10/10/2014 em Velloza in the press

Latin Lawyer
Friday, 10 October 2014

Lulu Rumsey

Changes in rules guiding foreign portfolio investment in the Brazilian market are expected to improve local companies’ access to international funding sources and boost cross-border financing.

Resolution No. 4,373, which was passed by Brazil’s National Monetary Council last week, will apply to portfolio investments by non-residents in Brazil’s capital markets and means foreign investors will be able to use Brazilian bank accounts to make portfolio investments in companies’ assets. Those transactions, as well as investment orders from abroad, will be able to be done in reais, something that was previously limited to direct foreign investments and foreign credit transactions. It also widens the scope of fundraising using depositary receipts (DRs), giving more companies access to international financing. It becomes effective in March next year.

The change aims to increase foreign investment in the Brazilian financial and capital markets by simplifying procedures and giving investors the choice of which currency they invest with.

The change in rules is aimed at consolidating the various regulations that currently define international portfolio investment in Brazil. “It’s not just companies that will benefit,” says Eduardo Castro, banking and finance partner at Machado, Meyer, Sendacz e Opice Advogados. “Everyone benefits from having a clearer framework and it’s particularly good for foreign investors to know exactly which rules are applicable to them.”

One of the most noticeable changes is that more Brazilian companies will be able to raise funds abroad through DRs after the rules governing the issuance of the receipts were relaxed. DRs are securities issued abroad by a depository company, such as a bank, which are derivatives of shares issued by Brazilian companies in Brazil. They are then bought by foreign investors.

Until now DRs have only been based on shares, but the resolution enables companies to base the receipts on any form of security, such as debentures or commercial papers. This means that companies that are not listed in the Brazilian stock market (BM&F BOVESPA), and therefore do not issue shares, will have greater access to funds abroad. “Getting listed is a tough procedure involving lots of rules that have to be complied with,” saysVelloza & Girotto Advogados Associados’s Cesar Amendolara. “Companies that aren’t listed will now have the opportunity to access foreign capital from investors that don’t want to come to Brazil.” Investing in DRs appeals to investors because it allows them to invest in a Brazilian company without having to carry out foreign exchange transactions.

The new regime also designates Brazil’s securities and exchange commission (CVM) as the authority in charge of approving securities transactions, a task that was previously split between the CVM and the Central Bank. “This new resolution gives room for the CVM to better detail the rules,” says Thiago Giantomassi of Demarest Advogados. “It is expected to give complete, faster answers adapted to the environment.” The Central Bank and the CVM now have six months in which to issue ancillary regulations to fill in the gaps, something Castro says his firm will be keeping watch for. He expects them to be positive for the market, given the resolution was passed following consultation with the relevant players, including a public hearing where a draft of the regulation was read out. “No one’s purpose here is to disrupt the market,” he stresses; the aim is instead to consolidate what were previously scattered regulations under a single framework.

ESTE BOLETIM É MERAMENTE INFORMATIVO E RESTRITO AOS NOSSOS CLIENTES E COLABORADORES. DÚVIDAS E ESCLARECIMENTOS SOBRE AS MATÉRIAS AQUI VEICULADAS DEVERÃO SER DIRIGIDAS AO V&G.