Brazil Regulator Heightens IPO Scrutiny

The CVM, Brazil’s market regulator, is increasing its scrutiny of executive compensation packages and pre-IPO loans of companies that are looking to go public, Maria Helena Santana, head commissioner at the CVM, tells LatinFinance. “We’re seeing executive compensation packages with stock options that represent sizable portions of the capital being raised in the offering,” says Santana, adding as the number of companies made up of assets assembled with the specific purpose of going public has increased in Brazil. In tandem, lavish compensation packages for managers whose long term interests aren’t necessarily aligned with those of public investors have also grown. “We’re insisting they provide more transparency on these packages, with details on the amount of options, vesting periods and dilution.” Another development is the pickup in pre-IPO loans made by underwriters to IPO hopefuls to bolster capital bases and dress up balance sheets. The loans are often convertible into equity once the company goes public. “We want investors to know that this type of transaction is taking place and to evaluate the conflict of interest risk [inherent] in these operations,” says Santana.