Legal Bulletin N°17
 
Capital Markets, Securities and Private Equity

Decreto para fondos de capital privado

 

New Decree facilitates the performance of Private Equity Funds’ disinvestment

 

On May 28th, 2014, the Ministry of Finance (MinHacienda) issued Decree 1019 of 2014, which amends the regulatory framework for authorization processes for trading in stock shares of small and medium enterprises to be offered to professional investors (the Second Market). This reform opens the opportunity for professional managers who are looking for exit options of Private Equity Fund investment, to  structure a disinvestment through  the Second Market in the  Colombia Stock Exchange (CSE).

Private equity local industry is not currently complemented for the easy access to the capital markets because the requirements to join the CSE remain very burdensome for the type of business in which such funds invest.

With the implementation of this Decree, many professional managers could consider the possibility of offering portfolio investments to institutional investors.

Given the limited that has been given to the Second Market, MinHacienda decided to change the rules in order to boost the participation of new issuers into the market and eliminate reporting requirements, facilitate issuance procedures and reduce costs, among others.

Thus, the Decree establishes that securities issued in the Second Market will not have to be rated by a Rating Agency for purposes of being listed in the CSE. In fact, raiting became voluntary in connection with securities issued in the Second Market. In addition, such securities will be automatically  registered in the National Registry of Securities and Issuers  (NRSI) and their public offering will be deemed authorized, provided that  it is addressed  only to professional investors and that the issuer has filed the required documentation with the Superintendence of Finance of Colombia (SFC).

Regarding  the documentation, it is important to mention that the Decree differentiates between information prospectus and placement prospectus. The information prospectus should be filled with the SFC  prior to  authorization of the public offering. This document should contain only general information in relation to the identification of the issuer, the type of security being offered and the rules relating to the offer. On the other hand, the placement prospectus  is a private document between the issuer and the investors  and its content can be even contractually agreed between the issuer and potential investors.

Thus, the Second Market becomes a clear choice for the structuring of divestitures of private equity funds and a possibility to pension funds to invest in shares issued by these companies. Similarly, the Second Market opens the option for start-up companies to finance its operations without having to meet the requirements stated for  large companies to offer their shares in the securities market.

In general, the Second Market is conceived as a parallel market to the main market, in which star-up and medium companies  that do not meet the requirements for issuing securities in the primary market (minimum amounts of issue, risk rating, equity level involved, reporting standards, etc..), and where the securities offered can be acquired only by professional investors, such as insurance companies or pension funds.

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