IPO | B3

The importance of small and medium-sized companies to the economy of the country as well as the challenges they face in finding sustainable financing has made representatives from both the government and the private sector debate alternatives to foster the growth of such companies through capital market. Smaller fundings meet the needs of these companies and can finance their growth projects.

The Brazilian Agency for Industrial Development (ABDI), the Brazilian Social and Economic Development Bank (BNDES), the B3, the Brazilian Securities and Exchange Commission (CVM) and the Brazilian Innovation Agency (FINEP) created the Technical Committee on Small Offerings (Technical Committee), which proposed initiatives that contribute to the use of the capital market as a funding source for these companies.

The Technical Committee also had the participation of the following institutions: ANBIMA, Banco do Brasil, BNDESpar, Bradesco BBI, Brasil Plural, BTG Pactual, FAMA Investimentos, General Atlantic, Grupo DGF, Grupo Stratus, IBGC, Ibmec, Itaú BBA, Leblon Equities, Nutriplant, PREVI, Economic Policy Secretariat (SPE) from the Ministry of Finances, Senior Solution, Taler, Votorantim and XP Investimentos.

The aim of the Technical Committee was to collect several suggestions and develop joint proposals for change. The diversity of the members has greatly contributed to the discussions, generating a set of 12 proposals, which have already been forwarded to both the government and the private entities for analysis.

  • What was done?

    International analysis: after analyzing the main markets in the world, seven experiences considered relevant in terms of funding for small and medium-sized companies through shares were selected: England, Poland, Spain, Canada, Australia, South Korea and China. The working groups visited these markets with the objective of understanding how the theme is internationally treated. Interviews were conducted with representatives of stock exchanges, regulators, investment banks, brokers, issuers, investors, lawyers, auditors and consultants.

    Development of a joint diagnosis: international experiences have led to a diagnosis based on the data obtained. This work aimed to assist in the development of suggestions for change in the Brazilian market. See the diagnosis:


    Discussion:
    on 11/05/2012, at CVM headquarters, a round-table session was held with different players in the market. On the occasion, the theme and diagnosis were debated, with the objective of developing specific proposals for the issues raised.
    Setting up specialized working groups: with the purpose of optimizing discussions, smaller and specialized groups have been set up for debating different topics. With the establishment of the Technical Committee and the formation of subgroups, we began to build the proposals. These groups have kept constant contact on the first half of 2013 with the aim of exchanging experiences, ideas and updates. The committee has drawn up a set of 12 proposals that B3 has submitted to minister Mr. Guido Mantega in June 2013 and released to the press on 07/04/2013.
     
    Presentation of the ministry of finance: on 06/16/2014, at B3, the measures to be adopted by the federal government to stimulate capital markets were presented, in response to the proposals from the technical committee.

    Law No. 13043, from november 13, 2014: rules on the exemption of income tax for individuals in the investment in shares which have been issued by qualifying companies. In addition to tax exemption, the Law states the withdrawal of the requirement for publication of financial statements and corporate acts in the Official Gazette for these companies, replacing this obligation by a summarized publishing in a mass circulation newspaper and full publication in the same journal's website and also on the CVM and Stock Exchange websites. The exemption is valid until december 31, 2023.

     
  • Companies eligible to tax incentives

    Based on Law No. 13043, published on 11/13/2014, the companies that meet the conditions established below are eligible for tax incentives:

    • Shares admitted to negotiation in special segment, established by the stock exchange, that ensure, through contractual link between the stock exchange and the issuer, differentiated corporate governance practices, including, at least, the obligation of:
      • performing a share acquisition public offer (OPA), at economic value, in the event of the company leaving the special segment;
      • resolution of corporate conflicts through arbitration;
      • 100% tag along; and
      • provision expressed in the company's bylaws that its share capital be exclusively divided into ordinary shares;
    • Market value of less than R$ 700 million, at the time of the IPO on July 10, 2014 (for companies that had already made their IPO before that date) or on the date of the subsequent public offerings (for companies that have already met the previous conditions);
       
