The Float Guide
How to float a company in Argentina
Contact:
Patricia López Aufranc
Argentina
[email protected]
INTRODUCTION
T
his guide gives an overview of what is
involved in listing a company on the Buenos Aires
Stock Exchange (BASE). It is a practical manual
covering all aspects of a float from prerequisites
through to life after the float.
Contents
Executive Summary
3
Before floating
4
Why float?
4
Parties involved and liability
4
Where to float
4
Requisites to float
5
Authorisations
5
The filing
5
Due diligence
8
Applicable rules
8
Which shares can be publicly offered?
8
Rating the securities
9
Who can make the decision of going
public?
9
Clearing
9
Local companies making offers abroad
9
Marketing and selling the securities
9
Primary and secondary markets
10
After listing
14
Disclosure
15
EXECUTIVE SUMMARY
The main reason to float a company is to raise capital. Floating a company also provides a public price for
its shares and an institutionalised market for trading such shares, thereby granting liquidity.
An authorisation from the Argentine Securities Commission (‘Comisión Nacional de Valores’ or CNV) is
required in order to make a public offer. First, the company is admitted to the public offering regime and
then the specific security is approved. Furthermore, an authorisation from the relevant stock exchange is
required in order to have securities listed on that exchange. Most issues are listed at the Buenos Aires
Stock Exchange (BASE) which is the largest.
Together with the investment bank (which may act as financial advisor and/or as underwriter), a team of
lawyers, accountants, auditors, company officers and directors, and rating agencies provide the issuing
company with substantive procedural and financial advice to go through the process of obtaining approval
from both the securities regulator and the relevant stock exchange, to be able to make the public offer.
A request for authorisation, a prospectus and ancillary documents must be filed.
The filing, broadly speaking, describes the securities to be offered together with the issuer’s history,
current business and future plans. The company must be able to back up the information provided to the
authorities.
A due diligence is generally carried out in order to corroborate that all the information provided in the
prospectus is valid, complete and truthful.
Under section 35 of Decree No 677/01, directors, other officers and participating professionals may be
liable for lack of accuracy or misstatements contained in the prospectus.
After a company is listed, it has a duty under the BASE and CNV listing rules to immediately disclose to
BASE and CNV any information likely to have a material effect on the price of the company's securities.
Additionally, the company will be required to make periodic filings of its financial statements (annually and
quarterly) and other relevant corporate information (upon occurrence of material events that may affect
the business and, then, the price of the securities).
Also, the company must follow several corporate governance requirements in order to make the
management of the company more transparent.
In sum, a public company must be much more transparent than a closely held company. That
circumstance has to be compatible with the culture of the company and its business.
BEFORE FLOATING
WHY FLOAT?
The main reason to float a company is to raise capital. Floating a company also provides a public price for
its shares and an institutionalised market for trading such shares (and potentially debt securities as well).
Those two factors make it easier for the company and for investors to buy and sell the company’s shares,
thereby granting liquidity.
On the other hand, a company that goes public undertakes heavy disclosure obligations, particularly, to
reveal any material event that may affect the price of its securities. It must also make periodic filings of its
financial statements (annually and quarterly) and other relevant corporate information (upon occurrence
of material events that may affect the business and, then, the price of the stock).
Additionally, the company must follow the corporate governance requirements imposed by applicable law,
which are tighter than those imposed on closely held (ie, private) companies.
In sum, a public company must be much more transparent than a closely held company. That change has
to be compatible with the culture of the company and its business.
In any case, companies tend to make a public offer of their stock or debt securities when the cost of
obtaining capital from the public is lower than the cost of alternative funding.
Since the Argentine market generally lacks depth, floating is also constrained by general market
conditions. Thus, some companies may contemplate floating simultaneously in Argentina and in a foreign
market, if the size of the issue is larger than what the Argentine market can take (eg, companies
privatised during the 1990s).
PARTIES INVOLVED AND LIABILITY
Together with the investment bank(s) (which may act as financial advisor and/or as underwriter), a team
of lawyers, accountants, auditors, company officers and directors, provide the issuing company with
substantive procedural and financial advice to go through the process of obtaining approval from both the
securities regulator and the relevant stock exchange, to enable it to make the public offer. Industry
specific experts may also join the team (eg, to certify oil reserves in the case of an oil company).
