Brazil: direito de prioridade under CVM Resolution 160, and the 100% of share capital it takes to waive it

Brazil permits a convertible debenture, but not a rolling discounted drawdown. Under CVM Resolution 160 any public offering of shares or convertibles with a restricted target audience that dilutes existing holders must give them a priority right, and that right can be excluded only with the approval of holders of 100% of the share capital.

Key takeaways

• The dilution article is the rule that decides it. Where a public offering has a restricted target audience carrying dilution risk for current holders, priority must go to those holders “sem quaisquer restrições” — without any restrictions.
• The waiver threshold is 100% of share capital. The offer may proceed without the priority right, or with a shorter exercise period, only if approved by shareholders holding 100% of the issuer's capital. On a listed register that is not assembled.
• Five business days, at every offering. The timetable must leave holders at least 5 business days before the close of reservations or subscription to exercise. A facility drawn monthly carries that window monthly.
• The old restricted-effort route is gone. Resolution 160 revoked Instruções CVM 400, 471, 476 and 530. Precedent built on the Instrução 476 oferta com esforços restritos is precedent under a repealed rulebook.

The debênture conversível is not the problem

Brazilian equity-linked paper is issued as a debênture conversível em ações, and the conversion mechanics live in the escritura de emissão, the deed of issue. Lei 6.404/1976 — the Corporations Law — contemplates that the deed sets the bases da conversão, so a formula rather than a fixed number is not alien to the statute.

Two things push back against a floorless discount. The Corporations Law obliges the issue price of shares to be fixed without unjustified dilution of existing shareholders, on stated criteria including profitability prospects, net asset value per share and market quotation, with the chosen criterion justified in detail. A discount that is not a number until after the shares are priced is hard to justify in advance on any of them. And the market has not done it: B3 convertible issues that use a VWAP take a window ending at or before the issue date, producing a conversion price that is then fixed.

The priority right, and the 100% that cannot be assembled

This is the part that decides the facility question, and it is explicit. Article 53 of Resolução CVM nº 160, in the section headed Tratamento do Risco de Diluição, provides that where a public offering has a restricted target audience which implies dilution risk for current holders of the security, priority must be granted to those holders without any restrictions. The timetable and the manner of exercising the direito de prioridade must be widely disclosed in the offer documents, and must allow at least 5 business days before the end of the reservation or subscription period.

Paragraph 3 is the escape hatch, drafted so as to be unusable by a listed company. The offering may be made with exclusion of the pre-emptive right, or with an exercise period shorter than five days, only where proceeding without the priority right is approved by shareholders holding shares representing 100% of the issuer's share capital. Not a supermajority. Not 90%. Everyone. A closely held company can do it; a listed issuer cannot.

What Resolution 160 gives back

It is worth being fair to the regime. Resolution 160 replaced Instruções 400, 471, 476 and 530 with a single framework, and its rito de registro automático lets an eligible issuer launch on the date of filing rather than waiting out a review. For a company that needs size rather than trickle, that is a better answer than a facility: one offering, priced once, in the market quickly, with the priority window built into a timetable that runs anyway.

Compare the trade elsewhere in the region. Mexico opened a board-delegated, preemption-excluded route in 2023 but has not resolved how the shares get registered afterwards. Brazil has the registration speed and keeps the shareholder gate. Neither supports an equity line, and they fail for opposite reasons.

Resale follows the offering, not the share

Brazil imposes no holding period on a share as such. Resolution 160 instead sets stepped secondary-trading restrictions on assets acquired in particular categories of registered offering, drawn principally around simple debentures and securitisation instruments sold to professional investors, moving first to qualified investors and later to the general public. A separate article lists offerings carrying no restriction at all, and follow-on share offerings appear in it. So the investor's question is not how long to wait but which category this was sold in — a question to settle in the documents, not after closing. That is the reverse of the Rule 144 analysis a US investor runs, where the security's own history controls. A non-resident must also route capital through the registered non-resident investment regime before proceeds can be repatriated.

• All markets
• Mexico
• Chile
• Peru
• Convertible debentures
• Registered direct offerings

Weighing a follow-on against an equity-linked issue? Send the free float and trailing volume.

Sources

• CVM — Resolução CVM nº 160, consolidated text
• CVM — Parecer de Orientação nº 1
• B3 — Brasil, Bolsa, Balcão

Brazilian listed issuers: frequently asked questions

Is a floating conversion price actually prohibited in Brazil?

Not in terms. The Corporations Law lets the deed of issue set the bases of conversion, so a formula rather than a fixed number is contemplated. The obstacles are elsewhere: the statutory duty to fix an issue price without unjustified dilution of existing shareholders, and the priority right that attaches to the offering itself. We found no Brazilian precedent for a conversion price that refixes downward against a post-issuance window, in either direction.

Does the Instrucao 476 restricted-effort offering still exist?

No. Resolution 160 revoked Instrucoes CVM 400, 471, 476 and 530, along with several Deliberacoes. Offerings that would once have been done as an oferta com esforcos restritos now run through the Resolution 160 framework, and the 90-day lock-up that characterised the old route no longer exists as such. Anyone working from a pre-2023 Brazilian precedent is working from a repealed rulebook.

How quickly can a Brazilian follow-on actually launch?

Faster than most people expect. Under the automatic registration rite an eligible issuer can launch on the date of filing, without waiting for CVM review. Speed of launch is not the constraint on a drawdown facility. The constraint is that each dilutive restricted-audience offering has to carry a priority window for existing holders, and that window has to be inside the timetable.

Are the shares an investor receives on conversion restricted?

The restriction attaches to the offering, not to the share. Resolution 160 sets stepped resale restrictions for specified categories of registered offering, and those steps are drawn principally around simple debentures and securitisation instruments sold to professional investors. A separate article lists offerings that carry no secondary-trading restriction at all, and follow-on share offerings are among them. The category the securities were sold in decides the answer.