ABNoteDatasul

LupatechGafisa

OdontoprevBrasilagro

Eternit

EmbraerLojas Renner

What is next?Dispersed capital

Free float

*Informações publicadas pelas companhias no site da Bovespa

35

Novo MercadoBOVESPA´s perception

The standard is set - the model is Novo Mercado

The culture of the companies has changed into adopting good corporate governance practices

36

Bovespa55 11 3233-2150

Bovespa55 11 3233-2150

CReCER

Creating an Enabling Environment for Growth and Development: the Role and

Responsibilities of Government

João Batista Fraga Listings and Issuer Relations Executive Officer CReCER Creating an Enabling...

Documents

Transcript of João Batista Fraga Listings and Issuer Relations Executive Officer CReCER Creating an Enabling...