Latin American Roundtable

Transcription

1 Latin American Roundtable Stock exchanges as an engine for corporate governance improvements: Reaching out to non-listed companies Patrícia Pellini Issuer Regulation and Guidance Manager November 30 th, 2011

2 BM&FBOVESPA brief overview Largest stock and derivatives exchange in Latin America 3 th largest listed exchange in the world (Nov/11) Important capital market: The world s 3 rd largest market in terms of capital raising activities (Jan- Sep/11)* 467 listed companies / USD 1,55 trillion in terms of market capitalization (Jul/11) Broad range of sectors: financial (26%), basic material (16%), oil & gas (15%), consumer non-cyclical (15%), utilities (10%) and telecom (7%) as the main sectors Equity markets with USD 3,9 billion in terms of average daily traded volume (Jan-Oct/11) Equity markets in terms of financial value: foreign investors (36%), mutual funds (33%), retail investors (20%), financial institutions and others (9%) Source: * WFE and IOMA 2

3 Initiatives with non-listed companies Fully dedicated area for non-listed companies that promotes Contact with companies: visits and meetings in regular basis Educational activities for companies and entrepreneurs: provide knowledge and increase familiarity with corporate governance principles and regulatory environment Connection between companies and investors: agreement with governmental agent, FINEP Visibility: sponsor S&MEs ranking Road shows with partners (banks, legal consultants, industrial and commercial associations): spread the concepts of capital market and IPO process Partnership with private equity and venture capital entity, ABVCAP a natural new listing supplier due to complementary businesses Contact with investment banks and investors: presentation and discussion about the access segment called Bovespa Mais Gradual access segment for companies, especially S&MEs Bovespa Mais based on Novo Mercado Listing Advisory Committee to discuss alternatives applied to non-listed companies, especially S&MEs 3

4 Programs for Companies and Entrepreneurs BM&FBOVESPA Educational Institute March 1st Belo Horizonte The Stock Exchange and the capital markets May 11th, 18th and 25th Capital and Growth Capital and Growth: how to measure capital costs, risks and opportunities São Paulo Internal Controls March 15 th Transition in familyowned companies May 16 th and 17 th Investors Relation São Paulo Hedge and Risks for non São Paulo Investors Relation March 18 th Corporate Governance financial companies São Paulo Capital and Growth: how to measure capital costs, risks and opportunities São Paulo Legislation applied to SÃO PAULO Accountancy (convergence to IFRS) March 23 th to April 29 th Growth and High Performance Management May 23 th and 24 th Accountancy (convergence to IFRS) São Paulo IPO Immersion the capital markets Rio de Janeiro Investors Relation São Paulo Corporate Governance June 6 th Legislation applied to the capital markets MARCH APRIL MAY JUNE AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER Calendar

5 Connection between companies and investors Pre-IPO Stage Agreement with FINEP* Meetings among investors and companies that could possibly make an IPO or receive venture capital/private equity investments Scope: coaching by hired consultant in structuring the business plan of the non-listed companies. Executives from these companies are be trained to make presentation to institutional investors, banks, brokers and managers of venture capital and private equity 6 forums were promoted between 2002 and 2011 with 25 companies 6 of these companies became listed in Novo Mercado * Research and Project Financing, also known as the Brazilian Innovation Agency, is a publicly owned company subordinated to the Ministry of Science and Technology MCT 5

6 The Exchange as sponsor of S&MEs Ranking (Valor Econômico) Ranking companies with annual revenue between R$ 62 million and R$ 230 million in 2009 Ranking companies with annual revenues between R$ 18 million and R$ 300 million in

7 Novo Mercado Launched in December 2000, it is a special listing segment based on corporate governance best practices over and above the Brazilian Corporate Law and the capital market regulation It is a private initiative, based on the self-regulation power of the Exchange, in order to improve the quality of public companies and the credibility of capital market. Or, in other words, to create a receptive environment for public offerings The main problem identified by the Stock Exchange The lacking of suitable protection for minority shareholders Agency conflict: controlling shareholder (majority) versus minority shareholders As a consequence, the Brazilian securities market especially its equities market became irrelevant Very few new companies applied to list on the Stock Exchange Almost no initial public offerings (IPOs) neither follow on offerings The equity market was not a fund rising alternative for companies 7

