A new instruction by the CVM (Brazilian securities and exchange commission) is on its way for distributed public offerings with restricted sale efforts and trading limited to the OTC market. The main innovation brought by the rule, dubbed the “Brazilian 144-A” as a reference to the American regulation, is granting exemption from registration to offerings of commercial notes, bank credit bills (CCBs), debentures not convertible into stocks, closed investment fund quotes and Real Estate Receivables Certificates (CRIs) targeted exclusively at qualified investors who will invest at least R$ 1 million in the operation.

The regulation aims to facilitate access to the market and reduce issuers’ costs, but imposes a few restrictions. The sale effort must be characterized by procuring up to 50 investors and 20 of them, at most, adhering. The means to approach investors are also limited. The forms allowed are personal or telephone communication, mailing individually identified investors, and holding presentations for guests. Approach via establishments (including stores and offices) and using public communication services, including websites, are not allowed.

In the draft, CVM listed the subjects on which they expect to receive suggestions from the market. The main target for discussion will probably be the inclusion, or not, of stock offerings in the rule’s scope. On the market’s part, everything points to an interest in this possibility – especially because this would make it feasible for companies too small to enter Bovespa to gather funding, and would simultaneously give them the opportunity to take advantage of market openings through quickly designed offerings.

José Eduardo Carneiro Queiroz, of Mattos Filho, Veiga Filho, Marrey Jr., and Quiroga Attorneys, is a defender of the expansion. To him, all securities could be benefitted by the rule. “We’re talking about a very qualified public. I don’t see why we should pose restrictions if the goal is to make companies’ access to the market more flexible”, he says. Another source consulted by CAPITAL ABERTO, who works in an investment bank, follows along the same lines. “Including stocks would make it easier to make smaller offerings, from R$ 100 million to R$ 200 million”, he says.

According to the draft, sale of securities offered under the new rule will be subject to a 90-day waiting period, starting on the operation’s closing date. The transactions may take place in the organized and non-organized OTC markets, but only among qualified investors. Alexandre Póvoa, Modal Asset Management director, makes a suggestion to the regulator, if stock issuances are allowed to be included in the new rule. “It is necessary to guarantee that the investor will be capable of identifying that the offering entered in the market as a beneficiary of the waive of registration”, he says. An alternative, according to him, would be the creation of a “seal” to identify stocks issued without CVM analysis.