Colombia. Authors: María Fernanda Flórez and Santiago Osorio. Colombia.

Transcription

1 The Float Guide How to list a company on the Colombian National Registry of Securities and Issuers and the Colombian Stock Exchange for public trading. Contact: Gabriel Sánchez Colombia gabriel.sanchez@phrlegal.com Authors: María Fernanda Flórez and Santiago Osorio Colombia mariafernanda.florez@phrlegal.com Santiago.osorio@phrlegal.com

2 INTRODUCTION This guide gives an overview of the process required to list a Colombian company on the Colombian National Registry of Securities and Issuers ( RNVE )1 and on the Colombian Stock Exchange ( BVC )2, as well as of the consequences of such listing. It is a practical guide covering all main aspects of public listing, from its prerequisites through to life after the float. After a very dynamic decade (until the late 2000s), during which the publicly traded shares market in Colombia grew from almost inexistence (very few listed companies and even fewer with high trading levels) into a booming business activity, during the present decade the market has stabilized. Marketability of stock is still low, but occasionally companies find sound funding alternatives in the stock exchange, particularly in connection with construction, infrastructure and power generating activities. 1 Acronym in Spanish. 2 Acronym in Spanish.

3 Contents 1. EXECUTIVE SUMMARY Why float? Does my company qualify? Float Team Procedures; Registration How long will it take? What goes in the prospectus? What is the company worth? What are major changes to be implemented once the company is public? Costs Life After The Float 3 2. ADVANTAGES OF FLOATING 4 3. PREREQUISITES 5 4. ADOPTING AN ADEQUATE CORPORATE STRUCTURE Structure: Other adjustments to by-laws: 6 5. PROCEDURE; REGISTRATION RNVE (Superfinanciera): DECEVAL BVC 7 6. PROMOTION Premarketing Bookbuilding COSTS LIFE AFTER THE FLOAT Ongoing disclosure Type of information to be disclosed: Superfinanciera Surveillance Sanctions 14

4 8.5 Certain minority shareholder special protections: Certain Manager Special Obligations Filling and submitting corporate governance survey (Código de Mejores Prácticas Corporativas de Colombia ( Código País )) TIMETABLE 1

5 1. EXECUTIVE SUMMARY 1.1 Why float? Becoming a public company brings a number of advantages, among others: the availability to raise funds to finance operations at a relatively low cost due to elimination of financing intermediation costs; give existing shareholders an opportunity to sell their shares (liquidity), and especially to give family and founding shareholders an exit route (in Colombia most companies are family owned); and allows shareholders to achieve a fair price by bringing together all potential buyers and sellers in one place. 1.2 Does my company qualify? Any company which is organized as a stock company (sociedad anónima) may be listed in the Colombian Stock Exchange. Listing a company is a decision that must be made by the shareholders of the relevant company, in accordance with its by-laws (taking into account, for example, the relevant quorums and majorities set forth therein for this purpose). Certain corporate adjustments are required in order to prepare the company for a listing procedure, including adjusting the board of directors (number of directors; independent directors), eliminating preemptive rights, creating audit committees and implementing corporate governance parameters. 1.3 Float Team Although not compulsory, most successful float process teams include: An experienced law firm which participates in the process of (i) conducting a due diligence review in order to identify any company contingencies that might affect the flotation process (for example, making sure that no material information is misstated in, or omitted from, the prospectus); (ii) drafting and reviewing the prospectus to ensure that it complies with all legal requirements; (iii) determining legal requirements that must be met and ongoing obligations that must be complied with once the company is listed; (iii) preparing the company application before the various government regulatory entities and stock exchange agencies that must approve listing; and (iv) structuring the issuance of new shares, when applicable An investment bank which conducts a valuation of the company, structures and values the issuance, if any, and conducts premarketing and marketing of any issuance with investors, if any. 1.4 Procedures; Registration RNVE: Is a public registry administrated by the Colombian Finance Superintendency ( Superfinanciera ) which is in charge of the authorization for a company to become listed and the authorization to list its shares as publicly traded shares. Furthermore, the Superfinanciera is the responsible entity for authorizing all public offerings in the stock market. 1

