The authors of the project concluded that corporate
governance would be key for minority shareholders to
gain more respect, whilst attributing lower risk to Brazilian
shares and, accordingly, offering more attractive prices to
share issuers. Thus, three distinctive segments were created:
Level 1, Level 2 and the Novo Mercado. The first was focused
on transparency demands. The second included the rules of
the first and added important rights, such as tag along and
the settlement of disputes by arbitration. The third, the Novo
Mercado, took the provisions of the second level and added
one crucial demand: all shares issued were to be common
shares, with voting rights. The idea of launching the Level 1
and 2 subcategories was to avoid one radical solution, of the
all or nothing kind.
In its first months, however, the Novo Mercado seemed
doomed to failure. The first listing in the segment was
only in February 2002, when Companhia de Concessões
Rodoviárias (CCR), a highway concession company,
decided to go public. Its first days were marked by few
trades and a drop in share prices. In April 2002, it was the
turn of Sabesp, the water utility company of the state of
São Paulo, to migrate from the traditional listing to Novo
Mercado. No other company attempted to get listed in the
segment that year. Talk about the Novo Mercado revolved
around comments whose tone alternated between dismay
and “we told you so”.
Despite the criticism and lack of concrete results, Bovespa
was convinced that the self-regulation model grounded
in selective rules was more than adequate. The segment
remained limited to these first companies until May 2004,
when Natura, the cosmetics company, went public, kicking
off a new wave of IPOs in Brazil. That year, another four
companies were listed in the segment, and since then,
this number has been rising. By the end of April 2013,
178 primary and secondary share offerings had been
undertaken in the segment.
Several of these companies migrated to the Novo
Mercado in an attempt to improve their corporate
images among investors. In the middle of corporate
upheavals, companies like the Hering textiles company
and roofing manufacturer Eternit saw a chance to reset
their management restructuring by getting listed in the
premium segment of the BM&FBovespa. In other cases,
migration to the Novo Mercado was the way they found
of increasing the value of their shares and using them as
bargaining chips in merger and acquisition transactions.
However, not all the companies listed on the Novo
Mercado brought good tidings to their investors. There
were also deceptions, caused by a variety of reasons. The
IPO boom in the years prior to the international downturn
— especially in 2007 — led several less well-prepared
companies to go public in order to take advantage of the
generous window of fund raising opportunities provided
Novo Mercado: Will it ever cease to be “new”?
Article by Simone Azevedo
Hawkamah issue02 56pages.indd 51
by the market. Years later, some of them revealed to
having used the Novo Mercado merely as a check-list
of steps to be followed, rather than as a foundation for
governance principles to be actually incorporated into
their organizations.
The most notorious case was the sugar and alcohol
producer Cosan. In 2007, it announced a plan to list its
parent company, Cosan Limited, based in the tax haven of
the Bermudas, on the New York Stock Exchange (NYSE). In
its IPO, it intended to offer two types of shares: ONA shares
that gave one vote per share; and ONB, which carried ten
times the voting power and would be in the exclusive
domain of the controllers. Shareholders who invested in
Cosan on the Novo Mercado, where the principle of “one
share one vote” is valid for all investors, did not like the idea
of having to convert their shares into Cosan Limited ONA
shares. Stories like this have proven that the Novo Mercado
cannot be regarded as a means to an end, but rather as seal
of best practices whose commitment to better governance
should be reaffirmed by companies on a daily basis.
Reforms
The Novo Mercado has undergone a number of small
adjustments to its regulations over the years, but the most
important reform to its rules took place in May 2011. In
this period, the difficulties that the BM&FBovespa was
to face in order to elevate the governance practices of its
most sophisticated listing level became clear. To make
any headway, each item of the reform had to be approved
by at least two-thirds of the companies listed. Although
relevant aspects have been well-accepted by companies,
such as the veto on the accumulation of the positions
of CEO and chairman and the mandatory opinion of the
board of directors with regards to takeovers, others that
are as or more important have not gained traction.
A hail of “no’s” has greeted the proposals of increases from
20% to 30% of the minimum proportion of independent
board members on boards of directors; the obligatory
existence of audit committees; and the mandatory offering
to shareholders that reach 30% of the capital. Those who
believed that the BM&FBovespa was beat, however, were
mistaken. These matters continue to be discussed by the
stock market, which is already planning a new reform.
Future
One of the challenges of the Novo Mercado for the
coming years will be to attract relevant companies in
the Brazilian capital market. Among the demands that
keep large companies away is the adoption of the Market
Arbitration Chamber (Câmara de Arbitragem do Mercado,
CAM), created by BM&FBovespa in 2001 as a forum
for corporate conflict resolution. Large companies are
reluctant to adhere to the CAM without knowing how it
tends to rule on such matters — the chamber has solved
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