March 2011 Martin Miralles Pose [email protected]

March 2011Martin Miralles Pose

[email protected]

Regulatory and Fund Structuring Trends

Informações Confidenciais de Propriedade de TozziniFreire Advogados

Brazilian Legal Framework – more than 180 yrs

Consolidated Legal Environment

FIRST FEDERALCONSTITUTION

1824

LABOR LAWS1943

CORPORATIONLAW1940

COMMERCIALCODE1850

CIVILCODE1916

TAXCODE1966

CAPITALMARKETS LAW

1965

FOREIGNINVESTMENT

LAW

1962

BANKRUPTCYLAW1945

VENTURECAPITALRULES

1994

CONSUMERSCODE1990

PRIVATEEQUITYRULES

2003

ARBITRATIONLAW1996

NEW CIVILCODE2003

REV COMMERCIALCODE2003

SECURITIESLAW1976

NEW CORP.LAW1976

NEW BANKRUPTCYLAW2005

BANKINGLAW1964

LAST FEDERALCONSTITUTION

1988


Foreign Investment - Principles

▪ EQUAL TREATMENT TO FOREIGN AND NATIONAL CAPITAL

• No restrictions, except for Nuclear Energy / Rural Property / Domestic Aviation / Mail / Media

▪ FREE INFLOW/OUTFLOW OF FUNDS – SINCE 1962

• Registration of Foreign Direct Investment with Central Bank of Brazil (Cenbank)

• Declaratory Electronic Registration System

• No prior approval of Cenbank for repatriation of registered FDI and remittance of profits

▪ REGULATED VEHICLES

• Corporations (either listed or not) since 1940

• Limited Liability Companies since 1919

• Investment Funds since 1965

• Venture Capital Funds since 1994

• Private Equity Funds since 2003


Foreign Investment - Principles

▪ REGULATED CAPITAL MARKETS SINCE 1976

▪ SPECIFIC PERFORMANCE OF SHAREHOLDERS AGREEMENTS SINCE 1976

• Purchase and Sale of Shares

• Right of First Refusal

• Voting Rights

• Exercise of control

• Tag Along and Drag Along Rights

• Put and Call Rights

▪ ENFORCEABILITY OF FOREIGN AND BRAZILIAN ARBITRATION AWARDS

SINCE 1996


Foreign Investment Vehicles

Foreign Country

LimitedLiability

Company

Foreign Investor

PE/VCFund

Non ListedCorporation

Brazil

ListedCorporation


Private Equity Funds (FIP)

▪ Nature: Closed-end investment funds (condominium) with the purpose of investing in Brazilian

closely or listed companies or even in other funds

▪ Investors: Only for qualified investors

• Financial institutions

• Insurance companies

• Pension funds

• Individuals and legal entities having investments in financial markets over R$ 300 thousand

• Investment funds for qualified investors

• Managers of portfolios and securities consultants, in respect of theirs own funds

▪ Minimum Investment: R$ 100 thousand



▪ Quotas: May issue different classes with special economic / political rights

▪ Payment of Quotas: Brazilian currency / assets or rights of companies under reorganization

or restructuring processes

▪ Corporate Governance:

• General Meeting for approval of accounts, dismissal of administrator, issuance of new

quotas, amendment to FIP Regulation, extension of the term of the FIP or reorganization

• Fund may have committees, such as investment committee, supervisory committee, audit

committee

• Restriction to related parties transactions, except if approved by a majority at the General

Meeting



▪ Administration and management:

• Investment Manager shall be an entity duly authorized by CVM

• Manager duties may be exercised by the Investment Manager or by a third party contracted

by the Investment Managers also duly authorized by CVM

▪ Duty to inform: Investment Manager to deliver periodically to CVM and to the quotaholders

of the Fund accounting statements, portfolio composition, net equity of the FIP, etc.