    • Annual gross revenue of less than R$ 500 million, in the fiscal year immediately preceding the date of the IPO for 2013 (for companies that had already made their IPO before 07/10/2014) or in the fiscal year immediately preceding the date of the subsequent public offerings (for companies that have already met previous conditions);
       
    • Primary distribution of at least 67% of the total volume of shares in IPO, on July 10, 2014 (for companies that had already made their IPO before that date) or, if existing, on the date of the subsequent offering (for companies that have already met the previous conditions). 
  • Progress of the 12 proposals
    Proposal Detailing Status
    Income tax exemption Income tax exemption on capital gain for 5 years for investing individuals purchasing shares of companies eligible in initial (IPO), subsequent (Follow On) offerings or secondary market, on the stock exchange. Law No. 13043 published on 11/13/2014, determining the income tax exemption on capital gains on the sales of shares in the Stock Exchange market, until 2023, for investing individuals who purchase shares from eligible companies in initial (IPO), subsequent (Follow On) offerings or secondary market.
    Closed FIA Create specific investment vehicle, exempting the shareholders of income tax on capital gain.
    How it was:
    - Targeted at qualified investors.
    - Time limit established by regulation from the fund.
    - Investment in publicly held companies.
    - Income tax of 15% on the redemption of the quotas.
    How it would look like:
    - Targeted at qualified and non-qualified investors.
    - Minimum of 8 years.
    - Minimum of 2/3 invested in eligible companies and permission to invest up to 1/3 on FIP or closed companies, as long as it participates in the management.
    - Income tax exemption in the redemption of quotas if the composition of the investment is 2/3 of the equity* invested in eligible companies and the remaining 1/3 in FIP, closed companies or fixed income companies.* The deadline for the qualification of the fund is of 3 years or 50 eligible companies listed, whichever occurs first.
    CVM has edited instruction 409 with Instruction 549, allowing the creation of share funds aimed at qualified or non-qualified investors, who: 
    - have the designation "Shares - Access Market"; 
    - have at least 2/3 of its net assets in shares listed in the segment aimed at the access market; and 
    - can have up to 1/3 of their net assets in shares, debentures, subscription warrants or other bonds/securities convertible or exchangeable into shares from closed companies adopting certain corporate governance practices, with participation in their management. 

