CVM Resolution 160 New Regulatory Framework for Public Offerings
On 7/13/2022, the CVM issued Resolution CVM 160, which unifies the Brazilian regulatory framework for public offerings of securities in Brazil and revokes the current (i) CVM Instruction 400, which regulates public offerings subject to registration with the CVM; (ii) CVM Instruction 471, which regulates the prior analysis by self-regulatory entities associated with the CVM of public offerings subject to registration with the CVM; and (iii) CVM Instruction 476, which provides for restricted public offerings exempt from registration with the CVM.
The following new Resolutions were also issued on the same date:
(i) CVM Resolution 161, which regulates the new required registration of public offering coordinators;
(ii) CVM Resolution 162, which sets forth specific reviews to other CVM rules in order to adapt them to the changes promoted in CVM Resolution 160, including CVM Resolution 80 on the registration of public companies and CVM Instruction 332 on the registration of BDR programs, and
(iii) CVM Resolution 163, which replaces CVM Instruction 566, which regulates the public offerings of promissory notes.
In this newsletter, we will address the main changes applicable to public offerings of equity securities (shares and units). We shall also look at debentures or other types of securities and debt securities and securitization promoted by CVM Resolution 160 and the review promoted by CVM Resolution 162 to the definition of pre-operating issuer.
Consultation with potential investors on the feasibility of the offer (pilot fishing)
The consultation with potential investors on the feasibility of the potential offering already existing in CVM Instruction 400 was maintained. However, there is no longer a limitation of a maximum number of 50 investors and discussions must be maintained with professional investors only.
In addition, the offeror and coordinators must make available to the CVM not only the list of identification of the consulted investors (including date and time), but also the presentations and materials used in such consultation.
Safe harbor for public offerings abroad
Consolidating the prior decisions of the CVM, CVM Resolution 160 provides a safe harbor for public offerings of securities issued and traded in organized foreign markets which are settled abroad and in foreign currency. As long as such international offerings are not targeted towards investors in general in Brazil and do not violate the limits of acts considered as a distribution act in Brazil, they are now expressly exempted from registration with the CVM. This allows the participation of professional investors residing in Brazil through accounts abroad. In any case, the use of marketing or advertising materials in Brazil related to these offerings are prohibited.
CVM Resolution 160 provides substantial changes to quiet period rules, including:
- clarification to the commencement of the period, which begins on the earliest of (a) the date of the corporate resolution that approves the offering or the engagement of the lead coordinator (in secondary offerings) and (b) the 30th day prior to the filing of the registration request with the CVM;
- permission for communications that give wide publicity to the offer from the moment the offer is launched on the market (at the time of the preliminary prospectus), including media interviews, which under the aegis of CVM Instruction 400 are completely prohibited.
Any communication during the quiet period, including media interviews, must be consistent with the issuer’s prospectus and other periodic information, use language that is serene and moderate, and observe the principles of fairness, transparency, and simultaneous access to information.
Nevertheless, the CVM continues to have the prerogative to, at any time and by reasoned decision, request changes or determine to cease the marketing, suspend the offering for a cool-off period necessary to request clarifications or allow the dissemination of information that may not have been included in the offering documentation in case of irregularities in the publicity made during the quiet period.
Offering term sheet (lâmina) and prospectus
CVM Resolution 160 sought to improve and standardize public offering prospectuses with pre-defined models of what should be the minimum and mandatory content to be presented to investors, besides to making it more succinct and assertive in order to provide information that is more objective and relevant to the public in general.
Risk factors, for example, must now have a qualitative risk scale (minor, medium, major) based on the probability of occurrence and magnitude of negative impact in the event of materialization. Risk factors must be presented in descending order of materiality so that the risk factor with greater materiality is the first presented to the investor.
In addition, to facilitate the investor’s initial contact with a given offering, CVM Resolution 160 also created a new mandatory disclosure document in the offering – the offering term sheet, an introductory and standardized document, which contains the selected information for the first contact of the investor with the offering, for example, financial volume of the offering, percentage of shares the existing shareholders are expected to hold post-offering, market capitalization of the issuer at the offering price, price/earnings ratio of the issuer, who is the CEO, use of proceeds, etc.
