On December 28, 2023, a decree was published to reform and add several provisions to the Mexican Securities Market Law (Ley del Mercado de Valores) and the Investment Funds Law (Ley de Fondos de Inversión) (the "Reform Decree").
What does the Reform Decree consist of?
The Reform Decree includes, among other changes, the following: (i) incorporation of a new simplified procedure for the registration of securities ("Simplified Registration") in the National Securities Registry (Registro Nacional de Valores) ("RNV"), (ii) waiver of requirements for the cancellation of the registration of securities, (iii) amendments related to the corporate regime of issuers, (iv) amendments related to poison pills, (v) new ESG (Environmental, Social and Governance) regulation, (vi) simplified procedures for CERPIs (Certificados de Proyectos de Inversión) and CKDs (Certificados de Capital de Desarrollo), (vii) a stronger supervision regime for investment advisors, and (viii) incorporation of hedge funds.
When was the Reform Decree published and when will it become effective?
The Reform Decree was published on December 28, 2023, and it became effective on December 29, 2023.
Simplified Registration of Securities
The Reform Decree incorporates a new simplified procedure for the registration of securities in the RNV to allow certain companies or trusts that are not currently issuers of securities (which are expected to be mostly small and medium enterprises, although not limited to them), to participate in the Mexican stock market through the public offering of debt or equity securities ("Simplified Issuers").
Which are the requirements and limitations to offer securities under the Simplified Registration procedure?
While most of the requirements and limitations to offer securities under the Simplified Registration will be set forth by the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) (the "CNBV") through secondary regulation, which has not been issued to date,1 the LMV includes the following:
- Simplified Registration will not be applicable for the preventive registration of securities, which means that shelf programs may not be established under this regime;
- Issuers that currently maintain securities registered in the RNV may not offer securities under the Simplified Registration procedure; and
- Securities subject to Simplified Registration may only be purchased by institutional or qualified investors.
How does the Simplified Registration procedure will work?
To obtain the Simplified Registration, the issuer and the underwriter will have to prepare a simplified prospectus, supplement or brochure, as applicable, and file a listing application to a Mexican stock exchange on which the securities are intended to be listed. The stock exchange will be responsible for reviewing the documents and ensuring compliance with its internal regulation. The stock exchanges must approve in their internal regulations the rules for listing the simplified offering and for disclosing of periodic information to investors with respect to Simplified Issuers.
Once the stock exchange issues its favorable opinion for the listing of the securities, the issuer and the stock exchange will have to request the Simplified Registration from the CNBV.
Under the Simplified Registration, broker-dealers acting as underwriters and the stock exchanges are responsible for reviewing the registration documentation, and the CNBV is released from its obligation to review and authorize the offering of the securities.
What periodic obligations will Simplified Issuers be subject to?
The stock exchanges must set the rules for the disclosure of periodic information by Simplified Issuers, in accordance with the secondary regulation to be issued by the CNBV.
How can Simplified Issuers cancel their registration?
The stock exchanges must request the cancellation of the registry of the securities of Simplified Issuers when (i) requested by the issuer with prior approval from the shareholders' meeting, provided that the Simplified Issuer is in compliance with its obligations under the securities, or (ii) the Simplified Issuer has not complied with its disclosure obligations. Simplified Issuers may directly request the cancellation of their securities when extraordinary events prevent the continuity of their business or the fulfillment of their obligations under the securities.
How will underwriters participate in the Simplified Registration procedure?
Underwriters have the obligation to (i) verify that the offering documents comply with applicable laws and regulations; (ii) act in accordance with applicable laws and regulations and the agreements executed with Simplified Issuers; and (iii) perform an evaluation of the issuer using generally recognized and accepted procedures.
Cancellation of Registration in the RNV
For the cancellation of the registration of equity securities in the RNV of issuers that have committed serious or repeated violations of the LMV, the Reform Decree enables the CNBV to waive the requirement to carry out a tender offer for securities whose listing is suspended.
Also, the Reform Decree allows the CNBV to cancel the registration of securities when the issuer has defaulted on its obligations under such securities and has failed to file annual and quarterly reports for at least a year.
Corporate regime of issuers
What kind of issuers are subject to the amendments of the Reform Decree?
