SIFs Are Up For Grabs!

The National Securities Commission (CNVM) is making it possible to increase the maximum allowed stake per SIF shareholder through the draft new law regulating capital markets. Heretofore, shareholders in Financial Investment Firms (SIFs) cannot hold more than 0.1 percent in one SIF, under existing SIF bylaws.

The draft new law on capital markets, which The Government approved yesterday, grants the SIFs an exception to The Commercial Companies Law, allowing them to buy back their shares without needing permission from their respective Shareholder Assembly. CNVM Commissioner Paul Miclaus told "Bursa" that this measure was intended to help SIFs clarify their shareholder structure. SIFs currently have over eight million small shareholders having four-to-forty shares each. Most of them are not even aware that they actually are shareholders in these firms and act as such (do not claim dividends and do not participate in Shareholder Assemblies. The draft law would permit SIF Boards to make the buyback decision, with clearance from CNVM.

The shares bought back can be nullified or used to adjust the market price of all SIF shares. Whichever purpose is chosen, it will also need clearance from CNVM.

If some or all of the SIFs choose to nullify the shares they buy back, they will consequently have to diminish their share capital and alter their bylaws accordingly. The draft law in question again grants SIFs an exception by allowing them to perform this operation without permission from the respective Shareholder Assembly. However, they still need clearance from CNVM.

After the operation is completed, the stakes that amounted to up to 0.1 percent of the total before the operation will automatically exceed this limit. Current SIF bylaws would force those shareholders to sell the extra shares in order to stay within the limit. However, the draft law would enable SIFs to call a Shareholder Assembly meeting to increase the 0.1 percent limit. Such meetings would be possible and legal because the problem of not having the necessary quorum would no longer exist.

The 0.1 percent limit has been stirring controversies since 1999, when SIFs listed their shares on The Stock Exchange. Various groups of interests have been trying to take control over the SIFs ever since then but were unable to do so because of this limit. Consequently, they pursued their goal by trying to replace SIF managers. SIF Transilvania is the latest example in this respect. After lengthy lawsuits against SIF Transilvania and CNVM, one of the shareholders forced CNVM to invalidate the appointment of the SIF Transilvania president. However, the respective president was reelected during a subsequent Shareholder Assembly meeting held last week, so CNVM had to acknowledge his appointment.

Nevertheless, the battle for the SIFs will probably not start as soon as the draft law is enacted, but in 2005, when the terms of the current SIF managers ends.