6 1.4.2 DECEVAL: All publicly traded shares must be in book entry form, in digital titles. Consequently, the company must convert any existing share certificates (dematerialize) and deposit the book entry replacements with the Centralized Share Depositary ( DECEVAL ) BVC (Colombian stock exchange): A registration request must be filed before the BVC. Once all information is completed and reviewed, the BCV will issue a letter of approval after which the company is considered listed and market participants will then be able to sell and buy its shares through the BVC. 1.5 How long will it take? A well-run, reasonably simple float can be completed in 5 to 8 months. 1.6 What goes in the prospectus? Generally speaking, the prospectus should include all information required or convenient to allow investors to form an opinion on the merits of investing in the shares to be traded (i.e. identifying the type and number of shares, characteristics and conditions of the issuance, offer, placement and price) must be fully and accurately set forth in the prospectus. This information as a rule includes, financing information, corporate information and business information. The information shall be submitted in Spanish. A detailed list of the information to be included in the prospectus is defined in Decree 2555 of What is the company worth? The company may be listed without placing any new shares in the market. In this case, the reference price for the existing shares that will be negotiated for the first time in the stock exchange, would be the book value set forth in the last financial statements, or, alternatively, the book value of the last calendar month. Nevertheless, the issuer may determine a different reference price based on criteria, procedures and/or methods of recognized technical value for the determination of such price. If the company will conduct an IPO with respect to an issuance of new shares, the reference price will be the placement price of the primary offering, which shall be justified by the company in its application before the Superfinanciera. Nevertheless, the company may determine the placement price of the shares to be publicly offered in the primary market at a later time after the authorization of the offer, with the support of the placing agents, and based on pre-marketing efforts and market conditions. Moreover, such price shall be set forth in the rules of issuance and placement of shares prepared by the relevant corporate body of the company, and shall be determined pursuant to a study performed in conformity with technically recognized procedures, unless otherwise specified in the by-laws of the company or by the shareholders meeting. 1.8 What are major changes to be implemented once the company is public? Local companies typically regard the following additional requirements and consequences as disincentives to becoming publicly traded: On-going periodic reporting and disclosure requirements; and 3 Acronym in Spanish. 2

7 1.9 Costs Corporate governance requirements and good practices required (i.e. the imposition that at least 25% of the Board of Directors must be independent and other special protection measures favouring minority shareholders). The costs involved in a float will include, among others: Costs of structuration by the investment bank: Such costs are to be convened with the investment banks. Costs of legal counsel: To be convened with the relevant law firm. Costs of registration and maintenance before the RNVE: Registration: The registration fee is equivalent to 0.08 per thousand pesos of the issuer s equity. Fees of authorization to perform a public offer: The fee is equivalent to 0.35 per thousand pesos of the issuer s equity. Maintenance Fee: The maintenance fee is equivalent to 0.01 per thousand pesos of the issuer s equity. In any case, for any of the foregoing fees, the minimum fee will be of 6 legal minimum wages (approximately USD$1,475) and the maximum fee of 300 legal minimum wages (approximately USD$73,771). Costs of dematerialized deposit, custody and securities administration: Such costs are set forth by DECEVAL in its fees schedule, which may be found at: Costs of registration and maintenance before the Colombian Securities Exchange: The registration and maintenance fee is calculated according to the issuer s equity in the last fiscal year. The range of fees for 2017 goes from COP$12,600,000 (USD$4,200) to COP$73,700,000 (USD$24.566). Costs of underwriters: To be convened with the relevant underwriter Life After The Float Listed companies are subject to a close supervision of the Superfinanciera (control), and must comply with certain special duties, which include, among others: (i) periodic reporting and disclose of material information; and (ii) the obligation to comply with stringent corporate governance requirements applicable to listed companies. 3

