1. © 2008 Cleary Gottlieb Steen & Hamilton LLP. All rights reserved. BOVESPA IPOs: Yesterday, Today and Tomorrow 9 May 2008 Francesca L. Odell

2. Overview

3. 3 What drives the IPO process in Brazil? (Other than the financial markets…..)  Investment bank standards for disclosure and due diligence  Standards of international law firms and auditing firms 10b-5 negative assurance letters from lawyers Auditor comfort letters  Local regulators (CVM, Bovespa, Central Bank)  Sometimes foreign regulators (New York, European jurisdictions)  Secondary market liquidity  Exit from the US public markets?

4. 4 Trends in BOVESPA IPOs  Yesterday Limited to large, usually industrial, issuers Usually SEC-registered, NYSE listed  Today Much broader range of issuers Typically no international listing (144A/Reg S abroad) Beginning of variations (LSE, Lux, etc)  Tomorrow More listings of foreign (Lat Am) companies on BOVESPA? Broader use of European listings? Return to SEC-registered IPOs with new SEC rules and flexibility?

5. Trends in BOVESPA IPOs: Yesterday

6. 6 Yesterday: What did Brazilian IPOs look like?  Limited to large, usually industrial, issuers (Petrobras, Vale)  Issuers had significant local presence (Unibanco, Bradesco)  Usually SEC-registered, NYSE listed Attract international investors Assure liquidity  Oftentimes privatizations or family-owned companies where family was divesting of a portion of its interests (Petrobras, Unibanco, Gol)  Underwritten by large, international investment banks Provided access to investors abroad Local investment banks catered mainly to retail segment

7. 7 Yesterday: What did Brazilian IPOs look like?  Disclosure Driven fully by SEC process Focus entirely on English documentation Portuguese language offering documentation was an afterthought  Underwriting US style, multiple tranche underwritings 10b5 letters and comfort letters often only for the US/international tranche of the offering  Timing Usually very slow; process often took a year Focus entirely on SEC registration process

8. 8 Yesterday: Why was there a shift in Brazilian IPOs?  Boom in Brazilian market: huge demand, making timing more crucial  Sarbanes-Oxley Compliance Audit committee requirements and 404 compliance Board independence  Ongoing reporting requirements Annual report on Form 20-F Periodic reporting  Financial statements US Gaap or reconciliation for full three years Timing of going to market and staleness of financials

9. 9 Yesterday: Why was there a shift in Brazilian IPOs?  Cost SEC filing fees and NYSE/Nasdaq listing fees Increased costs of professionals Ongoing costs of compliance and reporting  Timing SEC review process is lengthy Local regulators have a more abbreviated review process, and comments tend to be fewer in number and less substantive  Language Initial drafting was in English, and later translated into Portuguese, which was cumbersome for many issuers, local bankers and local lawyers

10. Trends in BOVESPA IPOs: Today

11. 11 Today: What do Brazilian IPOs look like?  Much broader range of issuers Markets accessible to middle and small-sized issuers Companies from a variety of smaller, more locally-based industries Less sophisticated structures, often requiring corporate restructurings Less advanced internal systems and functions (audit, internal controls, legal and compliance, etc.)  More diffused ownership Companies often don’t have a controlling shareholder Following IPO, typically a truly public company Exits for private equity investors available

12. 12 Today: What do Brazilian IPOs look like?  Typically no international listing  Any international selling efforts are through transactions exempt from registration Rule 144A: sales to qualified institutional buyers Regulation S: sales offshore the United States, to non-US persons  International sales actually in the form of a “placement” for tax reasons, so in essence is a 4(2) private placement and not a “resale” under 144A Placement facilitation agreement usually governs (and Brazilian underwriting agreement tracks it substantively) One of few jurisdictions with a true “firm guarantee” underwriting

13. 13 Today: What do Brazilian IPOs look like?  Full diligence procedures, as with a SEC-registered transaction Full business due diligence (including diligence with auditors) Legal due diligence (not just documentary, but actual conversations with different business units of the issuer)  Auditor procedures now mimic US/international style offerings Arrangement letters often required to “ringfence” the Reg S and Rule 144A portions of the transaction Comfort letters on both sets of offering documents, including “ticking” and “tying” numbers and negative assurances  Pre-deal research permitted in Brazilian IPOs, but not in US, Canada or Japan, and must respect a blackout period (15 days prior to reds, through 40 days following closing of offering)

14. 14 Today: What do Brazilian IPOs look like?  Differences in disclosure Feasibility study Period-to-period balance sheet comparisons Additional CVM required disclosure – Additional risk factors – Enhanced disclosure re shareholder structure and other corporate background information  Timing between different sets of offering documents is essential for consistency

15. 15 Today: What do Brazilian IPOs look like? Beginning of variations in deal structures….  GDR/ADR deals for Brazilian issuers Allows international buyers to purchase an instrument other than the share traded on the Bovespa  BDR deals for non-Brazilian issuers Issuers organized in another jurisdiction, but with mainly Brazilian operations (GP, Dufry, Wilson Sons) Truly foreign issuers searching for liquidity (Banco Patagonia)  Foreign listing is required for BDRs Luxembourg Ireland? UK (LSE, AIM?)

16. Trends in BOVESPA IPOs: Tomorrow

17. 17 Tomorrow: What will Brazilian IPOs look like?  More listings of foreign (Lat Am) companies on Bovespa? Continued use by Argentine companies? Expansion to other jurisdictions (Uruguay vs Chile)?  Broader use of European listings? Increased incorporation in foreign jurisdictions for efficient tax planning and to attract international investment Use by Brazilian issuers for primary listing? Particularly interesting for private equity, hedge funds, etc with complicated structures

18. 18 Tomorrow: What will Brazilian IPOs look like? Return to SEC-registered IPOs with new SEC rules and flexibility?  Foreign Private Issuers Can Now Use IFRS, as adopted by IASB Brazil planned in 2010 Novo Mercado already provides for reconciliation  Easier Exits (in some cases) from SEC Reporting Requirements: Changes to Deregistration Rules  Proposed Overhaul of “Home Country Exemption” from SEC Reporting  Increased Flexibility for Resale of Restricted Securities: Liberalization of Rule 144 Requirements  Proposed Shorter Filing Deadline for 20-F and Other Proposed Changes Affecting 20-F Filers

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