On The GC Grapevine - Brazil - Edition 1

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BRAZIL In This Edition: LETTER

FROM THE

EDITORS …………………….1

I NTERVIEW WITH RODRIGO FERRAZ P. CUNHA - CHIEF L EGAL OFFICER OF L AEP I NVESTMENTS LTD…………3 

I NTERVIEW WITH M ARCO A NTONIO B. PISANI GENERAL COUNSEL AT P ATRIA I NVESTIMENTOS …………...4 

P RIVATE E QUITY I NDUSTRY IN B RAZIL” B Y RICARDO V EIRANO AND GUSTAVO M ORAES.…….….2 

“THE

“RENEWAL OF CONCESSIONS IN 2015” BY C ARLOS E DUARDO SILVA M ARCATTO ………………….……….….2 

Issue 1: Private Equity

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Issue 1: Private Equity Letter from the editor s Welcome to the first edition of a publication that has been in the minds of many for some time. A concept brought about by popular demand from leading lawyers yearning for sector-specific information from their peers and a forum where they can contribute some know-how themselves. Over the past year, we have often received requests from the in-house lawyers for a publication to share their experiences, triumphs, best practices and challenges, all within the General Counsel world in Brazil.

subscribers the opportunity to recommend who should be interviewed for the next edition.

(My) Word On The Grapevine will offer readers the opportunity to make their voices heard directly. Feedback, replies, comments and additional information that our readers wish to share with the rest of the community can be submitted to our editorial team and published.

We will offer more details into all of the above in this first edition but we are always happy to hear from our readers so, Thus, as part of our commitment to please, feel free to write to us at listening to the market, we proudly launch GCG@legalisglobal.com or join the dediour exclusive “GC Grapevine” newsletter, cated group here for more details. dedicated to You, the General Counsel.

The “GC Grapevine” will come to you 4 For us, this has been a phenomenal few times a year spanning sectors such as weeks: conducting the interviews, designPrivate Equity, Energy, Banking & Fi- ing the lay out, and gathering all the nance, Pharmaceuticals and other. In the information provided by you, the readers. midst of the excitement around the We strive to make The “GC Grapevine” creation of the “GC Grapevine” we hope the most sought-after legal specific to reach new milestones of information publication in Brazil. Thank you for all the sharing paired with in-depth interviews quality contributions and we look forward with General Counsels who are paving the to bringing you further issues this year.

Enjoy the read! road of Brazil’s in-house market.

At the same time, we wish this to be a truly interactive newsletter. We have asked top tier firms to contribute to this newsletter with news as well as legal analysis, and we will continue to do so.

We wish to take this even further and invite all our readers to make their voices heard via one of our three interactive columns:

Eduardo Seabra Principal Consultant - Brazil Legalis

Who do you see as a leading expert in the energy industry?

Who would you love to read about in the next issue?

Tell us at GCG@legalisglobal.com

Liesel Vasseva Senior Consultant Legalis

Radu Cotarcea Marketing Manager - Emerging Europe and Latin America The Private Practice Strip will offer Legal firms the chance to make brief announcements.

The Grapevine Pick will offer all our

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Rodr igo Fer raz P. Cunha - Chief Legal Officer - Laep Investments HL: Many PP lawyers tend to think that in-house lawyers drop their pens at 5pm. In reality what is life as a GC like?

“I suppose each person has a different personal approach to solving problems.

These skills are acquired and perfected over time and with experience.”

“You need to have a thorough understanding or “street knowledge” of what M&A transactions entail. ”

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RC: My role entails both being a GC and a partner at Laep. The “5pm thing” just doesn’t happen.

Frequently I work through the night to get a deal finished, as has been the case for the last few days. This is not always the case, but in general working hours are long, including weekends. We are very busy at Laep, also because we are listed both in Luxembourg and in Brazil and we have over 20 000 shareholders, so you can imagine taking care of all the work that comes with this kind of business.

HL: The GC position has HL: What strategies do you many facets to it. What put in place to deal with aspect do you find most such demands? challenging?

