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Cartagena de Indias – Colombia november/8/2005

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.

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Cartagena de Indias – Colombia november/8/2005

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  1. Congreso International de Gobierno CorporativoBolsa 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

  2. BOVESPAAn 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

  3. Brazilian market realityFocus 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

  4. Result: under pricing Source: Seminário Bradesco Templeton

  5. Primary Market Activity # of IPOS

  6. 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

  7. Novo MercadoCommitment 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

  8. Novo MercadoGroups 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

  9. Bovespa`s listing segmentsNovo Mercado and Levels 1 and 2 of Corporate Governance Only voting shares Diclosure and governance requirements non voting shares are allowed Disclosure requirements Law requirements Traditional Market Novo Mercado Level 1 Level 2

  10. How is the Brazilian capital market?

  11. A Market for IPOsThe 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

  12. Primary Market Activity

  13. What was the outcome?

  14. IPO’s performance

  15. IGC x IBOVESPA x IBRX 50Compared performance

  16. Listed CompaniesNovo Mercado and Level 2 • Novo Mercado – 16 companies • Lojas Renner • Energias do Brasil • OHL Brasil • Light • Cyrela • Nossa Caixa • CCR • SABESP • Natura • CPFL Energia • Grendene • DASA • Porto Seguro • Renar Maçãs • Submarino • Localiza • Level 2 – 9 companies • Net • Celesc • Marcopolo • Gol • ALL • Eletropaulo • Eternit • Suzano Pet. • TAM

  17. Listed companiesLevel 1 – 35 adhesions • Alpargatas • Aracruz • Bradesco • Bradespar • Brasil Telecom • BT Participações • Braskem • Cedro e Cachoeira • Cemig • Cia Hering • Confab • Duratex • Fras-le • Gerdau • Itaú • Itaúsa • Klabin • Mangels • Metalúrgica Gerdau • Pão de Açúcar • Perdigão • Randon • Ripasa • Rossi Residencial • Sadia • Suzano Papel e Celulose • Transmissão Paulista • Unibanco • Unibanco Holdings • Unipar • Vale do Rio Doce • VCP • Vigor • Weg • Ultrapar

  18. 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

  19. Novo MercadoBOVESPA’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

  20. A step further • Creating an alternative for a greater number of companies, especially SMEs

  21. BOVESPA MAIS Pillars BOVESPA programs to support companies Investor with medium-term perspectives BOVESPAMAIS Greater flexibility in trading Companies committed to CG requirements Companies committed to their development in stock market

  22. Thank you Claudio Avanian Jacob Listing and business development Phone: 55 11 3233 2004 E-mail: cjacob@bovespa.com.br Website: www.bovespa.com.br

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