The process is also referred to as ‘going public’.
The board of directors is liable for any inaccuracy in the information provided in the prospectus (see
below). Further, the company’s auditors are liable with regard to their report on the company’s financial
statements and the company’s advisors may be held liable with regard to the information they
respectively provided about the company (eg, legal or economic information).
A clearing entity is also involved. In Argentina the Caja de Valores SA (CVSA) plays that role.
International offers are generally cleared through DTC/Euroclear/Clearstream.
WHERE TO FLOAT
There are 12 Boards of Trade and nine Stock Exchanges in Argentina. The BASE is the largest and most
relevant one.
Securities in Buenos Aires are traded in self-regulated organisations such as the BASE and the over-thecounter market (the Mercado Abierto Electrónico, MAE). The only persons authorized to effect
transactions in securities listed on the BASE are the stockholders of the Mercado de Valores SA (the
Merval), which is the company that oversees brokerage activities and transactions on the floor of that
Stock Exchange. The MAE is an electronic market in which only over-the-counter dealers (Agentes de
mercado abierto) registered with the CNV may trade securities.
Each exchange has different listing requirements. This paper covers the requirements of the BASE,
where most local companies are listed.
COST
The cost of going public must be established on a case by case basis, since it materially differs
depending on the size and complexity of the issue. Generally, the cost depends on the amount of the
issuance, among other parameters.
REQUISITES TO FLOAT
Authorisations
An authorisation from the CNV on both the issuer and the securities is required in order to make a public
offer.
CNV approval of a public offer means only that the regulations applicable to the offer have been complied
with but does not provide any assurance with respect to the subsequent performance of the particular
security as an investment.
Additionally, an authorisation from the BASE is required in order to have securities listed on that
exchange.
In order to obtain the authorisation from the CNV and the BASE, the issuing company must file all the
documents and information required – as described below – and meet the following main requisites:
be an ongoing business;
have a business purpose, a corporate capital, an economic situation, and a financial situation,
that ‘justifies’ the access to the capital markets; and
have an internal organisation that allows the issuing company to meet the requirements
established by the BASE (eg, reporting requirements).
The approval of a particular issue does not cover subsequent issues of the same or other types of
securities of an issuer. However, a company which has already been authorised to participate in the
public offering regime will only need to obtain authorisation for the new issue when making a new public
offer of either stock or debt.
Small and medium-size companies are subject to a simplified procedure.
THE FILING
A request for authorisation, a prospectus and ancillary documents must be filed.
The filing describes the securities to be offered together with the issuer’s history, current business and
future plans. The company must be able to back up the information provided to the authorities.
For instance, the filing must cover information such as:
description of the company’s business;
certificate of incorporation and by-laws;
a description of the company’s capital structure indicating subscribed and paid-in shares, and
including a description of existing classes of shares;
number of shareholders of the company;
name and address of each shareholder owning more than five per cent stock in the company;
any connection the company may have with economic groups, parent companies and
subsidiaries;
the company’s financial statements for the last three fiscal periods, and if the latest one was
issued more than five months before the filing, additional financial statements are to be filed
dated not earlier than three months before the filing;
a copy of the minutes of the shareholders’ meeting which decided to take the company public;
a copy of the minutes of the shareholders’ meeting or board of directors’ meeting which decided
the characteristics of the stock to be issued;
a report by a public accountant attesting that the company (i) is an ongoing business, and (ii) has
adequate corporate governance rules and resources to comply with the information requirements
established by the rules for public offerings;
the names and background of the company’s directors and officers;
a prospectus which (i) constitutes the main document through which the public offer will be made,
(ii) must be written in plain language that would be easy to read for a common person, and (iii)
must include, at least, the following:
information about directors, officers, and advisors of the company;
characteristics of the securities to be issued;
accounting and financial information covering the last three fiscal periods;
motive for the issuance;
use of the proceeds of the public offer;
history and current background of the issuing company, including a detailed description of
its business, risk factors, corporate structure – including its participation in economic
groups, and fixed assets;
operating and financial background including operating results, directors’ and officers’
remuneration, number of employees, directors and officers holding stock in the company,
liquidity and capital resources, patents and licenses, business expectations and current
tendencies;
information regarding shareholders that own more than five per cent of the stock in the
issuing company;
a paragraph stating that the board of directors is liable for any inaccuracy in the information
provided in the prospectus. Further, the company’s auditors are liable with regard to their
report on the company’s financial statements;
transactions with related parties for the past three fiscal periods;
any potential interest that the company’s advisors may have with regard to the public
offering (eg, contingent fees);
financial statements for the last three fiscal periods and significant changes occurring since
the time of the latest financial statements;
dividend policy;
expected price and detailed characteristics of the securities to be publicly issued;
any rights that current shareholders may have over the securities to be issued (eg, preemptive rights);
information about the underwriter and stock exchanges that will be involved in the offering,
capital structure;
company’s by-laws;
corporate governance rules;
characteristics of different classes of stock of the company;
material contracts;
foreign exchange regulations that may affect the issuance;
material tax considerations; and
a place where the backup documents for the prospectus can be reviewed by interested
parties.
