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Brazil: Bucking the trend

Tuesday 13 July 2010 - by Andrew Hickley


Guerra says: “There are elements that require 20 per cent of the board to be independent board members. Companies also have to report to a standards auditor, publish quarterly reports, and apply tag-along rights [a mandatory bid rule providing minority shareholders with the right to sell their shares in the same conditions of controlling shareholders in case of control transfers].
“In the third tier, companies are obliged to give 100 per cent of tag-along rights of provisions in the change of control.”

Guerra points to the strength of the Brazilian regulators in applying these rules after the merger between Arcelor and magnate Mittal Steel Company. She says: “It was a controlled acquisition, but Mr Mittal himself came to Brazil to talk to the regulators and to the President of the Republic of Brazil, and tried to say it was a merger. The Brazilian regulator ruled and in the exchange everyone said no no no this is not a merger this is an acquisition, so you have to apply tag-along rights to all your shareholders.”

Guerra says that businesses are being consulted over potential changes to the Novo Mercado, to potentially tighten up some aspects. Two-thirds of the businesses must agree to the changes for them to come into effect.

JP Morgan client portfolio manager for emerging markets Claire Simmonds believes that the Novo Mercado has been a huge incentive for enabling funding from foreign investment.



Simmonds says: “Even five years ago, companies like insurers and mortgage holders weren’t listed companies. The most important thing that the Novo Mercado has is these single share classes, so you don’t get this division between preference voting shares and non-voting shares. It has seen a lot of positive development.”

Some commentators have been fearful that the election to be held in October this year, where President Lula will stand down after an eight-year tenure, could unsettle a successful system. However, Guerra believes that this will not damage the stable environmental that has been established.

She says: “This time, for the election, I’ve spoken to everyone and everyone has the same perceptions, that we are pretty safe. It doesn’t matter who will win, in terms of opposition or the candidate of the current president. It is known by the market that in terms of economics, things will remain the same. Because it is a very successful past, there is no concern internally or externally.”


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