8 Novo Mercado Relation between regulation, corporate governance and market Regulation based on corporate governance practices can provide the alignment of interests between investors and companies For investors it implies risk mitigation For companies it implies better valuation and, therefore, lower costs For market it implies efficient allocation of resources The entering in Novo Mercado is voluntary but based on an agreement between company, controlling shareholders, senior managers and the Stock Exchange (contractual obligation) Bylaws must be amended to insert shareholders rights (for example full tag along rights and arbitration panel to solve conflicts) The enforcement is based on contract s and bylaw s provisions An arbitration chamber was created in order to enhance the enforcement process, considering the necessity of an appropriate forum for the solution of issues related to the capital markets 8

9 Main requirements Shareholders rights Only voting shares Alignment between economic exposure and voting rights Brazilian Corporate Law allows non-voting shares 2/3 (until 2001) and 1/2(after 2001) of the total capital Full tag-along rights extend to all shareholders in case of change of control Public tender offering at economic value in case of delisting Arbitration panel to solve conflicts Transparency (monitoring) Disclose of additional information (for example: security transactions by the controlling shareholders) Board of directors with at least 5 members being 20% of them independent ones Dispersion Minimum free float of 25% Procedures in public offerings to enhance the dispersion of the company shares 9

10 Five-tiered regime of listing Standard (minimum legal requirements) Corporate governance listing segments Nível 1 (Level 1) Nível 2 (Level 2) Novo Mercado (New Market) Bovespa Mais (Bovespa Plus) + better disclosure and free float + shareholder rights and arbitration + only voting shares organized OTC gradual access to the main market Comply with the regulation Standard 10

11 Corporate governance as the norm for local companies IPOs by Listing Segment* Nível 2 14% Nível 1 6% BDR 6% Participation of listing segments at the exchange (Sep/11) 39% of total listed companies 65% of market capitalization 84% of traded value Novo Mercado 74% 182 companies Novo Mercado Nível 2 Nível aug/11 Source: BM&FBOVESPA. (*) Data from 2004 to August

12 Evolution of IPOs Initial Public Offerings (Number of IPOs) (from 1995 to Aug/11) aug/11 Source: BM&FBOVESPA.. 12

13 Capital raised in public offerings (US$ billion) Capital raised (US$ billion) (from 2004 to Aug/11) IPO Follow-On aug/11 Foreign investors represented around 67% of the offerings 13

14 Size of public offerings in the Brazilian market Minimum ticket for public offerings very high, becoming almost impracticable small offerings Evolution of the IPOs (from 1995 to July ) Average capital raised by offering ( ): BRL 764 million 64 After international financial crisis intensification Average capital raised by offering ( ): BRL 3,13 billion Average capital raised by offering (by nov/2010): BRL 1 billion julho-11 Source: BM&FBOVESPA 14

15 The Exchange works to make the market viable... Characteristics of companies seeking gradual access to the market + = BOVESPA MAIS An alternative for a great number of companies, for all sizes and with gradual strategy of market access, especially S&MEs 15

16 ...for all sizes of companies Raising smaller volumes of capital Lower than usually raised by companies listed in Novo Mercado Enough to finance their projects More concentrated distribution Among investors with better understanding about companies and business cycle Focus on small number of institutional investors with medium/long term horizon Building a strong record of value creation Companies that intend to increase their exposure along the market and build a history of relationship Adoption of better corporate governance practices Possibility of an initial public offering after the listing (until seven years later) in order to acquire trust and make the investors interested Potential stimulator of the VC&PE industry, enabling listing in more initial stages of the investment and even gradual way out with more visibility Exposure and disclosure as positive impact on pricing process 16

