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Enhancing Corporate Governance in Brazilian Capital Market

Learn about BOVESPA's efforts to promote corporate governance through special listing segments, transparency, and rights of minority shareholders. Explore the impact on IPOs, investor confidence, and ongoing changes in regulations.

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Enhancing Corporate Governance in Brazilian Capital Market

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  1. The 2006 meeting of the LATIN AMERICAN CORPORATE GOVERNANCE ROUNDTABLE BOVESPA´s Initiatives to Better Promote Corporate Governance Gilberto Mifano CEO June/ 2006

  2. Novo Mercado • Special listing segment with additional Corporate Governance requirements, beyond those established in current Brazilian regulation • Transparency: more information is required • Broadening the rights of minority shareholders • Voluntary decision based on a contract between the company, its controlling shareholders, board of directors, senior executives and BOVESPA • Agreement to comply with Novo Mercado Listing Rules • Agreement to settle any shareholder disputes by arbitration - Câmara de Arbitragem do Mercado

  3. Evaluation • Goal • To create a favorable environment for public offerings, mainly IPOs, revitalizing the Brazilian Capital Market • Results • Revival of IPOs • Increasing investors’ confidence and interest, especially foreign investors’ • Higher multiples stimulating more IPOs • Less resistance to secondary offerings • Good acceptance of smaller companies offerings

  4. Revival of IPOs

  5. IPOs since 2004 • Preliminary data

  6. Novo Mercado´s Consolidation5 years after launching 78 65 47 36 29 18 20% of total listed companies 49% of total market capitalization 55% of total daily trading value Number of companies

  7. What is next?Maintain the image value and thestrengthening of NM • Environment – ongoing changes: • Regulation evolution • Domestic and International markets evolution • Companies evolution • Investors’ growing demand for better Corporate Governance • Update and modernization of Novo Mercado rules in order to maintain its attractiveness and effectiveness

  8. Special Segments Rules´ Revision • Effective since February/2006 • Approved by companies listed in Levels 1, 2 and Novo Mercado after hearing among all companies listed on each level (NM, Level 2 and 1) • The new companies which were up to adhere to Novo Mercado and the Special Levels considered the changes very positive • Understanding and wish to distinguish the adhesion decision

  9. Revision due to Evolution of the Brazilian Regulation • Standardization of some definitions with the CVM’s • Terms of the public offers in case of delisting, NM or N2 delisting or disposal of control • Increasing the tag along value for preferred shares (Level 2) from70% to 80% • Arbitration: improvements in the writing style and higher disclosure about the arbitration adhesion

  10. Revision due to the Evolution of the Capital Market • Inclusion of “Dispersed ownership” definition • Recognizing the new reality emerging in Brazil • Increasing importance of Independent Board Members • At least 20% of the Board must be composed of independents members (not linked to the company or to the controlling shareholders) • Unified term of office from 1 to 2 years

  11. What is next?Listed companies migration • In 2005/2006: adhesion of 11 listed companies • The structural barriers for listed companies are bigger than those for the companies that are going public • Main leverages: • Investors • Initiatives like Companies Circle

  12. What is next?Increase the number of companies going public • BOVESPA MAIS • New corporate governance listing segment • Natural path to Novo Mercado • For companies that want to access the market gradually, with more concentrated or smaller offerings, particularly small and medium enterprises • Basically aimed at medium term investors • Segment counts on BOVESPA’s programs to support companies in terms of their market exposure and in building the internal culture of public company • Launching yet to be defined – prospecting phase and preparation of companies to be listed on this segment

  13. Thank you! Gilberto Mifano BOVESPA - Bolsa de Valores de São Paulo www.bovespa.com.br bovespa@bovespa.com.br

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