Congreso International de Gobierno Corporativo Bolsa de Valores de Colombia and Inter American Development Bank Bovespa`s Corporate Governance Segment Claudio Avanian Jacob BOVESPA – Brazil´s Stock Exchange Cartagena de Indias – Colombia november/8/2005 BOVESPA An overview Self regulatory organization Under the supervision of the Brazilian Securities and Exchange Commission (CVM) Since 2000, Brazil’s only liquidity center for equity trading 382 listed companies Specialized and electronic trading systems for equity and corporate bonds 68% of the trading in Latin American exchanges Market Capitalization: US$ 458 billion (oct/2005) Daily Average Trading Value: US$ 563 million 2 Brazilian market reality Focus on different issues Vast majority of public companies have a defined controlling shareholder Usually this shareholder is a family or a family group The Brazilian law allows companies to issue up to 2/3 of shares as non-voting (misleadingly called “preferred” shares) Many sales of control have resulted in large premiums for the sellers (no tag along rights) Tender offers to delist companies can be maid at unfair prices 3 Result: under pricing Companies´ Risk Value Misinformation underpricing Unbalanced rights underpricing Companie´s Value Adjusted Source: Seminário Bradesco Templeton 4 Primary Market Activity # of IPOS 2 1 0 1995 1996 1 1 0 1997 1998 1 0 1999 2000 2001 0 2002 2003 5 BOVESPA´s Strategy Reduction of minority shareholder’s ownership risk Offering “better quality products” Increase the investors’ confidence and willingness to acquire stocks and pay for them a better price that suits the owner of the company that is going public Fostering companies to assure good practices of corporate governance related to investor protection Disclosure/transparency Minority shareholder rights 6 Novo Mercado Commitment with corporate governance Private sector initiative, based on an enforced through a contract with BOVESPA Joining is voluntary and market driven Companies committed to the highest standards of corporate governance Set of rules over and above Corporations Law reflecting market demands and requirements Committed with market arbitration panel to resolve conflicts between shareholders, companies and their management, controlling shareholders and BOVESPA 7 Novo Mercado Groups of requirements Rights for minoritary investors: Only voting shares; Full tag along rights; Public tender offer at “economic ” value; Board of directors with 1 year terms and a minimum of 5 members Disclosure: additional requirements for quarterly statements; financial statements in accordance with international standards; cash flow statements; contracts with related parties, etc. Dispersion: 25% minimum free float and ensure access for individuals in public offerings 8 Bovespa`s listing segments Novo Mercado and Levels 1 and 2 of Corporate Governance Disclosure requirements Diclosure and governance requirements non voting shares are allowed Only voting shares Law requirements Traditional Market Level 1 Level 2 Novo Mercado 9 How is the Brazilian capital market? A Market for IPOs The success of the Novo Mercado Better corporate governance contributed to broaden investor interest Increased confidence, specially from foreign investors More favorable pricing, stimulated new IPOs Offers occurred at multiples much higher than the market average 11 Primary Market Activity # of IPOS 7 7 2004 2005 2 1 0 1995 1996 1 1 0 1997 1998 1 0 1999 2000 2001 0 2002 2003 12 What was the outcome? Date Segment Consolidated net revenues¹, US$ million Natura 05/26/2004 Novo Mercado 460 