The presentation of the prospectus is waived by the CVM in the following cases:
- offerings intended exclusively for professional investors (except IPOs);
- offerings of closed-end financial investment fund shares intended exclusively for qualified investors;
- offerings that cumulatively: (a) are intended exclusively for creditors of issuers undergoing judicial or extrajudicial recovery under the terms of a judicial or extrajudicial recovery plan approved in court and (b) are not subject to shares or share deposit certificates.
The preparation of the offering term sheet is not mandatory in offerings in which the preparation of a prospectus is waived.
Public offerings registration matrix
Pursuant to CVM Resolution 160, all public offerings will be subject to one of the following registration processes:
The automatic registration is the successor of the restricted public offering exempt from registration provided for in CVM Instruction 476. Automatic registration will not be subject to prior analysis by the CVM and the offering may launch on the date of the registration application.
Automatic registration will be available for:
- follow-on offerings of frequent issuers with high exposure to the market (EGEM), including when aimed at the general investing public;
- follow-on offerings from non-EGEM issuers, when intended exclusively for professional investors or qualified investors;
- offerings of non-convertible or non-exchangeable debentures, or other types of debt securities of:
(i) frequent issuers of fixed income securities (EFRF) when intended exclusively for professional investors;
(ii) issuers in the operational phase registered in Categories A and B, when intended exclusively for professional investors or qualified investors;
(iii) special purpose companies, pursuant to Law 12,431/11;
(iv) issuers not registered with the CVM, when intended exclusively for professional investors;
(v) issuers undergoing judicial or extrajudicial recovery.
- offerings of securitization titles issued by securitization companies registered with the CVM, when intended exclusively for professional or qualified investors.
Unlike offerings under CVM Instruction 476, offerings subject to automatic registration will no longer have
- limits on the number of potential investors that can be accessed or that can actually subscribe/acquire the securities;
- restriction of trading on the secondary market after the offering (applicable to equity offerings only); and
- prohibition on the launch of a new restricted offering for a period of 4 months.
Automatic registration with prior analysis by a self-regulatory entity
CVM Resolution 160 sets forth an automatic registration offering with prior analysis by a self-regulatory entity that maintains an agreement with the CVM. Similar to what CVM Instruction 471 already provided, this modality, however, will not be subject CVM review after the analysis to be carried out by the self-regulatory entity.
The documentation that will be required, as well as the analysis deadlines and other procedures, are yet to be disclosed to the market.
Automatic registration with prior analysis will be available for:
- IPOs, including those aimed at the general investing public;
- follow-on offerings from non-EGEM issuers, when aimed at the general investing public;
- offerings of non-convertible or non-exchangeable debentures or other types of securities representing debt of an issuer in an operational phase registered in Categories A and B when intended for the general investing public; and
- offerings of securitization titles issued by a securitization company registered with the CVM when intended for the general investing public.
The new ordinary procedure follows substantially the same deadlines and analysis process of the offerings registered under CVM Instruction 400.
The ordinary procedure will be mandatory for:
- IPOs that have not been submitted to the automatic registration procedure with analysis by a self-regulatory entity;
- follow-on offerings in which there is a requirement to prepare a feasibility study (for example, pre-operating issuers, or when the use of proceeds is for activities not carried out by the issuer);
- follow-on offerings of non-EGEM issuers and intended for the general investing public that have not been submitted to the process of automatic registration with analysis by a self-regulatory entity;
- IPOs and follow-ons of non-operating issuers;
- offerings of debentures or other types of securities representing the debt of an issuer registered in Categories A and B when intended for the general investing public that have not been submitted to the process of automatic registration with analysis by a self-regulatory entity;
- securitization titles issued by a securitization company registered with the CVM when intended for the general investing public that have not been submitted to the automatic registration with analysis by a self-regulatory entity.