▪ Audit: FIP shall be annually audited by an independent audit firm



FIPPORTFOLIO

CONVERTIBLESECURITIES

WARRANTS

DEBENTURES

SHARES

OTHERADMISSIBLE

ASSETS

INVESTMENT MANAGER

SHARES

REAL ESTATEPROPERTIES

INVESTMENTSABROAD

FUND OFFUNDS

FIP/FIEE

DERIVATIVES(HEDGING)

OTHERADMISSIBLE

ASSETS

90%



▪ Participation in the decision-making process of the portfolio companies:

• By participating in the block of control

• By shareholders agreement

• Any other arrangement guaranteeing actual influence on the strategic policy and

management of such companies

▪ Investment in listed companies: Regulation shall establish criteria for investment

▪ Privately-held companies of the portfolio:

• Shall not issue participation certificates

• Board of Directors shall have a unified term of 1 year

• Disclosure of agreements with related parties, shareholders agreements, stock option plans

• Adhere to arbitration procedure

• When becoming listed shall adhere to special listing segment of the stock exchange

• Accounting records audited annually by independent auditors registered at CVM



▪ The Self Regulation and Best Practices Code of ABVCAP / ANBIMA:

• Purpose:

▪ Transparency on management activities

▪ To create standard practices and processes

▪ Equitable treatment

▪ Increase fiduciary duties

• Mandatory Adhesion for:

▪ Private equity managers affiliated to ABVCAP

▪ Institutions affiliated to ANBIMA

▪ Investment Managers of FIP/FIEE

▪ Managers of FIP/FIEE

▪ Distributors of FIP/FIEE Quotas



• Classification of FIP/FIEE:

▪ Restricted: 50% or more of total quotas are held by a sole investor, by investor

having a family relation as defined in the Code or by investor that belong to the same

economic group

▪ Diversified: Constituted by several investors and not within the definition of

Restricted

▪ Type 1: Representatives of the investors in the Investment Committee. No obligation

to have a Supervisory Committee

▪ Type 2: Investment Committed solely composed by representatives of the

Administrator or Manager and a has Supervisory Committee

▪ Type 3: No Investment Committee. May have a Supervisory Committee


Capital Markets – Regulated Activities

CVM

DEPOSITARIES

STOCKEXCHANGE

BROKERS

CUSTODIANS

DEALERS

OTC

ASSETMANAGERS FUNDS

AUDITORS


Capital Markets – Basic Rules

▪ REGULATORS

• CVM acts as governmental regulatory agency

• Several self-regulation entities – BM&FBOVESPA, ANBIMA, ABRASCA, among

others

▪ STOCK EXCHANGE AND OVER THE COUNTER

• First Stock Exchange founded in 1890

• Self regulatory organizations with supervision of CVM (Brazilian SEC)

• Responsibilities in relation to their markets and participants

• Only one Stock Exchange nowadays / following international trend other stock

exchange may start to operate


Capital Markets – Basic Rules

▪ TRADES AND ACCOUNTS

• Identified up to the beneficial owner

• Better oversight and risk management

▪ FULL & PUBLIC DISCLOSURE

• Net Asset Value – daily basis

• Portfolio composition – monthly basis

▪ ADOPTION OF THE IFRS


Capital Markets – Listed Companies

▪ CATEGORIES

• Issuers of Securities

• Issuers of Debt Instruments

▪ REFERENCE FORM

• Self registration system in accordance with IOSCO standards

• Mandatory disclosure

▪ Risk Factors

▪ MD&A

▪ Executive Pays

▪ Financial Instruments

▪ Risk Management Policies

▪ FINANCIAL STATEMENTS

• Annual & Quarterly Basis


Capital Markets – Listed Companies

▪ SHAREHOLDERS MEETINGS

• Sufficient Information on matters at the time of the call notice

▪ TAG ALONG RIGHTS

• For all voting shares

• 80% of the premium paid to controlling stake

▪ LISTING SEGMENTS

• Standard Market

• Bovespa Mais

• Corporate Governance Level I

• Corporate Governance Level II

• Novo Mercado


Corporate Governance

▪ Corporation Law

• Tag along for voting shareholders

• Reduction of disproportion between voting and non-voting

• Minority shareholder on the board

▪ Novo Mercado

• Self-regulatory effort from BM&FBovespa

• Corporate governance practices and transparency requirements

▪ Only voting shares

▪ Minimum free float of 25%

▪ Same premium paid to controlling stake for all shares

▪ 20% of independent directors

▪ Compliance with IFRS

▪ Mandatory arbitration for resolution of corporate disputes

March 2011 Martin Miralles Pose [email protected]

Documents

Transcript of March 2011 Martin Miralles Pose [email protected]