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The great Brazilian migration

Why stocks flock to the Novo Mercado

Home / EOS Blog / The great Brazilian migration – Why stocks flock to the Novo Mercado

This year, some high-profile transactions have been proposed in Brazil involving the conversion of non-voting into voting shares. Shareholders at Vale, Suzano and Eletropaulo have already approved the conversion as a major step in their journey towards listing on the Novo Mercado, the B3 Stock Exchange segment for companies with higher standards of corporate governance and enhanced shareholder rights.

This stands in sharp contrast with what we see in other markets, such as Hong Kong, London or Singapore, where stock exchanges are under pressure to adopt a more flexible approach to dual-class shares in order to attract new listings.

The movement in Brazil is driven by business imperatives rather than regulatory requirements or listing rules. In each case, controlling shareholders are relinquishing part of their voting rights in exchange for increased liquidity, a more adaptable capital structure and becoming more attractive to investors as a result of better governance and shareholder rights.

Impact
Of course, not everyone is happy. Some holders of non-voting shares have disagreed with the discount applied to their shares when converted to voting shares or with the loss of preference in the payment of dividends. The majority view, however, is that, in the long term, the migration to the Novo Mercado will have a positive impact on the share price.

One-share one-vote
We are strong advocates of the principle of one-share one-vote, which ensures proportionality between the equity ownership and voting power of all shareholders. We have therefore supported the proposals for conversion by the companies and are engaging with them on the adoption of best practice in the composition of their boards.

Momentum
The momentum created is particularly welcome at a time when Brazil emerges from a prolonged recession and its economy is showing signs of a new cycle of investment. An increase in the number of companies listing their shares to finance growth is expected. This therefore presents a great opportunity for investors to engage with companies with dual-class shares on the benefits of adopting the one-share one-vote principle, as well as to press newcomers to the B3 stock exchange to list their shares in the Novo Mercado right from the start of their new life as a listed company.

 

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Jaime Gornsztejn Hermes EOS Jaime Gornsztejn is responsible for corporate engagements in Latin America and Russia and focuses on the mining, oil and gas, technology and utilities sectors. Prior to joining Hermes EOS, he worked for the Brazilian Development Bank (BNDES), where he held executive positions in Brazil and the UK as banker in its Telecommunications Department, as portfolio manager in its Venture Capital Division and as a project finance manager at the Renewable Energy Department. More recently, as managing director of BNDES UK, he was responsible for setting up the bank's subsidiary in London. Jaime has also held executive positions as portfolio manager at Nortel Networks UK and as an adviser to private finance initiative projects at KPMG Corporate Finance UK. Jaime holds a BSc in Electronics Engineering from IME, the Military Institute of Engineering in Rio de Janeiro, an MSc in Telecommunications Engineering from PUC-Rio, the Catholic University of Rio de Janeiro and an MSc in Finance from Cass Business School in London. He is also chair of the board of the Brazilian Chamber of Commerce in Great Britain and serves on the Senior Advisory Council of the Brazil Institute at King’s College London.
Read all articles by Jaime Gornsztejn

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