8 2. ADVANTAGES OF FLOATING Floating a company brings a number of advantages such as: the availability of funds to finance operations at a relatively low cost due to the elimination of financial intermediation costs; an improved negotiating position with the financing sector due to a perceived attractiveness of the transparency generated as a consequence of the requirements and supervision of listed companies; the reporting analytical coverage generated by independent market participants which promote better management practices to maintain company performance levels; give existing shareholders an opportunity to realise the value of their investment, and especially to give family and founding shareholders an exit route (in Colombia most companies are family owned); allow shareholders to achieve a fair price by bringing together all potential buyers and sellers in one place; promote better corporate governance practices; generate tax benefits for shareholders; allow for an increasing indebtedness capability; and generate enhanced recognition among the market, employees, customers and government. 4

9 3. PREREQUISITES Any company which is organized as a stock company (sociedad anónima) may go public. The company s by-laws must not have any type of pre-emptive rights nor rights of first refusal with respect to share transfer. All such rights must be eliminated (or are otherwise deemed suspended) from the company s by-laws prior to the listing process. At least ten per cent (10%) of the total outstanding shares of the company must be owned by persons other than those belonging to the same beneficial owner. 4 The company must have at least one hundred (100) shareholders. The company or its parent company must have performed its corporate purpose for a term of no less than three (3) years prior to the registration filing date. This requirement is not applicable to issuances resulting from mergers or spin-offs. For foreign issuers that are not listed in one or more internationally known stock exchanges, this requirement may be replaced by the evidencing that its parent company, or its subsidiaries, have performed their main corporate purpose during the last 3 years preceding the registration filing date. The company must deliver a corporate governance report containing the information required by the Colombian Stock Exchange, and in case the company to be listed is a national company, it should also include the level of compliance with the Colombian regulations on corporate governance and with the provisions of the Colombian Code of Best Corporate Practice (Código de Mejores Prácticas Corporativas de Colombia). The company must have an equity value of at least COP$7,000,000, If the company was incorporated less than two (2) years from the date it began operating, it must submit and file an economic, financial and market feasibility study along with the RNVE registry request (as explained below) in order to obtain the RNVE registration. The company must maintain a web page in which material information must be disclosed. The decision to trade publicly must be approved by the shareholders in accordance with the quorum and majority provisions set in the by-laws or as prescribed by the law. 4 Article of Decree Definition of beneficial owner. Beneficial owner means any person or group of persons who, directly or indirectly, by itself or through an intermediary, by virtue of contract, agreement or otherwise has in respect to a share of a company, or may have, by owning bonds mandatorily convertible into shares, decision making capacity, that is, the faculty or the power to vote in the election of directors or representatives or, directing, guiding and controlling the vote, and the faculty or power to dispose and order the disposal or encumbrance of the action. For purposes of this resolution, a beneficiary owner is made up of the spouses or permanent companions and relatives within the second degree of consanguinity, affinity in second degree, civilian, unless it is proven that they are acting with independent economic interests, a fact which may be declared by oath to the SFC for evidentiary purposes only. As well, the parent companies and their subordinates constitute the same beneficiary owner." 5 Approximately USD$2.3 million (exchange rate 1 US Dollar = COP$3,000). 5

