João Batista Fraga Listings and Issuer Relations Executive Officer CReCER Creating an Enabling Environment for Growth and Development: the Role and Responsibilities of Government

2  Background  The Novo Mercado Solution  Novo Mercado´s Consolidation  What is next? Agenda

3  Background  The Novo Mercado Solution  Novo Mercado´s Consolidation  What is next? Agenda

4 BOVESPA An Overview  Brazil’s only stock exchange  Established in 1890  Entity owned by the member brokerage firms  Self-regulatory organization under the supervision of the Brazilian Securities and Exchange Commission (CVM)

5  415 listed companies  Market capitalization of listed companies:  May/2007: US$ 985 BI  Value traded:  May/2007: US$ 2,07 BI BOVESPA An Overview

6   BOVESPA’s Mission   Provide liquidity to listed shares   Offer an alternative source of financing to companies in Brazil   Brazilian market reality was very different   Primary market totally stagnated Background Back in 2000

7   Performing this mission depended on:   Reactivating the primary market.   Creating a receptive environment for public offerings, mainly IPOs.   Friendly environment for IPOs depended on the demands and requirements of the investors. Background Back in 2000

8 ENTREPRENEUR  consider price paid in the market very low – no stimulus to new IPOs INVESTOR  low valuation for Brazilian stocks – very low P/Es A vicious circle to break... Background Corporate Governance

9 Source: Bradesco Templeton Seminar Stock prices valuation Investors discount Company fair value Discount due to lack of information Discount due to inadequate governance Market value, adjusted to investor risk Governance

10   Improve the ‘quality of the product’:   Fostering companies to assure good practices of corporate governance related to investor protection.   Increase the investors confidence and willingness to acquire stocks and pay a higher price. BOVESPA’s Strategy

11  Background  The Novo Mercado Solution  Novo Mercado´s Consolidation  What is next? Agenda

12 Novo Mercado Commitment with good corporate governance  Companies adopt additional corporate governance practices, beyond those established in current Brazilian regulation  Greater transparency  Broadening the rights of minority shareholders

13 Novo Mercado Commitment with Good Corporate Governance  Launched in December 2000  Private sector initiative, based on and enforced through a contract with BOVESPA  Voluntary and market-driven adhesion  Set of rules more comprehensive than Corporations Law, reflecting market demands and requirements  Two more corporate governance segments: Level 2 and Level 1.

14 Novo Mercado Commitment with Good Corporate Governance  Entry into Novo Mercado is based on a contract between:  The company, its controlling shareholders and senior managers; and  BOVESPA  Agreement to comply with the Novo Mercado Listing Rule  Adhesion to an arbitration panel  Agreement to settle any shareholder company disputes through arbitration, in order to ensure the enforcement

15   Only one class of shares, with full voting rights: one share, one vote   Full tag along rights   Delisting: public tender offer at the “economic” value   Board of Directors: 2 year terms and a minimum of 5 members; 20% independents.   25% minimum free-float and adoption of special procedures in public offerings to enhance the dispersion of the company´s shares Novo Mercado Commitment with Good Corporate Governance

16  Much higher standards of disclosure  Annual balance sheet in US GAAP or IAS  Improved Quarterly Reports, including English version, consolidated financial statements and cash flow  Compulsory information disclosure includes:  related party transactions  trading and ownership of the company’s shares by the management and the controlling shareholders  Annual calendar of corporate events Novo Mercado Commitment with Good Corporate Governance

17  Improved public offering rules  Prospectus according to international standards, with full publicity  Retail distribution of new shares required  Lock up period for controlling shareholders 100% in the first 6 months, 60% in the following 6 months after the IPO Novo Mercado Commitment with Good Corporate Governance

18  Nível 1 (Level 1):  Higher disclosure standards of Novo Mercado  Nível 2 (Level 2):  Higher disclosure standards of Novo Mercado  Must comply with all the requirements of the Novo Mercado  Exception:  May continue to issue non-voting,« preferred » shares (PN), but these « preferred » shares will have voting rights in exceptional circumstances Level 2 and Level 1 Commitment with Good Corporate Governance

19  3 listing segments  Traditional market  3 Corporate Governance segments: Novo Mercado, Level 2 e Level 1 (december / 2000) Traditional Market Complying with regulation More disclosure Rights to investors and more disclosure Only voting shares, rights to investors and more disclosure Commitment with Good Corporate Governance

20 Novo Mercado Enforcement  Surveillance and enforcement by BOVESPA  Sanctions for breach of contract can include fines, delisting and other legal measures  Mandatory use of arbitration for shareholder/company disputes

21  Background  The Novo Mercado Solution  Novo Mercado´s Consolidation  What is next? Agenda

22 Novo Mercado´s Consolidation Market Capitalization Evolution

23 GDP ratio Novo Mercado´s Consolidation Market Capitalization Evolution

24 Novo Mercado´s Consolidation Daily Average Trading Value

25 Novo Mercado´s Consolidation IPO´s Evolution

26 Novo Mercado´s Consolidation IPO in 2004 and 2005

27 Novo Mercado´s Consolidation IPO in 2006

28 Novo Mercado´s Consolidation IPO in 2007

29   27% of total listed companies   60% of total market capitalization   66% of total trading value 116 companies Novo Mercado´s Consolidation 6 years later...

30 IGC x IBOVESPA x IBRX 50 Compared performance

31  Background  The Novo Mercado Solution  Novo Mercado´s Consolidation  What is next? Agenda

32 What is next? Listed companies migration  In 2001/2007: adhesion of 55 listed companies  The structural barriers for listed companies are bigger than those for the companies that are going public  Main leverages:  Investors  Initiatives like Companies Circle

33 What is next? Increase the number of companies going public  BOVESPA MAIS  New corporate governance listing segment  Natural path to Novo Mercado  For companies that want to access the market gradually, with more concentrated or smaller offerings, particularly small and medium enterprises  Basically aimed at medium term investors  Segment counts on BOVESPA’s programs to support companies in terms of their market exposure and in building the internal culture of public company

34 Medial São Carlos Romi Perdigão Rossi Residencial Cyrella Klabin Segall Totvs Dasa ABNote Datasul Lupatech Gafisa Odontoprev Brasilagro Eternit Embraer Lojas Renner What is next? Dispersed capital  Free float *Informações publicadas pelas companhias no site da Bovespa

35 Novo Mercado BOVESPA´s perception  The standard is set - the model is Novo Mercado  The culture of the companies has changed into adopting good corporate governance practices

36 Bovespa

CReCER Creating an Enabling Environment for Growth and Development: the Role and Responsibilities of Government