rule prevents stock from being sold

Share offerings tend to generate anxiety among investors in the face of the expectation of the asset’s appreciation potential. However, not everyone reads what they bring between the lines in the hundreds of pages of the prospectus that deals with the conditions for issuing the papers.

In two recent cases, the Nubank IPO and the sale of Eletrobras shares, investors had to deal with a restriction on the sale of shares, which prevents a shareholder from selling shares for a while, even if he makes a loss.

It is the so-called “lock up”, a contractual clause between the company and the issuers of its securities that establishes a period in which investors and partners cannot sell their shares, according to João Daronco, an analyst at Suno Research. A fine is usually imposed for those who break the ban. See if this restriction can make the investor lose money.

Two recent examples were from Nubank and Eletrobras. In the case of the state-owned company in the electricity sector, in which the purchase of papers was authorized with FGTS resources, the “lock up” for minority shareholders is one year.

The end of the “lock up” for the shareholders of the Nubankwhich also applies to the BDRs (the receipts for securities traded on the Brazilian stock exchange), was brought forward from June 7 to May 17 for all common shares, even those belonging to directors and part of the officers. However, the release for trading of the shares did not include the BDRs distributed in the program NuMembers (in which each bank customer won a share, free of charge), which should only take place in December.

The rule was designed, as Felipe Moura, Investment analyst at Finacap, says, to avoid the so-called “flipping”. The movement occurs when someone acquires shares through an IPO (initial offering of shares) and “follow on” (a process in which a company that is already publicly traded on the Stock Exchange and issues more shares, in a subsequent offering) and sells them on the same day in that they are available on the market. The objective in this maneuver is to obtain the greatest possible profit from the rise of the paper.

There is no rule by the Securities and Exchange Commission (CVM). Each company determines whether to lock up and the term — which can be different for partners, executives and minority shareholders. Depending on what the prospectus says, the shareholder can even sell the paper, as long as he pays a fine. As there is a fine, in many cases it is not worth selling the share, since the loss would be even greater than the devaluation of the share.

The experts heard by the UOL recall that the “lock up” serves as a company strategy to force investors to think long term and remove pressure on the share value when the offer is made, giving the company time to show that it has solid and reliable fundamentals .

“It’s also a way to minimize the selling pressure as soon as the offer is made, which works as a trigger for the price to drop”, says Larissa Quaresma, Investments analyst at Empiricus.

In the case of Nubank, for example, the Empiricus analyst points out contradictions. “Even though the action was given to customers, what will it serve? In 12 months will this role have what value?”, she says. Although the client has not disbursed for BDR in the NuSócios program, upon receiving the free share, he expects the paper to have a value. But without being able to negotiate at any time, while the lock up is valid, the customer can see the price of the paper plummet and the “gift” given by the bank “evaporate”.

In some cases, the issuers of the shares put adherence to the “lock up” as a criterion to prioritize who will have access to the shares in the reserve period, before the start of negotiations. If demand is greater than supply, these shareholders will be prioritized, and those who do not agree with the “lock up” will go to the end of the line.

Is it good for the investor?

The Empiricus specialist points out the pros and cons for the investor. On the one hand, the strategy “locks” the investor’s equity, who cannot trade the securities for a certain time. On the other hand, it prevents the price from plummeting in the first days after the offering because of the large volume of shares offered for sale.

However, what is seen in practice, in many cases, is just a postponement of this movement because, when the lock up comes to an end, many shareholders will rush to the market and sell their stakes, impacting the value of the shares.

Daronco, from Suno Research, does not see value creation or losses due to the “lock up” and does not recommend that the restriction influence the purchase or sale of a company’s securities. “Whoever invests in the stock market needs to think about the long term, intrinsically. The value of the shares is the result of the company’s business, of its operating results”, he declares.

Like the Suno Research specialist, Larissa says that the “lock up” does not represent a guarantee, positive or negative, as to the future behavior of the shares. “[Os possíveis ganhos] They have more to do with the investor’s conviction to keep the papers in the long term”, he says.