10 4. ADOPTING AN ADEQUATE CORPORATE STRUCTURE Board The board of directors may need to be changed to include independent non-executive directors with appropriate expertise. It is advisable that in accordance with corporate governance guidelines established by the Superfinanciera, directors have the appropriate professional trajectory, academic formation and expertise. The board must consist of no less than 5 and no more than 10 directors, of which 25% must be independent. Alternates are not compulsory Audit Committee Listed companies must have an audit committee. The functions of the audit committee are to perform surveillance on the company s managers compliance with the internal audit program and to supervise the preparation, presentation and disclosure of financial information, in order to assure that such tasks are made in accordance with legal requirements. The committee must consist of at least three directors, including all the independent directors Corporate governance procedures Since 1995, Colombia has started to introduce a series of modifications to its regulation in order to improve the standards of corporate governance in listed companies. Among the most important changes new regulation has introduced are: defined the obligations the Directors of listed companies have; defined more clearly the rules regarding disclosure of financial and non-financial information; introduced rules regarding the relationship between parent companies and subsidiaries; authorized the Superfinanciera to investigate complaints made by minority shareholders; the obligation to adopt corporate governance codes to the companies that want pension funds to acquire their shares; Moreover, the Colombian Code of Best Corporate Practice was implemented in 2007 and amended in 2011, which introduced a number of recommendations of good corporate practices for issuers. Nevertheless, its implementation is not compulsory, although it is advisable that the company establishes such corporate governance procedures prescribed for listed companies. All companies, under the principle of comply or explain, have the obligation to complete a survey, answering 79 questions on their corporate practices every year. Such answers are disclosed to the market, through the Superfinanciera. The issuers must answer whether or not they comply with each of the corporate practices mentioned in each question and in those questions in which their answer is no, they must explain in detail the reasons for not complying with such practice. 4.2 Structure: See section Other adjustments to by-laws: * Provisions regulating in depth new issuances of shares, particularly with respect to pricing. * Provisions establishing stringent money laundry prevention mechanisms, which include appointment of a compliance officer and know your client mechanisms. 6

11 5. PROCEDURE; REGISTRATION 5.1 RNVE (Superfinanciera): A registration request must be filed with the Superfinanciera. The Superfinanciera may request changes and clarifications and make observations to the registration request prior to approval. Once all pending information is submitted, reviewed and deemed satisfactory by the Superfinanciera, the Superfinanciera will certify the registration of shares and the issuing company in the RNVE. Main documents to be filed: Formal request. Registration form. Copy of shareholders minutes approving the registration of the company as an issuer and its shares. Prospectus (see below). Facsimile of shares. Certificate of existence and legal representation of the company (dated not more than three months prior to the request). Copy of company by-laws. Evidence of engagement of a statutory auditor. 5.2 DECEVAL 5.3 BVC Because publicly traded shares must circulate in a book entry form, the company must convert the existing shares with the Centralized Share Depositary, DECEVAL. A conversion request must be filed with DECEVAL, following which an agreement is executed with DECEVAL for DECEVAL to provide services to the floating company, including book keeping, custody, share transfer registration and real time information supply to the issuer (for example, status of share transfers) etc. A registration request must be filed with the BVC. Once all information is completed and reviewed, the BCV will issue a letter of approval after which the company is deemed listed and market participant are thereafter enabled to sell and buy shares through the BVC. 7

12 Floating process complete Source: Guía Práctica del Emisor de Valores. Bolsa de Valores de Colombia,

13 PROSPECTUS In accordance with law, the Prospectus must contain the following: 1 Cover Includes information regarding the prospectus and disclaimers 2 Authorizations, Special Information, and other General Warnings (applies to all listing processes) Corporate authorizations, public offering information, contact information for authorized representatives who can provide more information on the prospectus. 3 Table of contents Index 4 Defined terms 5 PART I SECURITIES CHAPTER I GENERAL INFORMATION Characteristics of the shares; terms and conditions of the issuance. 6 CHAPTER II Terms and conditions of the offer and placement (if applicable). 7 PART II ISSUER INFORMATION CHAPTER I General Information 8 CHAPTER II Corporate Structure 9 CHAPTER III Details of the corporate activity of the issuer (production and operating profit). 9