RC: The strategies I use depend RC: Structuring transactions and entirely on what deal is on the finding the best way to table. For instance, with implement them more efficient- distressed assets, it is important ly, by saving on taxes and using to understand the eventual different jurisdictions, can be a claims and legal consequences of challenge. Litigation issues are a dispute. With transactional always time consuming and work, you need to develop negotiating strategies. I suppose “hands-on”. each person has a different At the moment I am working on personal approach to solving an arbitration matter and am problems. These skills are coordinating work between acquired and perfected over time three law firms in Bermuda, and with experience.

New York and Sao Paolo. It is demanding reviewing thousands of documents in order to build HL: How did you become the best case. the GC at Laep?

Smaller issues that arise in these HL: What do you think the kinds of matters are outsourced, characteristics of a good PE but generally I have to be very involved with all material legal GC are? matters, and this is certainly also RC: You need to have a broad a challenge. knowledge of the law and also an in-depth financial knowledge. In addition, your understanding of HL: What other demands all that goes on behind the scenes are you faced with as a PE of transactions and the material GC as opposed to being issues on structuring them, in-house counsel for other must be up to scratch. companies?

International experience is a definite advantage in cross RC: In PE, you focus on putting boarder transactions and deals in place, many times in knowing the best lawyers, in various sectors. In-house GC’s each jurisdiction, and building up act as a “department” assisting relationships are also key. You the CEO and other departments need to be able to understand with the internal legal issues problems that arise, and be able linked to that particular compato work through them to find ny. It is more focused and operational work in that respect. quick and efficient solutions.

RC: I was in M&A private practice, both in Brazil and the U.S., before going in-house to AMBEV and CSN (a steel and mining company). I was approached by the Laep Chairman in mid 2008 and, after understanding the project and the challenges, I decided to join the group shortly after.

HL: PE is a fast-paced and demanding area of law, what draws you to this work?

RC: The challenge, the flexibility, always being faced with different “things” and of course the remuneration, truly linked with the group performance, is also a draw.

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HL: What do you look for size, we determine which firm when you choose a law to use. firm to work with?

In litigation we prefer boutique RC: I have built relationships firms. For sophisticated deals with lawyers over the years, involving capital markets and mainly in the jurisdictions we structured transactions we tend have operations. The Brazilian to use the big firms. market is quite concentrated in Sao Palo, and in addition we HL: What would your naturally work with lawyers advice be to a lawyer who over the table all the time in this decides to go in-house to a business so we get to know who PE fund? is who.

RC: You need to have a thorRC: When I need a particular ough understanding or “street lawyer with specific expertise, I knowledge” of what M&A will make a couple of phone transactions entail. The switch calls and choose a lawyer would be very hard if you are depending on their advice. highly specialized, for instance Depending on the transaction in litigation or IP. The learning

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HL: What are the main HL: How do you communi- trends or “hot-topics” cate effectively with non- influencing your work at the moment? legal colleagues? curve would be very difficult.

RC: You need to be able to simplify issues when talking to colleagues about risks and mainly the consequences that may flow from taking a certain course of action in a company.

You need to find solutions and not be seen as the “legal guy” who always says “no” and blocks ideas. As a result, you end up working closely with operational people, and together find solutions and ways to move forward in achieving the vision of the business.

RC: This depends on the scope of the fund and sort of deals you are looking for. Brazil currently has great opportunities in a variety of sectors. There are a lot of interesting opportunities in distressed assets, as well as agri-business, construction and infrastructure. The 2014 World Cup and the 2016 Olympics will bring a lot of focus to Brazil from the international market.

There are also many off-shore opportunities at the moment.

Marco Antonio B. Pisani - General Counsel - Patr ia Investimentos HL: Many PP lawyers tend to think that in-house lawyers drop their pens at 5pm. In reality what is life as a GC like?

“..it is satisfying to see creativity and growth in younger colleagues I mentor”

MP: I suppose you can say the same either way. There are always people, regardless of whether they are in-house or in private practice, who will “drop their pens” at 5pm. However, when you work in financial/ capital markets, it is very unlikely to knock off early.

