The Brazilian securities regulator (CVM) published this week an
important decision of its Board of Commissioners concerning
preferred shares issued by Brazilian listed companies.
In the course of the IPO registration process of Azul S.A., a
Brazilian airline, the CVM's technical department had refused
to register the company. The refusal was motivated by a provision
of Azul's by-laws establishing that preferred shares are
entitled to a dividend equivalent to 75 times the dividend payable
to common shares. Pursuant to the CVM's department that
reviewed the application, such provision of the by-laws was not
compatible with the Brazilian corporate law because it violated a
general principle that economic rights should always be related to
the political rights of shareholders.
But the CVM's Board of Commissioners decided otherwise and
confirmed that the by-laws of Azul are in accordance with the
law.
Although such structure had been adopted before in by-laws of
private companies, the CVM decision now means that investors will
be able to take advantage of different capital structures to match
their particular needs and then move on to an IPO. Along this line
of thought, the CVM decision mentioned that such type of capital
structure is attractive to companies that are funded by private
equity investments, because it enables the alignment of the
distinct interests of controlling shareholders and private equity
investors.
We believe that this decision will facilitate the structuring of
new attractive alternatives for private equity and other
investments in the Brazilian market.
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