Veiled risks In initial public offerings carried out in foreign exchanges

Ragazzo, Carlos Emmanuel Joppert
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From 2017 to 2019 a considerable number of Brazilian Companies carried out Initial Public Offerings in American stock exchanges. Public Offerings in the United States are particularly interesting to Brazilian Companies, when compared to Public Offerings in Brazilian stock exchange B3 S.A., and its special governance segments Novo Mercado and Nível 1. The possibility, in American Public Offerings, of determining different classes of shares, combined with lesser limitations to free-float percentages, offer a significant incentive for Brazilian Companies to list abroad. Nasdaq and NYSE allow Companies to maintain control of their voting shares, while capitalizing the Company through shares providing investors with dividend distributions, but no voting rights. However, international listings also present relevant costs for Brazilian Companies. Listing costs and recurring operational costs are accounted for in Offering Prospectuses, and pondered before the incentives mentioned above. Risks arising from dual regulatory environments, must be adequately accounted for by Brazilian Companies carrying out international listings. Such risks arise, (i) indirectly from the stark differences in the governance and disclosure regulations in Brazil and the United States, and (ii) directly from indemnifications and sanctions imposed after violations to such regulations occur. In this sense, upon pondering between potential risks and perceived returns arising from listing stock abroad, Brazilian Companies still opt for listings in a dual regulatory environment. The existence of progressive numbers regarding international listings creates a scenario in which: (i) Brazilian Companies must correctly address their obligations towards the disclosure of material facts, and (ii) Brazilian regulation must revise the governance structures imposed in the regulations of special listing segments, as to allow for adequate protection of corporate control in initial public offerings.