HL: Why did you choose to become an in-house PE lawyer?

How did you become the GC at Patria Investimentos?

MP: Almost 7 years ago I was working as a lawyer in private practice and was working with Patria Investimentos. Patria had

various legal matters that I was assisting them with. Our relationship was excellent and I always admire the way Pátria did and still does business. One of Pátria’s partners informed me that they would open a position for an internal lawyer and he asked if I was interested.

After several interviews, I was selected.

ability to approach the bigger picture with creativity. You need to be able to approach legal documents in such a way that you see the hindrances and risks that may crop up down the line and be able to remove provisions that will ultimately cause problems or issues later on, and you need to be able to put strategies in place to deal with all eventualities linked to HL: What do you think the the work being done. characteristics of a good PE GC are?

HL: The GC position has MP: You need to have ethics. I many facets to it. What believe that ethics form the aspect do you find most foundation of any Private Equity challenging? professional’s character.

MP: Management of the team.

Creativity is also key. You need It takes a great deal of dedicato be entrepreneurial and busi- tion to invest in transferring ness-minded. When structuring knowledge to your team products and selling a vehicle or members, and it is satisfying to idea, you need to have the see creativity and growth in PAGE 4

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younger colleagues I mentor, I love it. I think that creatively structuring investments ideas and transforming them into reality is no easy task.

“The devil is in the detail.”

HL: What other demands are you faced with as a PE GC as opposed to being in-house counsel for other companies?

deal with any demand you are to new relationships, mainly faced with. with law firms that help us originating deals (for Private HL: PE is a fast-paced and Equity and other business areas demanding area of law, of Pátria). what draws you to this work?

HL: What would your advice be to a lawyer who Private equity work is quite a decides to go in-house at challenge. Thus, you need to specifically a PE fund? have good professionals. Here at Patria we work with great MP: You need to be an people and great professionals individual who can and will be (from whom I learn all the able to close a transaction. You time). It is always a pleasure to have to have the skills to see an investment case go well. negotiate effectively and to We are all a part of the process mediate between parties. You and not just a service provider. need to remember that after closing a deal, the next day you HL: When do you outwill still be dealing with the source legal work? other side (which are now your MP: We always outsource legal partners) and with the work. There is simply too much employees of the portfolio work to be done. At any time company. The private practice we have around 4 to 7 Due lawyers won’t be.

Diligence projects underway so naturally we have to outsource.

“I have learnt to be We also outsource to external direct and to the lawyers for certain legal opinions and for complex point, and to cut matters involving offshore funds out the legaleze” and certain investment structures.

MP: An in-house lawyer at a single company will get to know the intricacies of working at ‘that’ specific company, its business and, occasionally, its M&A deals, if applicable. As a private equity GC, you deal with complex matters which are linked to various stages of a private equity life cycle (structuring a product, finding investors, acquiring, monitoring and selling portfolio companies). Within that cycle, you are dealing with the logistics of various companies in various sectors. This results in constant- HL: What do you look for ly learning on the job. when you choose a law HL: What strategies do you firm to work with? put in place to deal with MP: We work with experienced such demands? partners at several firms. We MP: Strategies develop with look at the characteristics of the time. It is so important to people; we choose to work with always be focused on the people who we know we can process and to be extremely rely on to get the job done. We careful about everything you do have developed relationships each step of the way. As they with our external lawyers over say: “The devil is in the detail.” the years and these are the With experience you grow and lawyers we work with closely. learn and develop strategies to However, we are always open PAGE 5

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HL: How do you communicate effectively with nonlegal colleagues?

MP: As directly as possible. In my first week here fresh from being a private practice lawyer, I was asked a question by a colleague and duly furnished him with a 6 paragraph reply.

After reading one paragraph he asked, “Can Patria do this, yes or no?” and in short my response was “yes”. I have learnt to be direct and to the point,

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and to cut out the legaleze. We are all very straightforward and this works very well.

HL: What are the main trends or “hot-topics” influencing your work at the moment?

