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Congreso International de Gobierno Corporativo Bolsa de Valores de Colombia and Inter American Development Bank. Bovespa`s Corporate Governance Segment Claudio Avanian Jacob BOVESPA – Brazil´s Stock Exchange. Cartagena de Indias – Colombia november/8/2005. BOVESPA An overview.
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Congreso International de Gobierno CorporativoBolsa de Valores de Colombia and Inter American Development Bank Bovespa`s Corporate Governance Segment Claudio Avanian Jacob BOVESPA – Brazil´s Stock Exchange Cartagena de Indias – Colombia november/8/2005
BOVESPAAn overview • Self regulatory organization • Under the supervision of the Brazilian Securities and Exchange Commission (CVM) • Since 2000, Brazil’s only liquidity center for equity trading • 382 listed companies • Specialized and electronic trading systems for equity and corporate bonds • 68% of the trading in Latin American exchanges • Market Capitalization: US$ 458 billion (oct/2005) • Daily Average Trading Value: US$ 563 million
Brazilian market realityFocus on different issues • Vast majority of public companies have a defined controlling shareholder • Usually this shareholder is a family or a family group • The Brazilian law allows companies to issue up to 2/3 of shares as non-voting (misleadingly called “preferred” shares) • Many sales of control have resulted in large premiums for the sellers (no tag along rights) • Tender offers to delist companies can be maid at unfair prices
Result: under pricing Source: Seminário Bradesco Templeton
Primary Market Activity # of IPOS
BOVESPA´s Strategy • Reduction of minority shareholder’s ownership risk • Offering “better quality products” • Increase the investors’ confidence and willingness to acquire stocks and pay for them a better price that suits the owner of the company that is going public • Fostering companies to assure good practices of corporate governance related to investor protection • Disclosure/transparency • Minority shareholder rights
Novo MercadoCommitment with corporate governance • Private sector initiative, based on an enforced through a contract with BOVESPA • Joining is voluntary and market driven • Companies committed to the highest standards of corporate governance • Set of rules over and above Corporations Law reflecting market demands and requirements • Committed with market arbitration panel to resolve conflicts between shareholders, companies and their management, controlling shareholders and BOVESPA
Novo MercadoGroups of requirements • Rights for minoritary investors: Only voting shares; Full tag along rights; Public tender offer at “economic ” value; Board of directors with 1 year terms and a minimum of 5 members • Disclosure: additional requirements for quarterly statements; financial statements in accordance with international standards; cash flow statements; contracts with related parties, etc. • Dispersion: 25% minimum free float and ensure access for individuals in public offerings
Bovespa`s listing segmentsNovo Mercado and Levels 1 and 2 of Corporate Governance Only voting shares Diclosure and governance requirements non voting shares are allowed Disclosure requirements Law requirements Traditional Market Novo Mercado Level 1 Level 2
A Market for IPOsThe success of the Novo Mercado • Better corporate governance contributed to broaden investor interest • Increased confidence, specially from foreign investors • More favorable pricing, stimulated new IPOs • Offers occurred at multiples much higher than the market average
Listed CompaniesNovo Mercado and Level 2 • Novo Mercado – 16 companies • Lojas Renner • Energias do Brasil • OHL Brasil • Light • Cyrela • Nossa Caixa • CCR • SABESP • Natura • CPFL Energia • Grendene • DASA • Porto Seguro • Renar Maçãs • Submarino • Localiza • Level 2 – 9 companies • Net • Celesc • Marcopolo • Gol • ALL • Eletropaulo • Eternit • Suzano Pet. • TAM
Listed companiesLevel 1 – 35 adhesions • Alpargatas • Aracruz • Bradesco • Bradespar • Brasil Telecom • BT Participações • Braskem • Cedro e Cachoeira • Cemig • Cia Hering • Confab • Duratex • Fras-le • Gerdau • Itaú • Itaúsa • Klabin • Mangels • Metalúrgica Gerdau • Pão de Açúcar • Perdigão • Randon • Ripasa • Rossi Residencial • Sadia • Suzano Papel e Celulose • Transmissão Paulista • Unibanco • Unibanco Holdings • Unipar • Vale do Rio Doce • VCP • Vigor • Weg • Ultrapar
Next Adhesions Novo Mercado • Cosan • Novo Mercado • Primary • Tractebel • Novo Mercado • Secondary Levels of Corporate Governance • UOL • Level 2 • Primary and Secondary • Eletrobrás • Level 1 • Iochpe Maxion • Level 1
Novo MercadoBOVESPA’s perception The standard is set • The only model for new listing that is being accepted by the market is the Novo Mercado • Only very specific IPO cases will come to Level 2 • The special listings segments represent around 45% of trading and market cap of Bovespa
A step further • Creating an alternative for a greater number of companies, especially SMEs
BOVESPA MAIS Pillars BOVESPA programs to support companies Investor with medium-term perspectives BOVESPAMAIS Greater flexibility in trading Companies committed to CG requirements Companies committed to their development in stock market
Thank you Claudio Avanian Jacob Listing and business development Phone: 55 11 3233 2004 E-mail: cjacob@bovespa.com.br Website: www.bovespa.com.br