243 Gol 06/24/2004 Nível 2 485 283 ALL 06/25/2004 Nível 2 263 189 CPFL Energia 09/29/2004 Novo Mercado 2.096 287 Grendene 10/29/2004 Novo Mercado 367 216 DASA 11/19/2004 Novo Mercado 126 158 Porto Seguro 11/22/2004 Novo Mercado 781 136 Renar Maçãs 02/28/2005 Novo Mercado 18 6 Submarino 03/30/2005 Novo Mercado 104 176 Localiza 05/20/2005 Novo Mercado 232 116 TAM 06/14/2005 Nível 2 1.703 226 EDP 07/13/2005 Novo Mercado 1.395 505 OHL 07/15/2005 Novo Mercado 101 212 Nossa Caixa 10/28/2005 Novo Mercado Company Value of public offering, US$ million 364 1. In the previous year 13 IPO’s performance SEGMENT Novo Mercado Level 2 COMPARISON BETWEEN STOCKS OFFERED IN IPOS AND BOVESPA'S INDEX VARIATION DATE OF THE PRICE COMPANY ADHESION BOOK 10/31/2005 STOCK IBOVESPA IGC CCR 01/02/02 16,24 59,50 266% 139% 221% Natura Cosméticos 26/05/04 34,50 89,12 158% 58% 91% CPFL Energia ON 29/09/04 16,29 23,50 44% 30% 55% Grendene 29/10/04 30,05 17,71 -41% 31% 49% DASA 19/11/04 20,00 36,50 83% 26% 45% Porto Seguro 22/11/04 18,01 22,40 24% 24% 45% Renar Maçãs 28/02/05 1,60 0,68 -58% 7% 15% Submarino 30/03/05 21,62 30,80 42% 14% 24% Localiza 23/05/05 11,33 19,30 70% 25% 33% EDP 13/07/05 18,00 22,40 24% 17% 24% OHL 15/07/05 18,00 21,00 17% 20% 26% Banco Nossa Caixa 28/10/05 31,00 37,30 20% 4% 5% Gol PN 24/06/04 26,32 39,21 49% 46% 85% ALL PN 25/06/04 9,20 16,50 79% 46% 83% TAM PN 14/06/05 19,50 28,50 46% 17% 26% IBRx50 205% 77% 43% 41% 38% 37% 12% 20% 31% 20% 23% 4% 68% 67% 23% 14 -0 ag 1 o0 ou 1 t-0 de 1 z- 0 f ev 1 -0 ab 2 r-0 jun 2 -0 ag 2 o0 ou 2 t-0 de 2 z- 0 f ev 2 -0 ab 3 r-0 jun 3 -0 ag 3 o0 ou 3 t-0 de 3 z- 0 f ev 3 -0 ab 4 r-0 jun 4 -0 ag 4 o0 ou 4 t-0 de 4 z- 0 f ev 4 - 05 ab r-0 jun 5 -0 ag 5 o05 jun IGC x IBOVESPA x IBRX 50 Compared performance 3.000 IGC 2.500 2.000 IBOVESPA IBRX 50 1.500 1.000 500 aug/2005 IGC 9,74% IBOVESPA 7,69% IBRX50 10,28% 2005 14,26% 7,05% 15,80% since 06/26/01 191% 93% 155% 15 Listed Companies Novo Mercado and Level 2 Novo Mercado – 16 companies CCR DASA SABESP Porto Seguro Natura Renar Maçãs CPFL Energia Submarino Grendene Localiza Lojas Renner Energias do Brasil OHL Brasil Light Cyrela Nossa Caixa Level 2 – 9 companies Net Gol Eternit Celesc ALL Suzano Pet. Marcopolo Eletropaulo TAM 16 Listed companies Level 1 – 35 adhesions Alpargatas Fras-le Sadia Aracruz Gerdau Suzano Papel e Celulose Bradesco Itaú Transmissão Paulista Bradespar Itaúsa Unibanco Brasil Telecom Klabin Unibanco Holdings BT Participações Mangels Unipar Braskem Metalúrgica Gerdau Vale do Rio Doce Cedro e Cachoeira Pão de Açúcar VCP Cemig Perdigão Vigor Cia Hering Randon Weg Confab Ripasa Ultrapar Duratex Rossi Residencial 17 Next Adhesions Novo Mercado Cosan Novo Mercado Primary Tractebel Novo Mercado Secondary Levels of Corporate Governance UOL Level 2 Primary and Secondary Eletrobrás Level 1 Iochpe Maxion Level 1 18 Novo Mercado BOVESPA’s perception The standard is set The only model for new listing that is being accepted by the market is the Novo Mercado Only very specific IPO cases will come to Level 2 The special listings segments represent around 45% of trading and market cap of Bovespa 19 A step further Creating an alternative for a greater number of companies, especially SMEs 20 BOVESPA MAIS Pillars BOVESPA programs to support companies Investor with mediumterm perspectives BOVESPA MAIS Greater flexibility in trading Companies committed to CG requirements Companies committed to their development in stock market 21 Thank you Claudio Avanian Jacob Listing and business development Phone: 55 11 3233 2004 E-mail: [email protected] Website: www.bovespa.com.br 22