MP: We have a new product which we hope to have in place in the not too distant future, but unfortunately this is a secret for now.

HL: What do you foresee for PE funds in the next year or so?

MP: Lots of work, as always.

We have billions of US dollars to invest.

HL: What legal/regulatory challenges face the PE sector?

MP: I really don’t see any legal challenges to structure PE investments. The legal framework that we work in here in Brazil is quite good. FIP is a great vehicle for private equity.

There has also been a good initiative to create a selfregulatory code for private equity funds. The real challenges are faced by both extremities of the private equity life cycle: to find investors for your fund and enhance the business of your portfolio companies (in the complex Brazilian environment).

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funds and 550 invested companies. The total volume of funds committed to Brazil had reached more than US$35 billion. Foreign investors play a major role in the Brazilian private equity industry, contributing around 50% of the total volume of funds.

The pace seems to have picked up substantially in the last two years, with private equity funds The Private Equity industry in dedicated to Brazil raising over Brazil started back in the mid US$3 billion during the first six 70’s by means of investment months of this year. programs sponsored by the Brazilian Federal Government, This increase has, among other mainly through the Federal factors, been fueled by a numDevelopment Bank (BNDES) ber of success stories involvand the Investment Fund for ing private equity houses which the Financing of Studies and invested in the late 90’s and early 2000’s (such as Advent, Projects (FINEP). the former AIG Capital and JP However, only upon the Morgan Capital Partners, FlatiBrazilian economic stabilization ron) and found their way out in the mid 90’s and the taking their invested companies enactment of the first specific public in the mid 2000’s, such regulations the private equity as Diagnósticos das Américas, industry started to develop Gol Linhas Aéreas, América more solidly. At that time there Latina Logística – ALL and were only eight asset managers Submarino. dedicated to private equity The most recent boom in the registered with the Brazilian Brazilian private equity Securities and Exchange industry occurred in 2008 Commission (CVM). when Brazil was granted Approximately fifteen years investment grade status by later, according to a census Standard & Poor’s. It boosted made in 2009, the Brazilian the volume of investments by private equity industry had pension funds, which in 2009 risen to nearly 200 registered became responsible for asset managers, over 1,500 approximately 50% of all funds professionals, 230 investment raised by the private equity

industry.

The rise of strong industry organizations within the Brazilian private equity and venture capital business community also contributed to the development of these industries. The Brazilian Association of Private Equity and Venture Capital has been playing a pivotal role over the last 10 years by promoting such industries abroad and coordinating efforts to improve the relevant regulations and public policies relating to these industries.

“..the Brazilian private equity industry had risen to nearly 200 registered asset managers, over 1,500 professionals, 230 investment funds and 550 invested companies.”

The current investment trends in private equity in Brazil point to businesses fueled by local consumption and infrastructure projects. The Brazilian economic development has increased household earnings and consequently boosted internal demand for products and services. In addition, as the dates for the FIFA World Cup (2014) and the Olympic Games in Rio de Janeiro (2016) approach, investments in

Siqueira Castro Advogados Historic ABRAPP case confirmed After a 20 year litigation, FND, BNDES and the Federal Government were forced to pay a total of 8 billion Reais to ABRAPP (The Private Pension umbrella organization) and associated companies. The judgment is final. Background: In July, 1986, private pension entities were forced to purchase bonds from the National Development Fund (BNDES). In September, 1991, the National Treasury Secretary issued a rule changing the valuation index, causing a loss for all ABRAPP’s associated companies.

TozziniFreire Advogados TozziniFreire advises Casino Group TozziniFreire assisted Casino Group in a dispute with Companhia Brasileira de Distribuição/Pão de Açúcar in its intended merger with Carrefour. In 2005 TozziniFreire assisted Casino in the acquisition of the shares from Companhia Brasileira de Distribuição for the joint control of Pão de Açúcar.

TozziniFreire assists in construction project financing TozziniFreire assisted International Finance Corporation in connection with the US$ 679 million project financing for the construction of a terminal in the Port of Santos. This project is focused on pollution cleanup as the terminal will be located in a site that for the last 50 years has been used as an illegal dump-site and represented IFC’s largest syndication and port investment globally.