any other material information (eg, a description of any ongoing litigation, a description of
material contracts, and the use of the proceeds of the public offer).
Any material facts occurring after the filing and before authorisation is granted, are to be disclosed to the
authorities, so long as those facts may affect:
the company’s business;
the company’s financial statements; and
or the public offering.
In addition, the CNV may require from the issuing company any additional information deemed by the
CNV to be relevant in connection with the public offering.
DUE DILIGENCE
A due diligence is generally carried out in order to corroborate that all the information provided in the
prospectus is valid, complete and truthful.
Under section 35 of Decree No 677/01, directors, other officers and participating professionals may be
liable for lack of accuracy or misstatements contained in the prospectus.
Additionally, if misrepresentations are found, the public offer procedure may be affected by delays and,
potentially, fines and other penalties imposed (eg, banning from the public offering regime).
APPLICABLE RULES
The Argentine securities market is regulated nationwide by Law No 17,811, enacted in 1968, as amended
(‘Securities Law’). The CNV, which administers the Securities Law, is a government agency empowered
to issue further regulations in the form of mandatory resolutions. On 22 May 2001, Decree No 677/01 was
enacted which addresses several aspects relating to transparency in the public offer regime. It regulates
practices regarding participation in public offerings, disclosure of relevant information, insider trading and
market manipulation, inter alia. It also contains new regulations with respect to the supervisory capacity of
the CNV, summary investigations and administrative sanctions imposed under the Securities Law.
The CNV regulations provide for specific procedures regarding the registration of debt securities, asset
backed securities, pooled funds or investment funds, which are not considered in this guide.
Regulated companies such as banks, insurance companies, and utilities companies, may be subject to
additional regulations.
Other regulation such as the Argentine Companies’ Law No 19,550 (ACL) may apply to certain aspects of
the transaction (eg, corporate resolutions, dividend policy and characteristics of shares).
Additionally, as a consequence of the 2001 crisis, certain limitations on financial transactions and on
foreign exchange transactions (not covered in this paper) were introduced which may also have a
material impact on a public offer with international connection (eg, simultaneously floated abroad).
WHICH SHARES CAN BE PUBLICLY OFFERED?
The company may publicly offer all or part of its shares. Nonetheless, only securities which have identical
rights in each class may be publicly offered.
They can be new shares to be issued by the company (cash in) or existing shares that are already in
existence and are to be sold by the current shareholders (cash out). In the former, the company will
obtain the proceeds from the sale, while in the latter the shareholders will collect the money.
RATING THE SECURITIES
The issuer may request that the rating agencies rate the securities to be offered. However, if the
1
securities are going to be offered to qualified investors , the relevant securities must be rated by at least
one rating agency. Rating agencies must be authorized by the CNV and have to meet certain
requirements.
WHO CAN MAKE THE DECISION OF GOING PUBLIC?
The decision to enter the public offer regime belongs exclusively to the Shareholders’ Meeting.
Nonetheless, it is possible to delegate to the board of directors the implementation of that decision (ie,
timing, pricing, and other conditions of the public offering). In that regard, the board of directors has a twoyear limit to implement a decision by the Shareholders’ Meeting to enter the public offer regime.
CLEARING
The clearing of transactions on the BCBA is carried out through its affiliated organisation, the CVSA,
which is the Argentine clearing agency that provides central depository facilities for securities and may act
as a transfer and paying agent.
International offers are generally cleared through DTC/Euroclear/Clearstream.
