The Brazilian capital markets regulator, the Comissão de Valores Mobiliários (the “CVM”), recently reformulated the regulatory framework for public offerings in Brazil. Adopted on July 13, 2022 after an extensive review period during which the CVM received and implemented hundreds of comments from public companies, investment banks, law firms and other players in the market, the new CVM resolution 160/22 (“Resolution 160/22”) will come into force on January 2, 2023 and will replace CVM instructions 400/03 and 476/09.
In accordance with the new regulatory framework, public offers will no longer be classified as registered offers (under the old instruction CVM 400/03) and unregistered offers to qualified institutional investors (under the old instruction CVM 476/ 09). Instead, all public offerings will be registered with the CVM, which registration will follow either an automatic registration process (without pre-launch regulatory review) or an ordinary registration process (with prior review by the CVM), depending the size of the issuer, type of security offered and targeted investors. Among others, the ordinary registration process will be mandatory for initial public offerings, equity follow-on offerings (other than those of frequent issuers), offerings of pre-operational issuers and offerings of convertible debt.
From January 2023, offerings under an automatic registration process, currently governed by CVM instruction 476/09, will no longer be limited to 50 qualified institutional investors, which can significantly expand the pool of potential investors.
Below, we discuss the main aspects of Resolution 160/22 relating to Brazilian public offerings with international tranches or international offerings to investors resident or organized in Brazil.
- Safe Harbor allowing Brazilian professional investors to participate in international offers
Currently, international equity and debt offerings cannot be offered to Brazilian investors due to the lack of an available exemption or safe haven in Brazil. In practice, Brazilian institutional investors have been routinely excluded from offerings of stocks and debt securities listed on US, European and Asian stock exchanges. Resolution 160/22 creates a safe harbor that provides that an offering outside of Brazil will not be subject to Brazilian rules or any regulatory review if: (i) the securities are listed on a non-Brazilian stock exchange; (ii) settlement and payment are made outside of Brazil without using Brazilian currency; and (iii) the securities are offered exclusively to “professional investors” resident or organized in Brazil. “Professional investors” are investors holding more than 10 million reais (approximately $1.8 million) in financial investments, financial institutions, insurance companies, pension funds, investment funds and investment clubs, among other institutional investors.
- fishing pilot
Currently, an issuer or its underwriters may conduct confidential consultations regarding the viability of a potential investment with up to 50 investors. In accordance with Resolution 160/22, such consultation may be made with any number of professional investors in Brazil, with a list of investors and a copy of the consultation documents provided to the CVM for follow-up.
- Advertisement of roadshow material
Previously, roadshow presentation materials only had to be filed with the CVM in offers subject to registration. Road shows in connection with unregistered offerings to qualified institutional investors have remained confidential. Under new resolution 160/22, where all offerings must be registered, materials used in road shows will have to be made public by the issuer and underwriters on the same websites where the prospectus and other offering materials are. offer are made available to investors within one day of its use. This requirement will not apply to offers intended exclusively for professional investors.
- Quiet period
Res. registration with the CVM; (ii) create communications safe harbors in the normal course of business; and (ii) to enable communications regarding the Offer in any format, including media interviews, after the Offer has been launched.
- Brazilian SPACs
Although it does not directly regulate special purpose acquisition companies (“SPACs”), Resolution 160/22 provides important rules relating to their securities offerings, including: (i) exempting SPAC from submitting a study economic and financial feasibility (required by other pre-operational issuers); (ii) restrict the offering of SPAC securities to “qualified investors” only (defined as professional investors; persons or companies that hold financial investments of at least R$1 million and investment clubs investment managed by quota holders classified as qualified investors, as well as natural persons certified by organizations approved by the CVM); and (iii) permit trading in the securities of the SPACs on the secondary market exclusively between qualified investors, which trading restriction will cease to apply after six months from a business combination with a target company.
Resolution 160/22 represents a long-awaited modernization of the regulatory regime for public offers in Brazil, creating more flexibility for the execution of public offers and simplifying the disclosure regime and the offer documents.