If you would like to announce your firm’s recent successes contact us at GCG@hudson.com

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The Pr ivate Practice Str ip

The Pr ivate Equity Industry in Brazil Ricardo C. Veirano and Gustavo Moraes Stolagli Veirano Advogados

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infrastructure are intensifying, ranging from the construction of new sports facilities, to the development of enhanced public transportation systems and the construction and refurbishment of new accommodations for tourists.

“Hopefully now is the time for Brazil”

The local economic development has contributed to increase the participation of Brazilian investors in the asset management industry as a whole and the development of private equity products for non-institutional (although qualified) investors, including individuals. Indeed, the devel-

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opment of investment products for retail investors has emerged, by means of the creation of investment funds for individuals with a given net worth, who are interested in projects that combine significant returns at a reasonable risk, such as the financing of power plants.

Additionally, the efforts in recent years to develop a secondary market for smaller businesses by the Brazilian Stock Exchange, which resulted in the creation of the BovespaMais, shall contribute to the future development of private equity and venture capital markets by

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providing another exit alternative for those funds that invest in smaller businesses which are not eligible for regular listing at the Brazilian Stock Exchange.

Although it is always very hard – and probably unwise - to try to predict the future, it is fair to say that the facts stated above and the current prospects for the continuing development of the private equity industry in Brazil make for a very compelling case in its favor.

Hopefully now is the time for Brazil.

L e g a l M a r ke t i n g a n d B u s i n e s s D eve l o p m e n t S e m i n a r N ove m b e r 1 0 , 2 0 1 1 , S a o Pa u l o, B r a z i l Hudson Legal is happy to present an excellent opportunity to develop your customer relationship and business development capabilities in search of better business.

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Renewal of Concessions in 2015 Carlos Eduardo Silva Marcatto Felsberg E Associados Constitution: Art. 175.: The Government is responsible for providing public services, either directly or under regimes of concessions, always through public bidding, in the form of the Law. Sole Paragraph. The law shall provide for:

This is an issue that is shining brightly. At the time of writing on September 16, 2011, this week alone, at least four reports have been published in important national newspapers discussing different aspects on the matter

“These issues are currently of such great importance since they concern almost 22,000MW of generated power , 73,000km of transmission lines and 37 distribution concessionaires.”

There are also numerous speeches being delivered on the subject in various parts of the country. But what is the highly controversial ‘Renewal of Concessions’ really all about?

Here we will try to provide a general overview of the subject.

Firstly, we should understand the legal basis of the issue. We can start with the Federal

I – the regime for companies that have concessions or permissions to provide public services, the special character of their contracts and of their extension and the conditions for lapse, supervision and termination of the concessions or permissions…

And what does the Law have to say about those concessions which were not subject to bidding, the so-called “old concessions”?(1) In 1995, two laws: one saying that once their granted period had terminated, these concessions should go to bidding(2); the other, later law(3), allowing for an extension of up to 20 years (or in other words, until 2015). In 1996, a new Law was published that came to be known as the Aneel Law (since it created the National Electrical Energy Agency), and which allowed for successive extensions(4).

Completing the picture, another law was published in 2004(5), revoking article 27 of the Aneel Law and bringing back the 20 year limit on

renewal. In fact, part of these old concessions were regrouped and have gone into privatization, obtaining a concession period of 30 years, whilst part were renewed for 20 years. It is the latter which are the subject of debate here.

an extension to be acceptable.