The Reform Decree includes changes to the regime applicable to SABs (Sociedades Anónimas Bursátiles) and public investment promotion corporations (Sociedades Anónimas Promotoras de Inversión Bursátil) ("SAPIBs").
How is the issuers' regime modified?
The Reform Decree sets forth a more flexible regime for SABs and SAPIBs by including the following changes:
- SABs are now authorized to issue shares that represent their capital stock with differentiated rights without special authorization from the CNBV and without a threshold;
- The shareholders' meeting of SABs and SAPIBs may delegate to the board of directors the authority to increase the capital stock of the issuer and determine the terms for the subscription of the corresponding shares, including the exclusion of the right of first refusal for existing shareholders;
- SABs and SAPIBs no longer have to prepare a prospectus or obtain prior authorization from the CNBV if new shares are offered exclusively to institutional or qualified investors or to existing shareholders exercising their right of first refusal; and
- SAPIBs can freely decide when they want to convert to a SAB.
It is important to note that for SABs and SAPIBs to utilize the new provisions set forth in the Reform Decree, they will need to hold an extraordinary shareholders' meeting to approve the corresponding amendment to their bylaws. Unless higher quorums are required under the respective bylaws, the amendment of bylaws must be approved in an extraordinary shareholders' meeting with at least 75% of the capital stock represented and by the consent of the shareholders representing at least 50% plus one of the shares that represent the capital stock of the company. If the shareholders' meeting is held pursuant to a second or subsequent call, it will be legally installed regardless of the number of shares of the capital stock represented in the meeting, and the resolutions will be validly adopted when approved by the favorable vote of the shareholders representing at least 50% plus one of the shares representing the capital stock of the company.
The Reform Decree includes the following changes regarding provisions to prevent a change of control of SABs (i.e., poison pills):
- The Reform Decree eliminated the restriction for poison pills to exclude one or more shareholders from the economic benefits resulting from a change of control.
- The Reform Decree eliminated (i) the restriction to absolutely limit a takeover of the SAB and, (ii) the requirement for the prior board of directors' approval to acquire a certain percentage of shares of the SAB, as well as the need to include the criteria that must be considered by the board to resolve and the period, which could not exceed three months.
How can a SAB include a poison pill in its bylaws?
Poison pill provisions need to be approved by the extraordinary shareholders' meeting of the SAB, in which at least 20% of the shares represented did not vote against the poison pill provision.
What is the new ESG regulation?
The Reform Decree establishes the obligation of the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público, "SHCP") to issue, prior opinion of the CNBV and Banco de México, regulations on Environmental, Social and Governance matters aimed at promoting, informing and evaluating the adoption of best practices in this area by issuers and other participants in the securities markets.
The transitory articles of the Reform Decree do not set a specific deadline for the SHCP to issue the new ESG regulations.
CERPIs and CKDs
In connection with CERPIs and CKDs (alternative investment funds), whenever there are modifications related to the number, class or series of securities derived from capital calls, prior updates of the registration in the RNV will no longer be required. Instead, it will be sufficient to notify the CNBV once the placement of the securities has been made, within a term to be provided by the CNBV in general provisions.
A stronger regime is provided for the CNBV to supervise Investment Advisors, which includes more requirements to obtain their registration and broader supervision faculties of the CNBV. In particular, the CNBV must be notified of any share transfer of less than 10% of their capital stock, and transfers exceeding the 10% threshold will be subject to authorization by the CNBV.
Additionally, the Reform Decree allows Investment Advisors to be managers of hedge funds, subject to prior authorization from the CNBV.
The Reform Decree introduces the possibility of setting up hedge funds in Mexico, which are intended to have a flexible investment regime and may acquire, among others, securities issued by Simplified Issuers, as provided in their respective investment policies and strategies, in accordance with the secondary regulation that the CNBV will have to issue for these purposes.
Unlike other types of funds, only institutional or qualified investors will be able to invest in hedge funds.
When is the new regulation going to be issued?
General provisions to be issued by the CNBV shall be issued no later than 365 days from the day after the entry into force of the Reform Decree.
1 The CNBV shall issue the secondary regulation no later than 365 calendar days following the entry into force of the Reform Decree.
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