14 10 CHAPTER IV Financial information 11 CHAPTER V Management s report and analysis of the operating results and the financial status of the issuer. 12 CHAPTER VI Financial statements 13 CHAPTER VII Issuer risk factors 14 PART III ANNEXES 15 PART IV Certifications Certifications stating that the due diligence was conducted to verify the contents of the prospectus, its veracity, and to confirm that there is no material information provided or omitted which may mislead future investors. Types of shares to be issued Ordinary shares: grant common economic (pro rata participation in profits) and political (one vote per share) rights. Privileged: additionally to political common rights, they grant certain economic advantages over ordinary shares such as increased dividends. Preferential shares without voting rights: Grant increased economic rights (for example, better dividends conditions), but without voting rights. This type of shares are ideal to be traded publicly whenever shares are directed to investors in general. A company may also trade other type of securities, other than shares, such as debt securities. Convertible debt bonds are among the types of securities that can be issued ( BOCEAS ) 6 ; this type of 6 Its acronym in Spanish 10

15 securities give the right to the bond holders to convert the bonds into shares of the issuing company. Such bonds cannot be held by the issuing company unless certain conditions are met. 11

16 6. PROMOTION 6.1 Premarketing Once the company has initiated the authorization process for the issuance of the company s shares before the Superfinanciera, and the preliminary prospectus has been filed before such authority, the company may initiate the promotion of the shares before obtaining a final authorization by the Superfinanciera as long as it complies with certain requirements (i.e. the promotion must be made based on the most relevant issues of such issuance and with full disclosure of the pending authorization from the Superfinanciera). 6.2 Bookbuilding The company may choose to carry out the issuance using a bookbuilding procedure instead of an underwriting process, which is more common. Bookbuilding consists in the procedure by means of which the issuer can determine the price, the distribution, the assignment of the securities, as well as the size of the issuance either by itself or through a third party by way of marketing, preliminary promotion and the reception and registry of demand orders in an offer book. 12

17 7. COSTS Costs involved will vary depending on the equity of the issuer and the amount of the public offering. Significant costs include: BVC: Registration and ongoing listing fees. RNVE: Inscription and RNVE public offering registration. DECEVAL: depositary and services agreement fees. Legal advisors. Investment bank. Placement, awarding and distribution costs. Advertising. Fiscal auditor s fees. Rating agencies BVC provides a useful tool in order to estimate costs, which can be consulted and used at: y 13

18 8. LIFE AFTER THE FLOAT 8.1 Ongoing disclosure Once listed, the company is subject to the ongoing disclosure requirements prescribed by law. This means that the company must immediately disclose to the RNVE (and to the market) all relevant information. In order to generate transparency in the market and confidence among all market participants, the stock market law 7 created the Integral Stock Market Information System ( SIMEV ) 8 for the purpose of offering and facilitating the dissemination of information. 8.2 Type of information to be disclosed: Basic information: names of directors and executive managers, address, webpage, main domicile, etc. This information must be kept updated. Relevant information: information that would have been taken into account by a diligent and prudent expert when buying or selling publicly traded shares and also such information that would have been taken into account by a prudent and diligent shareholder whenever making use of its respective voting rights. Periodic information: annual and semi-annual (quarterly) financial reports. In addition, if any shareholder enters into a shareholders agreement, such agreement must be immediately disclosed to the market in order to bind the company, other shareholders and any third parties; provided that, the Superfinanciera may approve confidential shareholder agreements, in which case, confidentiality is authorized for a period not exceeding 12 months. 8.3 Superfinanciera Surveillance All issuers are under Superfinanciera s control. This means that the Superfinanciera has an ample range of functions to ensure (i) adequate corporate practices; (ii) timely disclosure of information, and (iii) compliance, which includes surveillance of executive performance of legal compliance. 8.4 Sanctions The most serious sanctions that Superfinanciera may impose on public companies or their managers, relate to failure to comply with legal provisions established in order to protect the market, the issuers and shareholders, for example: Fines. Bans for up to five (5) years from involvement in any type of administration, direction or control of issuer activities. Removal of administrators. 7 Article 7 of Law 964 (2005) 8 Its acronym in Spanish. 14