As such, it would only be possible to consider an extension of concessions which do not go to public bidding in the event of a constitutional amendment. A Proposal for Amendment of the Constitution has been presented with a view With foundations in this legal to allowing renewals. But even basis, the camps are basically this solution has given rise to divided into three large groups. opposition, in that it would The first two, which are in the attack the principle of equality. minority, represent the two It so happens that there are in extremes of the spectrum, fact a number of opposing affirming that either (a) renewal interest groups involved in the will not be possible under any debate. circumstances, since the constitutional system would The Federal Union’s interest is always demand bidding, whilst a to maintain the concessions third party could always present with the companies, or in other a better proposal; or (b) a mere words, renew the concessions. alteration of ordinary law It is also in the interest of the would be needed to allow for owning States to extend the the extension of the old concessions, be it to maintain concessions, since there would the concessions with the be other hypotheses within companies, or be it to increase which the renewal could be the value of those state-owned admitted. This camp has companies which are currently adopted as their leading concessionaires, in order to argument the allegation that the privatize them for a much alterations made up until higher value in the future. present have been made under Private investors either support ordinary norms. re new al, if t hey h ol d The majority position, which it concessions considered to be appears should be adopted, “old”, or seek investment speaks of the obligation for an opportunities. alteration in the content of the constitution. According to the The consumers would prefer to proponents of this point of see a reduction in the values view, article 175 requires that (which would lead to nonbidding take place in order for extension), or the continuation PAGE 8

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of established services (the non- 80% of the installed facilities) renewal could lead to a and 37 distribution concessionscrapping of the industry). aires (33% of the regulated contracting sector).

To these groups can be added politicians who intend to wave Besides the simple renewal of the flag of renewal as one of concessions, however, the confirmed regulatory rules are their campaign platforms. also under debate, from the These issues are currently of regulatory model for assessment such great importance since and the procedures for t h e y c o n c e r n a l m o s t returning assets to the State 22,000MW of generated power previously held by concessions (20% of the entire sum generat- which have expired to the ed in the country), 73,000km of depreciation and accounting of transmission lines (practically the concessionaires’ assets,

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since this is a unique opportunity for important issues to finally be resolved, an outcome which would improve the stability of the regulatory framework of the Brazilian energy sector, otherwise, we will have to face up to these same issues in a few years time.

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NOTES: (1) Those concessions which have already been bid for lie outside this discussion. These old concessions generate what is usually referred to as “old energy”, since their assets would be amortized.

(2) Law 8.987/95, art. 42, 1º (3) Law 9.074/95, art. 19 (4) Art. 27 of Law 9.427/96 (5) Law 10.848, arts. 8 and 32 (art. 8 altered art. 4 of Law 9.074, reintroducing the renewal limit of 20 years).

Issue 2: Energy T h e n e x t is s u e o f “ O n th e G C G r ap ev i n e ” w i ll f o c u s o n th e e n e rg y in d u s t r y. He re a re s om e way s you c a n g e t involve d :   T h e G rap ev in e p ic k : R e c om m e n d a g e n e ra l c ou n s e l t o b e f e a tu re d a s th e “ G rap ev in e p i c k ”   C om m e n t on a r t ic l e s a n d / or in te r v iew s f e atu re d in th e G C G. You r in p u t w i ll b e p u blis h e d u n d e r th e “ ( M y ) Wo r d on th e G rap ev i n e ” s e c ti on   W r i te t o u s w i th a ny f e e d b a c k at G C G @ h u d s on .c om . We a re a lway s h ap py t o h e a r f r om ou r re a d e r s .

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The information herein does not constitute legal advice or opinion. Hudson Legal will not be held responsible for any liability arising from the use of any information provided in this publication.

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We would like to thank those who contributed to this newsletter: 

Rodrigo Ferraz P. Cunha



Marco Antonio B. Pisani



Ricardo C. Veirano



Gustavo Moraes Stolagli



Carlos Eduardo Silva Marcatto

If you would like to subscribe and receive a hard copy of this newsletter please write to us at GCG@Hudson.com with “subscribe” in the subject line.

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The editors: Eduardo Seabra Principal Consultant - Brazil Legalis m: +55 11 70 99 66 79 @: eduardo.seabra@legalisglobal.com Liesel Vasseva Senior Consultant Legalis m: +36 20 529 6560 @: liesel.vasseva@legalisglobal.com Radu Cotarcea Marketing Manager - Emerging Europe and Latin America Legalis m: +36 20 969 6410 @: radu.cotarcea@Legalisglobal.com http://legalisglobal.com/