CVM Orienting Opinion 23 of July 31, 1991

CVM ORIENTING OPINION NO. 23, OF JULY 31, 1991.
SUMMARY: Capital increases by public subscription. Dynamics of the procedures necessary for the public offering and the issue prices of shares.

1. The procedures to be observed during capital increases are analyzed in this Opinion, with a view to speeding up the process of issuing and registering the public distribution of shares.

2. The subject of appreciation in this Opinion will be capital increases in open companies whose bylaws do not contain authorization for capital increases and those whose bylaws, as provided for in Article 168 of LAW No. 6,404/76, contain authorization for the increase, regardless of bylaw reform.

3. Given that difficulties in placing shares often result from a relatively long period between the time of the increase decision and the start of its placement with the public, it is necessary to reinforce the clarifications provided to the market so far regarding the time and criteria for fixing the issue price, in order to expedite registration procedures.

4. Considering that cases are frequent in which the share quotation parameter assumes prevalence over other criteria indicated in Article 170 of the Corporate Law, the focus to be explored in this Opinion will be restricted to the hypotheses in which the market factor is predominant for fixing the issue price.

5. In passing, we alert that companies may include in their bylaws a provision to delegate to the Board of Directors the powers to fix the issue price of new shares, which, due to the ease of convening meetings, will speed up the entire capital increase process.

6. In the case of companies that do not have authorized capital, although the process is slower, because the right of preference cannot be excluded, it can be accelerated, respecting some procedures to be adopted by the issuing company and by this Securities Commission.

7. Since the decision regarding a capital increase is the competence of the Extraordinary General Meeting, it is necessary that this be convened in accordance with Article 124 of LAW No. 6,404/76.

8. Once the increase is decided by the Assembly, the shareholders' right of preference must be preserved, as determined by paragraph 4 of Article 171 of LAW No. 6,404/76, whose term will not be less than 30 (thirty) days. This term must be counted from the date of publication of the said decision, through the publication of the minutes of the EGM or a Notice to Shareholders.

9. As soon as this term begins, the company must provide the CVM with the documents that will support the registration request as established in Articles 9 and 10 of CVM Instruction No. 13/80, leaving pending only the part related to the declaration of surpluses, thus allowing the registration to be granted immediately.

10. In order to avoid that price fluctuations in the secondary market harm the public offering, the Assembly may decide that shares with or without par value be launched at a minimum issue price established based on the share quotation in the market, in the period immediately preceding the date of the decision.

11. It will also fix the amount to be taken to capital and any premium, contained in the minimum price, which will constitute a capital reserve. The decision must also provide for the criterion for calculating the subscription price, always respecting the minimum.

12. For example, it may determine that this price will be an average of the quotations of the three trading sessions prior to each subscription day. This criterion may be used both for the exercise of the right of preference and for the public distribution. The difference between the placement price and the minimum will be added to the capital reserve.

13. Another procedure that can also be adopted for the public phase of the subscription is the auction of surpluses, directly on the stock exchange, observing, equally, a previously established minimum price.

14. It should be noted that, in the case of shares with par value, they cannot be launched at a price lower than this. In the case of shares without par value, the part to be allocated to the capital reserve will obey what is decided in the Assembly, however, only the part that exceeds the unit value of the existing shares can be allocated to the reserve, preserving the repayment value of capital in the case of existing preferred shares with this type of priority.

15. Regarding companies with authorized capital, the process can be effectively faster, as they do not need bylaw reforms for successive increases in social capital, within the declared limit. Their bylaws may also provide for the issuance of shares without granting the right of preference to former shareholders, provided that the placement is made by public subscription or sale on the stock exchange.

16. Remember that, in the event that the company intends to obtain a certain amount of resources over a period of time, but cannot estimate the market's capacity to absorb all the corresponding share offer at once, it would adopt procedures that allow it successive smaller offerings.

17. At the time of the first registration, the CVM would evaluate the company's information and the general conditions of the entire offer, at which point more analysis time would be dispensed with, which currently takes around 15 days. For subsequent issuances, the initial documentation would be complemented, updating it and specifying the conditions of the offer to be made.

18. Companies with authorized capital, whose bylaws expressly exclude the right of preference, may launch the total of the issuance directly through a special auction on the stock exchange, however establishing the RCA or the EGM, according to bylaw determination, a previously established minimum price.

19. If one wishes, in the public placement, to establish the procedure of attending to shareholders first, a short term can be fixed for this attendance, which, not being confused with the right of preference, constitutes, merely, a distribution procedure.

20. If the right of preference is maintained, as mentioned in item 9 of this Opinion, the company must initiate procedures with the CVM immediately after the decision to increase capital.

21. The issue price may follow what was previously exposed for the cases of companies without authorized capital.

22. Finally, we alert that this Opinion aims only to provide clarifications regarding faster ways of placing shares, not seeking to establish rigid criteria, as these must be evaluated and discussed by the market itself.

Signed Original by
SULI DA GAMA FONTAINE
Superintendent of Corporate Relations
Approved by the Collegiate Body on 31.07.91.

Signed Original by
ARY OSWALDO MATTOS FILHO
President