17 Bovespa Mais main requirements Shareholder s rights Issue only common shares: in case of existing preferred non voting shares issued, these will not be traded and must be converted to common shares The Board of Directors formed by at least 3 members, according to the Corporate Law Tag-along of 100% in the case of disposal of company s control Mandatory offering in case of delisting from Bovespa Mais or going private, for, at least, the economic value of the shares Bylaws have been amended to insert the BOVESPA MAIS required clauses especially the Arbitration Clause (additional enforcement by CVM) Dispersion and lock-up Free float of 25% until the seventh year of listing Lock-up restrictions: for the period of 6 months after the Company s first public offering, the controlling shareholder and the senior managers shall not sell and/or offer to sell any company s shares and derivatives which were held by them immediately after such public offering 17

18 Comparison of Novo Mercado vs. Bovespa Mais Similarities Listed companies is allowed to issue only common shares Differences Existing preferred shares are not allowed to be traded and must be convertible into common shares Full tag-along rights Delisting with mandatory offering at least economic value Board of Directors must have at least three members Mandatory listing application Adoption of the Market Arbitration Panel for conflict resolution Free float of at least 25% until the seventh year after listing 180-day IPO lock-up for controlling shareholders and senior managers Exemption from dispersion in public offerings 18

19 Access Market - international examples AIM Market TSX Venture GEM Created in 1995 by London Stock Exchange Number of listed companies (May/11): Daily Average Volume (2010): millions or USD 113,39 millions Market Capitalization (May/11): 77,7 billions or USD 47,19 billions 57 companies migrated from AIM to London Stock Exchange (Jan/2001 to Dec/2010) Number of listed companies in main market of LSE (May/11): Created in 2002 by Toronto Stock Exchange Number of listed companies (May/11): Daily Average Volume (May/11): USD 268,71 millions Market Capitalization (May/11): USD 74,17 billions 470 companies migrated from TSX Venture to Toronto Stock Exchange (Jan/2001 to Dec/2010) Number of listed companies in main market of TSE (May/11): Created in 1999 by Hong Kong Stock Exchange Number of listed companies (May/11): 168 Daily Average Volume (May/11): USD 47,9 millions Market Capitalization (Dec/11): USD 17,201 billions 52 companies migrated from GEM to HKEx (Jan/2001 to Dec/2010) Number of listed companies in main market of HKEx (May/11):

20 Access Market international examples MAB Empresas en Expansión S&ME Segment at Shenzhen Exchange ChiNext Created in 2008 by BME Bolsas y Mercados Españoles Number of listed companies (Dec/10): 12 Daily Average Volume (2010): 16,2 millions or USD 21,66 millions Market Capitalization (Dec/10): 295 millions USD 394,4 millions Created in 2004 by Shenzhen Stock Exchange Same rules of main market for the listing Number of listed companies (Dec/10): 531 Daily Average Volume (Dec/10): USD 226,5 millions Market Capitalization (Dec/10): USD 535,26 billions Number of listed companies in the main market of Shenzhen (Dec/10): 485 Created in 2009 by Shenzhen Stock Exchange Number of listed companies (Dec/10): 153 Daily Average Volume (2010): USD 39 millions Market Capitalization (Dec/10): USD 111,47 billions 20

21 Regulatory issues Bovespa Mais Created in 2005 by Bovespa, there are 2 companies listed Why it has not taken off? Why it has not made feasible S&ME financing until the moment? Possible perceptions: lack of understanding, lack of interest by players (investment banks, legal consultants, companies, investors), lack of liquidity due the size of potential offerings, similarity with Novo Mercado, market conditions (liquidity and risk aversion)? How balance requirements (costs) and risk mitigation factors (better price due lower discounts) for S&ME listing? SM&E financing: all type of investors or qualified ones? Qualified investors could imply regulatory discounts? Corporate governance and regulatory discounts are compatible? BM&FBOVESPA has created the Listing Advisory Committee to discuss alternatives applied to non-listed companies, especially S&MEs Practical and regulatory issues 21

22 Thank you Issuer Regulation and Guidance Manager Patrícia Pellini (55 11) / São Paulo Praça Antonio Prado, 48 Rua XV de Novembro, 275 Centro São Paulo (SP) Fone: China 200 Yincheng (M) Rd, Suite 404 Pudong New Area Shanghai China Phone: United States 61 Broadway, 26th Floor, Suite 2605 New York, NY USA Phone: United Kingdom 88 Wood St., 12th floor EC2V 7RS London Phone: