Chile: Public Offering Of Foreign Securities In The Chilean Offshore Stock Exchange

Pursuant to the Law No. 19.601, a new Title XXIV was added to Law No. 18.045 (the "Securities Law").

The new title contains the applicable regulations to the public offer in Chile of foreign securities or securities deposit certificates representing them ("CDV"). The main goal of amendments introduced in the Securities Market Law is to promote and allow the creation of the so-called "Off-Shore Stock Exchange", in order to attract foreign issuers, foreign investors and to permit and facilitate foreign investments for Chileans, whether individuals or companies, and mainly institutional Chilean investors.

1. General Regulations

Public offering of foreign securities in Chile or CDVs may only be carried out when the former or the latter are registered in a special public listing called "Foreign Securities Registry", kept by the Superintendencia de Valores y Seguros¹ ("SVS").

The concept of foreign securities shall also include, among others, certificates of deposit representing Chilean securities issued abroad.

Also, pursuant to the rules contained in Title XXIV, the shares of international investment funds indicated in Law No. 18,815² and any other security authorised by the SVS may be traded in the Offshore Stock Exchange.

1.2 Operations carried out pursuant to the rules contained in Title XXIV shall be considered foreign exchange operations for the purposes of the provisions contained in the Central Bank Act.

Therefore, the Central Bank is responsible for determining the rules applicable to foreign exchange operations that result from the application of the provisions in Title XXIV³.

Foreign securities and CDVs may only be expressed in foreign currencies authorised by the Central Bank, shall be traded in such currencies in the local market and shall be considered foreign securities for all legal effects. The provisions in paragraph eight of article 39, Title III, of the Central Bank Act shall apply to those operations, whatever the nature of the security may be.

1.3 In connection with foreign securities or CDVs traded in the Offshore Stock Exchange, any kind of income, capital gain or dividend paid or received by investors who are not domiciled or resident in Chile, will not be affected by any tax in Chile because the foreign securities and CDVs are not considered Chilean assets according to the Chilean Income Law⁴.

1.4 The operations referred to in Title XXIV may be effected in the stock exchanges referred to in Title VII of the Securities Market Law, which shall regulate these operations pursuant to a general rule issued by the SVS⁵. The internal regulations that adopt the stock exchanges in relation to these operations, should previously be approved by the SVS, the latter being empowered to reject, modify or omit, pursuant to a founded resolution.

Title XXIV also contemplates that the SVS pursuant to a general rule, having been previously favourably informed by the Central Bank, can authorise over-the-counter transactions of foreign securities or CDVs.

1.5 The SVS shall establish by general rules the form, conditions, terms and modalities in which the registration and public offering of foreign securities or CDVs shall be carried out, bearing in mind the nature thereof and determining the markets where they may be traded.

Foreign securities or CDVs may only be registered when the issuer of the securities is listed with the supervisory entity or competent regulator in its country of origin or with the supervisory entity of another country where its securities are in fact traded.

Notwithstanding the issuer’s listing, foreign securities registered or those that create CDVs can be offered publicly in the securities markets of the country of the respective issuer or in other international securities markets. Foreign securities that cannot be offered publicly in the securities markets of the country of the respective issuer or in other international securities markets, may also be registered when they meet the requirements established by the SVS by general rule.

The SVS has enacted the following regulations:

(i) Rule No. 82 referred to the registration rules for foreign securities in the Foreign Securities Registry, the public offering thereof in Chile, disclosure, distribution and information requirements;

(ii) Rule No. 83 referred to instructions for public offering of foreign securities in the stock exchanges;

(iii) Rule No. 87 referred to the procedure for registration of shares of international investment funds, open and closed-end, in the Foreign Securities Registry, the public offering thereof in Chile, disclosure, public placement, and information requirements; and

(iv) Rule No. 88 referred to the rules for registration of CDVs of foreign securities in the Foreign Securities Registry, the public offering thereof in Chile, disclosure, distribution, and information requirements.

Each of the above rules establish specific legal, economic, financial, accounting, and administrative information about the issuer and its securities, to be filed with the SVS in order to obtain the registration of the respective foreign securities or CDVs; and the ongoing obligations of the issuer or depositary, as the case may be, after registration is made. The information about the issuer and its securities shall be provided to the SVS and stock exchanges in the language of the country of origin or in the language of the country where the securities are traded and in Spanish. A translation certified by the applicant for the registration of foreign securities or CDVs shall be sufficient for those purposes, if applicable, and it shall be considered an authentic document from the time it is delivered to the SVS.

In cases of insufficient information, the SVS may restrict, by a general rule, the trading of specific foreign securities or CDVs to special markets of specific groups of investors who have been determined to be able to participate.

The SVS may reject the registration of a foreign security or CDV in serious, exceptional cases regarding acts related to Law No. 19,366⁶ or circumstances where it is advised to disclose to the public because of their nature, and the grounds may be omitted in the respective resolution. In such case, the Minister of Finance and the State Defence Council, when appropriate, shall be confidentially informed of the omitted grounds.

1.6 For the transfer and transmission of all types of foreign securities, the rules applicable to the nature of the instrument shall be followed. Regarding the transfer and transmission of CDVs, the local rules on acquisition, assignment, transfer, and disposal of shares of publicly held companies shall apply.

