International Business Law Advisor : Miami International Business Lawyer & Attorney : Santiago Cueto Law Firm : Florida and Global Business Litigation

I’m a huge soccer fan thanks to Brazilian great Pele, who introduced me to the game. So with the 2010 World Cup only a few months away, I was happy to read today that Brazil moved into the top spot in the FIFA World rankings .

This puts Brazil in pole position to go into the 2010 World Cup in South Africa as the world's top-ranked team.

But Brazil’s world dominance isn’t limited to the soccer field. Brazil is also home to one of the world’s top-ranked economies. 

Some of Brazil's economic speed gauges are reaching near red lines.The economy grew at least 10% in the first quarter of 2010 and is forecast expand by 5.5% this year—though some economists expect the growth rate to reach 7%, its fastest pace in decades.

We’re talking about a country that 9 months ago lent the International Monetary Fund $10 billion dollars to help improve the availability of credit in developing countries. It’s the first time that South America's biggest economy has ever made a loan of this kind.

 In the past Brazil was more accustomed to seeking help from the International Monetary Fund and the fact that it is now able to offer a loan instead is a striking indication of how its position has changed.

The news about Brazil's booming economy is dominated by big business, foreign investment, a huge consumer appetite, and the prospects of oil. But Brazil has also blazed forward as an entrepreneurial leader and represents a growing market for businesses wishing to expand their goods and services.

The World Bank and International Finance Corporation just released their latest report, Doing Business in Brazil and is an excellent guidepost for anyone thinking about doing business in Brazil.

The Report is embedded in its entirety below:

Doing Business Brazil

Also be sure to read these additional resources.

• BuyUSA.gov
• Embassy of the United States in Brazil
• Brazil U.S. Business Council
• Brazilian-American Chamber of Commerce

    -Santiago

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Because my international practice involves working with folks all over the world, I keep a keen eye on world holidays and do my best to schedule my work around them.  This is one of the best ways I can show my respect for other cultures.

The folks overseas always appreciate the extra attention to detail and you will be amazed how far this will take you in building long term relationships. 

There are several big holidays coming up in the next several weeks that will temporarily slow or even halt  the business activities of several countries. The two biggest holidays take place in China and Brazil. China celebrates its New Year next week and Brazil Celebrates Carnival the week of February 22.  

For other international holidays be sure to download the 2010 World Holidays Guide. The guide lists the main holidays of over 43 countries.   I’m not sure why Brazil and India were not listed but here they are:

Brazil

January 1 - New Year's Day
February 26-27 - Carnaval
February 28 - Ash Wednesday
April 13* - Good Friday
April 21 - Tiradentes Day
May 1 - Labor Day
May 13 - Ascension Day
June 14* - Corpus Christi
September 7 - Independence Day
October 12 - Our Lady of Aparecida
November 2 - All Souls' Day
November 15 - Proclamation of the Republic
December 25 - Christmas

India

January 26 - Republic Day.
February 12 - Mahashivratri.
February 26 - Milad-Un-Nabi
March 28 - Mahavir Jayanthi.
April 2 - Good Friday.
Aprril 5 - Easter Monday.
April 28 - Buddha Purnima.
August 15 - Independence Day.
September 2 - Janmashtami.
September 10-11 - Id ul Fitr (End of Ramadan).
October 2 - Mahatma Gandhi's Birthday.
October 17 - Dussehra (Vijaya Dashami).
November 2 Guru Nanak's Birthday.
November 5 Deepavali or Diwali (Festival of Lights).
November 16- 17 - 17 Idu'l Zuha/Bakrid (Feast of the Sacrifice).
December 7 Muharram (Islamic New Year).
December 25 Christmas Day.
December 26 Boxing Day.

*Cajun Nation

February 7-28  - Super Bowl celebration and Mardi Gras

*With so much going on, New Orleans might as well be a sovereign nation for the moment. Don't event think about getting anything done there in the next few weeks. With the Saints' Super Bowl victory and Mardi Gras, February will be a month-long holiday for these folks.

        -Santiago

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Hey Brazil--Take Your Time With Those BITs, I Can Get Them Somewhere Else!

Today we’re launching the first in a series of posts on the BRIC countries in a fast, quick read format. While  the late John Hughes would have appreciated the titular tribute to his Breakfast Club classic, the series is meant to stimulate a robust discussion among those interested in the subject.

For the uninitiated, BRIC is an acronym coined by Goldman Sachs to refer to the red-hot economies of Brazil, Russia, India and China. According to the investment group’s projections, the BRIC countries could become among the four most dominant economies by the year 2050.  Let’s get things started with Brazil.

Our first topic picks up on an article I wrote Hey Brazil: It's Time to Ratify Those Bilateral Investment Agreements. The article centered on Brazil’s reluctance to enter into any Bilateral Investment Treaties (BITs). I promised I’d follow-up with a post on how to do business with Brazil and still enjoy the benefits of a BIT.

But Brazil does not have a BIT, you say?

Fortunately, Brazilian investors do not have to wait for changes in government policy to get the benefit of BITs. Investors can seek to structure their Brazilian investments to take advantage of the protection of BITs between other states.

Here’s how:

Establish a subsidiary in another Country. In many cases, a Brazilian investor can establish a subsidiary in a country that has a BIT with the host state through which to channel investments. Some BITs require only that the investor be established or incorporated in the home jurisdiction in order to acquire the protection of the BIT.

Here’s an Example:

Nationalization of Bolivian Energy Industry. When Bolivia took steps to nationalize the energy industry, Brazilian gas company Petrobras considered bringing investment claims against Bolivia for treaty violations by invoking the rights of its subsidiaries in Argentina and the Netherlands. Unlike Brazil, both Argentina and the Netherlands have BITs with Bolivia.