19 Suspension or cancelation of the registration with the RNVE. 8.5 Certain minority shareholder special protections: In addition to regular minority shareholders protections granted by applicable law, such as the right to elect members of the board, minority shareholders of public companies have the following rights: No special quorum and/or majorities may be established to adopt decisions: applicable laws establish that save for certain decisions (i.e. the right to receive dividends 78% of the present votes) any and all decisions made by the shareholders must be approved in a meeting where (i) quorum corresponds to at least ½ plus one voting right of shares are present and (ii) the corresponding decision is approved by the majority of the shares present in the corresponding meeting. Right to participate in purchases or acquisitions of shares under the same conditions as the majority shareholders. Right to present proposals: minority shareholders (representing at least 5% of the circulating shares) may submit proposals to the board of directors. Such proposals must be reviewed and the outcome must be communicated in writing to the minority proposing group. Right to withdraw in the event of a cancelation of the registration with the RNVE. 8.6 Certain Manager Special Obligations In addition to the regular duties and obligations (for example, to allow inspection prior to the ordinary shareholders meetings, act in the best interests of the company, disclose conflict of interest issues, etc.) to be followed by managers (i.e. directors, legal representatives) of private companies, managers of public companies may not: manipulate the free formation of market prices; neglect to disclose periodic and relevant information; suggest that shareholders grant indefinite powers of attorney to be represented in the shareholders meetings; and promote any type of manipulation with respect to the decision making process in a shareholders meeting. 8.7 Filling and submitting corporate governance survey (Código de Mejores Prácticas Corporativas de Colombia ( Código País )). Listed companies are encouraged to follow the Superfinanciera s corporate governance guidelines. Annually, listed companies must fill and submit a survey in which they report whether they are following such guidelines. In the event that a listed company does not follow the guidelines, it must explain the reasons why it has failed to do so. 15

20 9. TIMETABLE Month 1 Month 2 Month 3 Month 4 Month 5 Month 7 Month 8 No. Date Action Item Page Refer-ence Appoint team (internal and external) 2. Due diligence 3. Corporate Governance issues 9 4. Draft and negotiate underwriting agreements (if necessary) 5. Pricing discussions 6. Shareholders meeting authorizes the registration before SFC and BVC 7. Draft prospectus and offering notice 8. Draft letter requesting the RNVE registration 9. Draft letter requesting listing before BVC 9 Corporate governance issues: (1) By-laws amendments, (2) Electing board of directors independent members, (3) Appointment of Compliance Officer (if necessary), (4) Draft Corporate Governance Code, (5) Create Audit Committee, (6) Setup a website (or include an investors relations section in the existing one).

21 Month 1 Month 2 Month 3 Month 4 Month 5 Month 7 Month 8 No. Date Action Item Page Refer-ence Negotiate and sing deposit agreement with DECEVAL 11. Filing RNVE registration and public offering authorization requests 12. Filing listing application with the BVC 13. Preliminary marketing activities (with preliminary prospectus) 14. SFC and BVC review and request additional information or clarifications 15. Company delivers additional or amended information, as requested 16. SFC and BVC review updated information 17. SFC authorizes the RNVE registration and public offering (or requests

22 Month 1 Month 2 Month 3 Month 4 Month 5 Month 7 Month 8 No. Date Action Item Page Refer-ence additional or amended information) BVC authorizes the listing of the shares 19. Filing final documents with SFC and BVC 20. Public offering notice publication 21. Offering period (min. 15 business days and max. 3 months) 22. Public marketing 23. Investor s data processing /Placement 24. Funds available to company and share issue 25. Company listed/shares quoted/trading begins 10 In this case an additional month should be added to the time table for each additional request of updated or amended information made by the SFC.

23 Abbreviations list Abbreviation English Spanish SFC Colombian Financial Superintendence Superintendencia Financiera de Colombia RNVE National Registry of Securities and Issuers Registro Nacional de Valores y Emisores BVC Colombian Stock Exchange Bolsa de Valores de Colombia S.A. DECEVAL Central Securities Depositary Depósito Centralizado de Valores de Colombia DECEVAL S.A.