CVM Instruction No. 602, published on August 27, sets forth rules regarding public offerings of hotel collective investment contracts (CICs), the so-called condo-hotels. It repealed CVM Resolution No. 734/2015 (as amended by CVM Resolution No. 752/2016), which until then regulated the matter.
During the time CVM Resolution No. 734 was in force, offerors were obliged to comply with the provisions of CVM Instruction No. 400/2003, which waived the need for registration of the offer and the payment of any fees to the CVM. This changed with CVM Instruction No. 602, which is exhaustive in stipulating that "the provisions in the specific regulation on public offerings of securities do not apply to public offerings of hotel CICs." In addition, it is mandatory to register the condo-hotel offering with the Superintendence of Securities Registration (SRE), via a request for registration, which must be accompanied by proof of payment of a CVM inspection fee, among other documents.
The change in the definition of "offerors" brought about by CVM Instruction No. 602 deserves special mention. According to the new instruction, the developer and any other person that performs acts of public offering of hotel CICs are considered offerors. Therefore, the operator of the hotel development no longer fits, as a rule, within the concept of an offeror, unlike in the previous rule. Accordingly, the CVM was of the position that "in effect, the offeror is the one who, in fact, makes efforts to place the hotel CICs", therein recognizing that "[the hotel operator] is not usually responsible for the sales efforts of hotel CICs and, therefore, does not fit within the concept of offeror." But even without necessarily appearing as an offeror, hotel operators remain obliged to observe some rules regarding the disclosure of financial information concerning the development and hiring independent auditors.
Other important changes were (i) the possibility that the condominium owners may, gathered in a general meeting, as of the third year after the date of the disclosure of the annual audited financial statements in which the hotel operating income was recognized for the first time, waive the need for the hotel operator to prepare and make available to the public annual financial statements of the hotel development audited by an independent auditor registered with the CVM and quarterly financial statements pertaining to the hotel development, accompanied by a special review report issued by an independent auditor registered with the CVM; and (ii) the lack of approval by the CVM of the advertising material(s) to be used in the scope of the offer, without prejudice to the possibility that the offeror may submit, all at once, such material(s) for approval by the agency, together with the application for registration of the offering.
The table below compares the main rules applicable to offerings of hotel CICs, before and after the issuance of CVM Instruction No. 602:
|Matter||Before CVM Instruction 602||After CVM Instruction 602|
|Concept of "offeror"||"The management company of the hotel development jointly with the real estate developing company or, absent that, the company responsible for offering the fractional units of the general condominium."||"The real estate developing company or any other person that performs acts of public distribution of hotel CICs."|
|Concept of CICs||"A set of contractual instruments publicly offered in the framework of a hotel development."||"A set of contractual instruments publicly offered, containing a promise of remuneration linked to the stake in the results of a hotel development organized through a condominium."|
|Need to register the offering||Waived, provided that the requirements of Resolution 734 are met.||Registration with the CVM (SRE) is required, with the possibility of automatic waiver only in the cases provided for in article 28 of CVM Instruction 602.|
|Waiver of registration of offering for qualified investors||Waiver of registration of the public offering and issuer of offerings of CICs involving efforts to sell: (i) autonomous real estate units intended exclusively for investors that hold at least R$ 1,000,000.00 of equity or invest at least R$ 300,000.00 in the offering; and (ii) fractional units in condominiums intended exclusively for qualified investors that hold at least R$ 1,500,000.00 of equity or invest at least R$ 1,000,000.00 in the offering.||There is no such difference in the waiver of registration for qualified investors or for investors who have significant equity or make an investment in the offering above a certain amount. In addition, there is no longer differentiation in the type of condo-hotel, since CVM IN 602 only deals with hotel CICs of structured projects under the condominium modality with individualized autonomous units.|
|Waiver of disclosure of audited financial statements||There was no provision for the possibility of waiver.||It may be waived by the condominium owners gathered in a general meeting, as of the third year after the date of disclosure of the audited annual financial statements in which the hotel operating income was recognized for the first time.|
|Deadline for disclosure of annual audited financial statements||60 days as of the end of the fiscal year.||90 days as of the end of the fiscal year.|
|Fee payment||There was none.||Need to pay fee relating to registration of the issuance.|
|Need to update the declarations of the hotel operator and real estate developing company||There was none.||Need for annual update, making the respective update available to the public on the webpage of the hotel project.|
|Offer deadline||There was no time limit set in Resolution 734. However, the term established in CVM Instruction 400 is 6 months as of the date of disclosure of the notice of initiation.||Maximum period of 36 months as of the date of publication of the notice of initiation, renewable once only for an equal time period.|
|Deadline for disclosure of the registration of the Project Development Memorandum||There was none, since there could also be condo-hotels structured in the form of fractional units of voluntary condominiums.||180 days after the disclosure of the notice of initiation.|
|Advertising material||Need for prior approval by the CVM.||CVM approval is not required, however, the offeror has the option of submitting it to the CVM for approval only once, concurrently with the request for registration of the offering.|
|Contents of the prospectus and economic feasibility study of the hotel development||The prospectus and the feasibility study should contain minimum information, described in the annexes to Resolution 734.||In addition to the information that was already required, new mandatory information was included and should be described in the prospectus for the offering and in the economic feasibility study relating to the hotel development, as set forth in Annexes 6-I and 6-II of CVM Instruction 602.|
CVM Instruction 602 only applies to offerings of hotel CICs referring to autonomous real estate units that are part of developments created in the form of condominiums. Public offerings of condo-hotels structured in the form of sale of fractional units of voluntary condominiums, which were also covered by Resolution No. 734, must comply with the provisions of CVM Instruction No. 400. We believe, notwithstanding, that the CVM may accept the adoption of differentiated placement regimes for offerings of hotel CICs involving efforts to sell the units of voluntary condominiums, in the same way as was already the case with Resolution No. 734.
The CVM maintained the need for the offeror to demonstrate that the right of withdrawal of the purchasers of CICs from the same project, distributed after April 18, 2016, the date of publication of CVM Resolution No. 752, without registration or waiver of CVM registration, given that such placement is considered irregular by the agency.
CVM Instruction No. 602 entered into force on the date of its publication. Its provisions are immediately in effect, observing that, for offerings that have already been exempted from registration on the date of publication, the offerors may continue to follow the provisions of CVM Resolution No. 734 and, consequently, CVM Instruction No. 400. Alternatively, they may follow the regime established by the new instruction, including with respect to the content and updating of the prospectus and the economic and financial feasibility study of the development and as regards the possibility of waiving the preparation of financial statements, as indicated above. For this, the offerors will need to submit a report to the CVM within 60 business days from the date of entry into force of CVM Instruction No. 602. For offerings that are subject to a request for waiver by the agency, the offerors may, alternatively, continue to follow the provisions of CVM Resolution No. 734 and, consequently, CVM Instruction No. 400, or submit a new application for registration, wherein it observes the new instruction in full.
Instruction No. 602 finally fills a regulatory gap regarding the issue, which gained prominence in 2013 after the suspension of various offerings by the CVM, and resolves the debate regarding the classification of hotel operators as offerors, which has been generating much debate since the publication of Resolution No. 734, on March 17, 2015.