LOCAL COMPANIES MAKING OFFERS ABROAD
Local companies are allowed to offer their shares to the public in stock exchanges located outside
Argentina. New York and Luxembourg (Euromarket) are generally chosen depending on the
circumstances.
To that extent, companies must comply with the rules of the securities agency and stock exchange of the
relevant jurisdiction.
Large companies used to seek that option in the past since the Argentine capital market was not deep
enough to absorb large IPOs (eg. YPF, Pampa Energía, Grupo Financiero Galicia, Telecom, Banco
Macro, Petrobras Energía, BBVA Banco Francés, Cresud, TGS, Tenaris, Edenor, IRSA, Alto Palermo
and Nortel Inversora).
MARKETING AND SELLING THE SECURITIES
An investment bank usually advises the company during the preparation of the public offer, especially
with regard to the amount of the issue, pricing the securities and offering them to the initial investors. To
that extent, such bank (or a syndicate in case of large issues) organises road-shows to offer the shares to
be issued for sale.
During that process, generally institutional – not individual – investors are the main target. However it is
worth noting that by late 2008 the businesses of Argentine private pension funds – main institutional
investors until that time – were transferred to the Social Security National Administration (ANSeS)
managed by the federal government.
The underwriter may act under two schemes: ‘best efforts’ or ‘firm commitment’.
The underwriter may undertake to use its best efforts to sell the shares to third party investors, not
committing to buy any shares in the event they are not completely sold.
On the other hand, the underwriter may make a firm commitment under one of two different structures: (i)
the underwriter may buy all the shares and then sell them to third party investors, or (ii) the underwriter
may commit to buy any shares that are not bought by third party investors at closing. In any of the two
systems, the issuing company entering into a firm commitment with the underwriter will bear no risk if not
enough third party investors are interested in purchasing the issue.
The sale of the shares may be marketed by the underwriter under several forms. One approach is to run
an open auction where investors submit bids with the number of shares they wish to purchase and the
maximum price they want to pay. The highest bidders will get the securities. The underwriter may choose
to sell the securities under the regular auction system (potential buyers place competitive bids and the
asset will sell to the party that places the highest bid) or the Dutch auction system (investors place a bid
for the amount they are willing to buy and the price of the offering is set after taking in all bids and
determining the highest price at which the total offering can be sold).
Alternatively, a book-building procedure may take place. To that extent the underwriter will take notes ‘in
a book’ (‘booking’) of the non-binding intentions of potential investors as to the amount of shares and the
price they are interested in. That non-binding process allows the underwriter and the company to
accurately price the securities right before offering them to the public. Then investors may decide to buy
the securities or not at the price set by the issuer.
PRIMARY AND SECONDARY MARKETS
Once authorisations are granted, the securities are offered in the primary market where they are sold for
the first time to certain investors. After that initial sale, the securities enter the secondary market where
they are priced every day according to the offer and demand of such security by the investors.
DIVIDEND POLICY
Section 224 of ACL sets forth that payment of dividends to shareholders is only possible if liquid profits
recorded in duly prepared financial statements of the company for the relevant fiscal period exist.
However, listed companies are allowed to pay anticipated or provisional dividends recorded in special
purpose financial statements. In such case, the board of directors, supervisory committee and statutory
auditors are jointly and unlimitedly liable, if upon approval of the annual financial statements there are not
enough profits to meet such anticipated dividends or if the shareholders meeting disagrees.
Further, dividend payments are to be decided by the Shareholders’ Meeting.
SHAREHOLDERS RIGHTS
Listed companies cannot issue shares with rights to cast multiple votes.
In the event of a capital increase, holders of existing shares of a given class (or of common shares in the
event the capital is not divided into classes of shares) have pre-emptive rights to subscribe for a number
of shares of the same class pro rata to their holdings of shares of that class. Pre-emptive rights (derecho
de preferencia) also apply to the issue of convertible securities. Shareholders who have exercised their
pre-emptive rights are entitled to accretion rights (derecho de acrecer) in proportion to their respective
holdings with respect to non-pre-empted shares.
Pre-emptive rights can be restricted in limited cases provided by the law. An Extraordinary shareholders’
meeting, with special majority requirements provided in the law, may decide the restriction or suspension
of pre-emptive rights in the subscription of new shares, if necessary in the company’s interest, and
subject to the following conditions: (i) that the need for such decision be included in the agenda of the
shareholders’ meeting; (ii) that the shares to be issued be paid in kind or be given in payment of
preexisting obligations. Likewise, the Negotiable Obligations Law No 23,576 provides for additional cases
where pre-emptive rights may be restricted or suppressed.