Relevant news for the preparation of the offering schedules brought by Resolution 160:
- a new period of 10 days from the initial filing for the CVM to confirm the sufficiency of the documents filed and indicate any missing information and documents. In case there is missing information and documentation, CVM’s review period will start to count from the complementary filing of documents and information;
- the deadline for responding to CVM comments (vícios sanáveis) increased from 10 business days to 5 business days from receipt of the official letter;
- a new deadline for granting the registration of offerings of debentures or other types of debt securities as well as securitization securities in response to the 2nd round of CVM comments (vícios sanáveis). This has been increased from 10 business days to 3 business days as of the filing date.
Additional shares (hot issue) and over-allotment option (green shoe)
The maximum number of securities to be distributed in the hot issue was increased from 20% to 25% of the amount of securities initially offered.
In offerings aimed exclusively at professional investors, the 25%-limit is waived not applicable, but the maximum number of securities in the hot issue must be established in the offering documents, as well as the use of proceeds of the additional shares.
The over-allotment option (greenshoe) is still allowed in offerings with price stabilization activities in the secondary market and remain limited to 15% of the securities initially offered.
Requirement waiver requests
The CVM may, at its discretion, waive requirements or registration in certain circumstances.
Such waiver requests, currently analyzed by the technical area in parallel with the offering registration application and submitted to the CVM board according to specific rules, must be submitted to the CVM prior to the offering registration application.
The exception will be maintained for waiver requests that the CVM board has delegated autonomy to the technical area, which may be requested together with the offering registration application.
Publication of roadshow material
Previously, any supporting materials of roadshow presentations were only filed with the CVM in offerings subject to registration. With the entry into force of Resolution 160, supporting materials used in roadshow presentations must be made public by the issuer, offerors and coordinators in the same websites where the prospectus and offering term sheet are made available within one day after the first use of such materials. The disclosure of net roadshow presentations (presentation for investors in pre-recorded video format) will be optional.
The disclosure of the above supporting materials will not be applicable to offerings for professional investors only, provided that in such offerings shareholders of the issuer do not have a right to priority subscription.
Although it does not directly regulate SPACs, CVM Resolution 160 provides some important rules for public offerings of SPACs, including:
- definition of a SPAC, in line with international practice, as an issuer in a pre-operational phase incorporate with the exclusive purpose of acquiring equity of a pre-existing operational company;
- exemption for SPACs from submitting an economic-financial feasibility study (required from other pre-operational issuers);
- trading on the secondary market of SPACs’ securities restricted to qualified investors only;
- end such restriction within 6 months from the corporate transaction of business combination between SPAC and the acquired operating company.
Definition of pre-operational issuer
In line with the recent CVM decisions, CVM Resolution 162 changes the definition of operational issuer contained in CVM Resolution 80.
Currently, issuers that have operating revenue recorded in the individual or consolidated financial statements for the last fiscal year are considered “operating”. With the amendment of CVM Resolution 162, the use of audited combined financial statements will also be allowed to demonstrate the issuer’s revenue in the last year and the use of pro forma financial statements for this purpose is expressly denied.
This change is particularly important for issuers that implement corporate restructurings prior to the IPO – such as issuers that are a new holding company incorporated pre-IPO with the purpose of consolidating existing assets and operating subsidiaries within the same economic group.
With this change in the regulations, it will no longer be necessary to submit a waiver request to the CVM board if the restructuring takes place prior to the offering registration request and such restructuring is duly reflected in audited combined financial statements. However, restructurings conditioned to the occurrence of the IPO, with respect to which only a pro forma statement can be prepared, have not been contemplated in changes of the regulations.
IPOs of pre-operational issuers are still subject to the limitation of investor participation in the offering (qualified investors only) and remain subject to the restrictions of trading on the secondary market by qualified investors (for a period of 18 months from the closing of the offering and admission to trading on the stock exchange).
Entry into force and transition rule
CVM Resolutions 160, 161, 162 and 163 come into force on January 2, 2023.
Public offerings subject to registration that have been submitted to the CVM, and restricted public offerings exempt from registration that have launched prior to January 2, 2023 will remain governed by the rules currently in force, including with regard to trading restrictions on the secondary market.
For further clarification on the matter, please contact:
Tel.: (+55) 11 3024 6129
Tel.: (+55) 11 3024 6228
Tel.: (+55) 21 3263 5489
| Marcelo Tourinho
Corporate e M&A
Tel.: (+55) 11 3024 5489