1.7 In order to permit the investments of Chilean Pension Funds in shares of foreign mutual funds registered in the Offshore Stock Exchange those shares must be approved by the RRC before Pension Funds may start their investments.

1.8 Public offering of foreign securities in Chile, issued by international or supranational agencies, or foreign States, as applicable, or the public offering of CDVs representative thereof, shall be subject to the rules set forth by the SVS by general provisions. In any case, the offering may only be made when any of such securities is listed in the Foreign Securities Registry as stated above.

1.9 The issuer shall request registration of foreign securities. Notwithstanding the foregoing, in the case of the issue of CDVs, registration may be requested by the issuer or by a foreign securities depository.

The issuer may choose between registering the foreign securities or the respective CDVs.

When the issuer has requested the registration of foreign securities or CDVs, another foreign securities depositary may not request a subsequent registration for the same foreign security. If a foreign securities depositary has requested registration of a CDV, another foreign securities depositary may register another CDV issue related to the same foreign security, identifying the latter in order to distinguish it properly.

1.10 The SVS may suspend or cancel the registration of a security in the Foreign Securities Registry when it does not meet the provisions in article 186 of the Securities Law, or because of a violation of articles 14 and 15 thereof, in the form and terms established therein.

1.11 Foreign issuers, intermediaries, depositories of foreign securities and any other person participating in the registration, placement, deposit, trading, and other acts or agreements with foreign securities or CDVs, governed by the regulations contained in Title XXIX and the rules issued by the SVS, that violate these same provisions, shall be liable as indicated in Decree Law No. 3,538 and as per the responsibilities set forth herein.

2. Central Bank Regulations

2.1 The Central Bank of Chile has determined pursuant to Chapter XXIX Title I ("Chapter XXIX") of the Compendium of Rules on Foreign Exchange ("the Compendium") the conditions and modalities according to which foreign exchange operations involving the securities referred to in Title XXIV should be carried out.

2.2 The Central Bank has stated that operations involving foreign securities and CDVs will be effected in the Stock Exchanges existing in Chile, through the stockbrokers that are members of the respective exchanges houses, and should be carried out in United States Dollars.

2.3 Any individual or juridical person domiciled in Chile or overseas ("the Investor"), may purchase or sell foreign securities or CDVs, in accordance with Chapter XXIX’s regulations and those issued by the SVS, already mentioned above.

The Investor domiciled or resident overseas should utilise foreign capital to carry out the operations referred to in Chapter XXIX. The Investor with domicile or residence in Chile can use either its own available foreign currency or currency acquired in the Formal Exchange Market, and, in both cases, the investment is subject to the regulations contained in Chapter XII Title I of the Compendium.

2.4 In the case of the Investors domiciled in the country, which are administrators of Pension Funds, Security Companies, Mutual Funds, and International Investment Funds, the transactions that are accomplished under Chapter XXIX will be considered as overseas investments and furthermore should be subject to the regulations contained in the Chapter XXVIII of the Compendium.

2.5 The amounts that correspond to profits, dividends or benefits that the issuers distribute and that have their origin in foreign securities or CDVs, and that the holders have a right to receive, must be delivered to the respective beneficiaries in foreign currency directly overseas.

The holders of the foreign securities or CDV who are resident in Chile, and that intend to repatriate said currencies, will be subject to the regulations of Chapter XII and to those of Chapter XXVIII of the Compendium, as the case maybe.

2.6 The stockbrokers are obligated to inform, through the Stock Exchange, the transactions in which they have participated, in the form and period that the International Financial Operations Management of the Central Bank determines.

Similarly, the above said Management shall be advised to request, to whichever intervening parts, all other information that may be necessary in relation with the transactions that are regulated by Chapter XXIX.

3. CDV

3.1 For the purposes of the securities and stock market, it is understood that CDVs are titles transferable, registered, or issued in Chile by a depositary of foreign stock, and represent homogenous titles transferable from a foreign issuer.

The CDV can be converted into its equivalent foreign stock in accordance with the deposit contract executed by the issuer and the depositary of foreign stock or, in its case, in accordance to the internal trade-off regulation.

3.2 The foreign securities depositary requesting CDV registration shall be obliged to provide the aforesaid information as long as the respective CDVs remain in circulation in the country. It shall evidence to the SVS, with documentation, the commitment of the securities’ issuer, the stock exchanges where the securities are traded, or the regulatory authority of the respective issuer to promptly disclose such information.

Also, the foreign securities depositary shall be obliged to make information available to CDV holders about results and exercise of the rights emanating from the foreign securities provided by the original issuer thereof.

3.3 The foreign securities depository shall keep a record in the terms indicated in article 179 of the Securities Law, and for the purposes of Title XXIV shall exercise the rights and have the representation of the holders thereof. The SVS is authorised to establish additional requirements, in accordance with the nature of the securities involved.

3.3 An applicant petitioning the listing of a CDV may not request the cancellation of its registration in the Foreign Securities Registry until all the CDVs have been redeemed or withdrawn from the market or have been exchanged, and such obligation shall be set forth in the respective deposit contract.