    Law No. 13043, published on 11/13/2014, did not grant income tax exemption at source on income earned by individuals for the redemption of closed FIA quotas (only open FIA, according to item below).
    Open FIA Reduce income tax rate on capital gain.
    How it was:
    - income tax of 15% in the redemption of quotas, with no minimum term for redemption.
    How it would look like:
    - Income tax exemption in the redemption of quotas if the investment composition is 2/3 of the equity invested in eligible companies and minimum limit for redemption of 180 days.
    or
    - Income tax of 10% if the fund has 1/3 of the assets invested in eligible companies and minimum limit for redemption of 90 days.
    Publication of law No. 13043 on 11/13/2014, determining exemption of income tax at source on income earned by individuals on the redemption of quotas from open investment funds that:
    - have at least 67% of its equity applied in shares from eligible companies;
    - have a minimum of 180 days for redemption;
    - have the designation "FIA - Access Market"; and
    - have a minimum of 10 shareholders, each shareholder, either individually or together with persons linked to it, may not hold more than 10% of the shares issued.
    FIP Allow that Equity Investment Funds (FIP) have participation in eligible companies without the obligation to participate in the management. CVM issued instruction 540, which allows the manager to have up to 35% of the Fund's equity in companies listed in the "Access Market" or in the divestiture phase without the need for participation in the management.
    PGBL/VGBL Increase the share investment limit on the Free Benefit Generator Plan (PGBL) and Free Benefit Generator Life (VGBL).
    How it works:
    Share investment limit of up to 49%.
    How it would look like:
    Share investment limit of up to 100%.
    Forwarded to the Ministry of Finance.
    Simplify the process and reduce the cost of offer Simplification of the offer process:
    - Exemption from publication of notices/announcements and printing of offer prospectus from eligible companies.
    - Standardized advertising material content waived from prior analysis. 
    Publication of initial announcement:
    - Exemption from the requirement of publication in a newspaper of the announcement of Initial distribution in the case of public offering of shares from eligible companies.
    CVM edited instruction 548, waiving the publication in newspaper of compulsory notices concerning the public offering for all listed companies.
    Reduce the maintenance cost of the condition of publicly held company - Extension of deadlines for publication of audited quarterly financial statements of eligible companies from 45 to 65 days after the end of the quarter.
    - Exempt the eligible companies from updates, in 7 days, for 11 specific items in the reference form.
    - Removal of the requirement for the publication of annual financial statements, minutes from the Annual and Extraordinary Shareholders’ Meeting in Official Gazette for eligible companies and establish the obligation of publication through specific system at CVM, Stock Exchange and the issuer’s own webpage.
    CVM edited instruction 547, waiving the publication in newspaper of act or relevant fact, for all listed companies. Publication of law No. 13043, on 11/13/2014, determining the withdrawal of the requirement for publication of financial statements and corporate acts in the Official Gazette for these companies, replacing this obligation by a summarized publishing in a mass circulation newspaper and full publication in the same journal's website and also on the CVM and exchange websites for the eligible companies.
    Develop training program for entrepreneurs - Conduct research and diagnosis on the main obstacles and difficulties for the development of access of small and medium companies to capital market in Brazil.
    - Identify the best practices for the access of small companies to the capital market.
    - Indicate a set of measures to develop an agenda of articulated actions to streamline access to the stock exchange by companies of all sizes.
    The survey from Fundação Dom Cabral (FDC) was completed and published on April 14, 2014 at the ABVCAP conference in Rio de Janeiro.
    Apply training program for entrepreneurs Partnership between Fundação Dom Cabral and B3 Education:
    - Structure a "workshop” model containing "step-by-step" instructions for companies to be listed on the stock exchange and/or to do initial public offering of shares. 
    - Disseminate the training program in all regions of Brazil.
    - Create a community for exchanging experiences through cooperation agreements between stakeholders.

    A first Training Workshop took place in São Paulo in April 2015. The pilot project was supported by ABDI, B3 Educacion and Fundação Dom Cabral. After some improvements, a second workshop was held in Fortaleza in august 2015.

    Regulate public offering procedure with restricted efforts - Offer targeted at super professional investors (along the lines of CVM Instruction 476 on debentures).
    - Applicable to initial and subsequent offers, which can be primary or secondary.
    General rule:
    - Consultation to 50 investors.
    - Offer can be signed by up to 20 investors.
    Special rule for eligible companies:
    - Consultation to 100 investors.
    - Offer can be signed by up to 20 investors.
    CVM has edited Instruction 551, changing instructions 332, 400 and 476, allowing the offering of shares targeted at professional investors, with consultation to 75 investors, which can be signed by up to 50 investors. Investment funds from the same manager will be considered as a single investor and the investors exercising the right of priority or preference will not be considered for the purposes of the limits established in the instruction.
    Support and incentive initiatives to distribution channels - Incentive program to brokers.
    - Courses and seminars with the aim of enhancing the training of autonomous agents.
    The participation of intermediaries in small offers is being discussed in the WG in the intermediation sector, composed by B3, ANBIMA and ANCORD.
    Access Market Studies on an alternate access market with additional discounts in governance, restricted to super qualified investors. Formation of a work group between B3 and CVM to assess the alternative market for the OTC market.
  • B3 incentives for the access market
    • Exemption from the “Analysis Fee for Issuer Listing";
    • Exemption from the "Distribution Fee of Variable Income Assets" (related to the offer liquidation);
    • Discount "Annuity"
    • Migration of the Bovespa Mais segment from the organized OTC market to the stock market in February 2014;
    • Creation of the Bovespa Mais Level 2 segment in December 2014.