Conclusion

Brazil is increasingly emerging as a global leader and expanding its investment abroad. Brazilian Investors should take full advantage of BITs by establishing a subsidiary in another country. Doing so will ensure that their investments are protected.
 

Trend to Watch: A Surge in Investment Activity in Brazil Will Ultimately Lead to the Adoption of International Investment Agreements

     -Santiago

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Brazil is on a roll.  Yesterday’s Financial Times included a special 10-page section devoted to Brazil. One of the articles, Olympic Accolade Sets Seal on Progress, written by Jonathan Wheatly, succinctly describes the “exuberant optimism” that has gripped the country since it was awarded the 2016 Olympic Games.  And the Wall Street Journal recently reported on the Brazilian stock exchange making spectacular gains in the article Brazilian Stock Scores Spectacular Gains on US GDP Growth.  This is following last month’s IPO of Banco Santander’s Brazilian unit, the world’s largest IPO so far this year, as reported in the New York Times article, Banco Santander's Brazil Unit Raises $8 Billion in I.P.O.

While these events are certain to fund rapid expansion in Brazil’s capital sector, the exuberance is tempered by a look at the long road ahead. Yet it is impossible not to be blinded by the bright future that seemed out of reach not long ago.  Antonio Quintella, country manager at Credit Suisse Sao Paulo put it succinctly:

Nothing is guaranteed. But it is reasonable to assume that [Brazil] won’t repeat the mistakes of the past…it is very difficult not to be bullish”

Brazil Should Ratify Bilateral Investment Agreements

Brazil has emerged from the global recession as the darling of international investors; this has created a wealth of investment opportunities.  However, it lags behind all other Latin American countries in one important respect: it has yet to ratify any bilateral investment agreements (BITs).  These agreements protect international investors when disputes arise in host countries. In light of Brazil’s recent good fortune, the time has come for Brazil to rethink its approach to BITs and implement measures to protect foreign investors.

Bilateral Invest Agreements Provide Important Safeguards

BITs obligate host countries to provide safeguards for foreign investment. If host governments fail to heed these safeguards, investors maybe awarded money damages. The following safeguards are among those afforded by BITs:

1. host countries are prohibited from expropriating foreign investment without compensation.
2. The agreements often include national treatment provisions, which require a government to treat foreign investors no less favorably than they treat domestic investors. They also often include most favored nation provisions, which extent the same protections afforded to foreign investors from one country to foreign investors from other countries.
3. foreign investors have the right to transfer funds into and out of the host country without delay.
4.  In addition to substantive protections, BITs provide powerful dispute resolution mechanisms. Under these mechanisms, Foreign investors may choose to resolve disputes in binding international arbitration such as in the International Center for Settlement of Investment Disputes (ICSID) and arbitral tribunals organized under the United Nations Commission of International Trade Law (UNCITRAL).

These agreements provide important safeguards against government mistreatment, mitigating some of the political risks associated with making investments in foreign countries.

Conclusion

Although Brazil’s reluctance to ratify BITs may help to protect it against claims by foreign investors, the recent surge in outbound Brazilian investment should cause Brazil to reconsider its position against international investment agreements. 

While Brazil is busy contemplating this proposition, there is a way investors can structure their investments to take advantage of BITs between other states. Stay tuned, and I’ll let you know how in a follow-up post.

Trend to Watch: A Surge in Investment Activity in Brazil Will Lead to the Adoption of International Investment Agreements

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The economic landscape in emerging markets such as Brazil, China and India are beginning to show signs of life. These “greenshoots” are taking the form of IPOs, which are a leading historical  indication that world markets are springing back to life.

Emerging Market IPOs on the Rise

As reported in the Financial Times in the article Santander Launches Brazilian IPO, the Spanish bank, launched an initial public offering of its highly-successful Brazilian outpost making it one of the world’s largest initial public offerings of the year.

In addition, the Wall Street Journal reported in its article, Sinopharm plans $1.2 Billion IPO, that Sinopharm Group Co., China's largest pharmaceutical company, will attempt to raise up to $1.12 billion in an initial public offering in Hong Kong.

Not to be outdone by Brazil and China, India plans as many as 40 initial public offerings on the Bombay stock exchange in the next few months according to this article in Businessweek.

Risk Factors

In reading about these recent deals, I was reminded that, as a corporate lawyer, I am primarily in the risk management business. When a client seeks my advice on the complex legal issues surrounding an emerging market transaction, I always stress temperance over exuberance.  While  it is easy for one to get carried away with an opportunity to participate in a major securities deal,  counsel must advise a client of all the major risk associated with the listing.  As I wrote in an earlier post, due diligence is an integral part of the process. This is particularly true of emerging markets since government oversight can fall short of the standards set by developed markets. Based on experience, market research and analysis, I’ve identified 6 risk factors which can undermine the IPO process in emerging markets:

1. Potential conflicts of interest arising from the involvement of the candidates’ senior management in other competing but not openly disclosed businesses
2.  Litigation history of IPO candidate and key principals being omitted or insufficiently described in the prospectus;
3. Inaccurate statements of academic qualifications and technical expertise when describing senior management background and experience;
4. Undisclosed tax liabilities – a significant problem;
5. Undisclosed environmental problems or fines; and
6. Undisclosed industrial labor disputes in outlying areas

Conclusion

The main objective in this risk analysis framework is to ensure that public information including offering documents contain all material information about the issuer and its financial condition, and that no important information is omitted or understated. Careful analysis of these 6 key risk factors will minimize the likelihood of one succumbing to misplaced exuberance.

Trend to Watch: As the pace of emerging market IPOs picks up, look for more investors to be misled by omission or understatement of material information

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