In the case of closely held companies, shareholders have a 30-day period to exercise their pre-emptive
rights. Nonetheless, listed companies are allowed to reduce that period up to a minimum of ten days.
TIME
The duration of a standard IPO process in Argentina is approximately four months.
AFTER LISTING
DISCLOSURE
After a company is listed, it has a duty under the BASE and CNV listing rules to immediately disclose to
BASE and CNV any information likely to have a material effect on the price or value of the company's
securities.
Additionally, the company will be required to make periodic filings of its financial statements (annually and
quarterly).
In general, a person or a group of persons that have control over a listed company are required to
disclose their holding in such company. Further, they must also disclose when acquiring stock that, added
to their prior holdings, represents five per cent or more of the voting rights in a listed company.
Shareholders’ agreements are also required to be disclosed.
The BASE has four different trading sections: the general section, the special section, the new projects
section, and the technology companies section. The specific and the general sections differ as to the
financial information required to be filed. Smaller companies float within the general section and are not
required to file financial statements every quarter but a brief on their business operations quarterly.
Information about parent and subsidiaries is also to be filed.
The company must appoint a Responsible of Market Relations, who will be its main speaker, although
directors also face the burden of fulfilling such disclosure requirements.
SHARE REGISTRAR
Shares are deposited and registered with the CVSA.
The CVSA keeps a two tier registry of deposited securities, which involves the registration of the relevant
participant as custodian (depositante) and the registration of the party in whose name the securities are
held (comitente). The latter is considered to be the owner of the securities and is entitled to attend
shareholders' meetings, collect dividends and dispose of the securities.
Mainly stock exchanges, brokers, financial entities and certain other specific entities are allowed to act as
participants with the CVSA.
Assignment of securities takes place through electronic transfers recorded with the CVSA.
Owners are given certificates of deposit which represent the securities they hold with the CVSA and
which are effective to exercise economic and political rights (eg, attending shareholders’ meetings).
Dividends and any other economic interest related to the securities are deposited by the company in the
owners’ accounts with the CVSA.
Each quarter, the CVSA will issue an account statement providing the beneficial owner with a detailed
balance of his or her holding of securities registered in the relevant CVSA account.
INDEPENDENT DIRECTORS
No specific requirements exist as regards independent directors, except that the majority of the members
of the audit committee, which must be composed of at least three members of the board of directors,
must be independent. Generally, members of the board are deemed independent so long as he/she has
no connection with the issuing company, the controlling shareholders, and holds no ‘executive position’ in
the issuing company.
REMUNERATION OF THE BOARD OF DIRECTORS
Under Argentine law directors are entitled to remuneration in connection with their performance as such.
This remuneration can be established in the by-laws of the company. Otherwise, it should be fixed by the
shareholders’ meeting. If the by-laws do not establish an amount or method of calculation of such fees,
the shareholders’ meeting should decide each year at the annual shareholders’ meeting that considers
the respective annual financial statements.
According to section 261 of the ACL the maximum amount payable to directors in fees (including any
salaries or other compensation he/she may receive in connection with permanent technical-administrative
tasks) may not exceed 25 per cent of the net profits. Such amount shall be limited to five per cent when
no dividends are distributed to the shareholders, and shall be increased in proportion to the distribution of
dividends until reaching 25 per cent of the net profits, in the case of full distribution of dividends.
The above mentioned section also provides that the shareholders’ meeting may approve fees in excess
of the above mentioned limits to one or more directors in case of special assignments or technicaladministrative functions.
In companies where there are losses, in principle, under section 261 of the ACL the directors would not
be entitled to collect fees. This does not prevent them from collecting salaries for specific functions
carried out simultaneously with the position as directors.
A company may grant the board of directors stock options. The shareholders’ meeting will decide the
price for (i) the options (ii) the underlying stock, and (iii) the value to be considered under section 261.
The policy for remuneration of the board of directors must be included in the annual report that the
company must disclose to the CNV and its shareholders.
NOTES
1
As they are defined in section 101, ap VI17 from Chapter VI of the CNV Rules.