JBS shares soar as speculation mounts over crisis fallout

Brazil Shares in JBS SA (JBSS3.SA), the world's largest meatpacker, spiked on Thursday as speculation mounted over its strategy for weathering the fallout from a corruption scandal centered on its owners.

The stock closed 23 percent higher, approaching levels last seen before the graft scandal rattled Brazil a week ago and leading gains on the benchmark Bovespa stock index .BVSP.

Still, traders and analysts warned volatility was likely to remain high due to doubts about how a raft of probes targeting the company will be resolved.

"It's a mess," Lerosa Investimentos analyst Vitor Suzaki said. "There's little in the way of concrete market drivers and plenty of speculation to beat the stock up and down."

Joesley and Wesley Batista, JBS' controlling shareholders, recently touched off a political firestorm after admitting they bribed hundreds of Brazilian politicians to advance their businesses interests in a scandal that has ensnared President Michel Temer.

They are now trying to negotiate a leniency deal with prosecutors that would allow them to avoid prosecution in exchange for paying a hefty fine and revealing all their illegal dealings. JBS Chief Executive Officer Wesley Batista is personally negotiating with prosecutors.

While the Batistas initially rejected the size of the fine proposed by prosecutors, it looks unlikely to be significantly reduced. That could push their holding company J&F Investimentos SA to sell assets to raise cash to pay for it, Reuters reported this week.

The Batistas transformed the company from a regional slaughterhouse into Brazil's dominant beef producer and a sprawling multinational group, helped by some 8 billion reais ($2.44 billion) in government funding.

Brazil's agriculture minister on Thursday slammed state development bank BNDES for helping JBS build a dominant market position.

"I was always critical of the BNDES for having allowed this market concentration that exists in Brazil," Blairo Maggi said at an agribusiness conference in Cuiaba, the capital of Mato Grasso state in Brazil's biggest cattle-growing region and agricultural heartland. He called JBS' current predicament a "delicate moment."

"I don't know what's going to happen with this company," said Maggi, also a billionaire soybean producer.

Separately, a major cattle industry consultant said Brazilian ranchers were starting to demand that JBS pay in cash because they are worried about fallout from the bribery scandal.

"People are risk-averse," said Agriffato director Lygia Pimentel. "Producers aren't selling to JBS, and those who are, are doing their utmost to get cash in return."

JBS, on the other hand, recently told cattle ranchers in Mato Grosso it preferred to make payments in installments or with a 30-day post-delivery period. The effort has made little progress with ranchers, according to trade group Acrimat.

JBS has bought many rivals in important cattle-producing regions in Brazil in recent years. In some places it is the only processor, leaving ranchers with no other buyers.

JBS confirmed it was seeking to stretch out payments over longer periods, but said the initiative dated back to before the bribery scandal broke.

Source: Reuters

Brazil's Temer refuses to resign in face of investigation

Brazil's President Michel Temer on Thursday defiantly said he would not resign from office despite a Supreme Court decision authorizing an investigation into allegations he condoned bribery of a potential witness in a major corruption probe.

In a terse five-minute speech broadcast nationwide, Temer said he had done nothing wrong, that his presidency was helping turn around Brazil's stalled economy and that he welcomed an investigation so that he could prove his innocence.

"I did not buy the silence of anyone," Temer said, referring to the allegations made against him. "I will not resign."

The investigation into a sitting president sent Brazilian financial markets tumbling and raised doubts that Congress would pass Temer's ambitious austerity agenda.

Temer's situation grew more perilous after the Supreme Court approved an investigation into allegations against him, according to a source with direct knowledge of the decision.

A Supreme Court justice also approved plea-bargain testimony and an audio recording that allegedly captured him conspiring to obstruct justice with Joesley Batista, chairman of the world's largest meatpacker, JBS SA (JBSS3.SA). That approval allows the court to quickly make both the testimony and audio public.

Leaders of Temer's biggest allied party in Congress, the PSDB, said that if the allegations proved true, they would demand the resignation of three of their members who are in the president's cabinet.

"The president is absolutely convinced he committed no crime, but that has to be made clear to the eyes of everyone," a top presidential aide told Reuters.

Brazilian markets plunged on concerns the investigation could derail Temer's sweeping fiscal reforms.

Shares of state-controlled companies, such as Banco do Brasil SA (BBAS3.SA) and Centrais Elétricas Brasileiras SA, or Eletrobras (ELET6.SA), lost about a fifth of their value, and the nation's currency fell 7.5 percent, wiping out its gains for the year.

Brazil's Treasury and central bank said they stood ready to keep markets liquid before acting to smooth volatility in local currency and bond markets.

Source: Reuters

Brazil scandal tests JBS, BRF push for overseas units IPOs

Brazil's two largest food processors are striving to restore confidence in their quality controls as they pursue plans to list overseas units after a scandal over alleged bribery of health officials that triggered bans on Brazilian meat exports.

On Friday, police named Brazil's JBS SA, the world's top meatpacker, and BRF SA, the largest poultry producer, alongside dozens of smaller peers in a probe into alleged payments to officials to forgo inspections and overlook practices including processing rotten meat.

The scandal broke weeks before JBS and BRF were due to launch the initial public offerings of their foreign-based units JBS Foods International and One Foods Holdings Inc - which is BRF's halal meats unit. The deals could fetch a combined $2.5 billion and help accelerate expansion outside Brazil.

While JBS and BRF have denied wrongdoing, the reputation of one of Brazil's flagship industries has been hard hit. Exports of Brazilian meat fell to $74,000 on Tuesday from a daily average of $63 million before the scandal.

China, the largest consumer of Brazilian meat, suspended shipments from the South American country at the weekend, with Hong Kong following suit and the European Union halting purchases from four Brazil-based facilities.

Still, four people involved in the deals said JBS and BRF would press ahead with the IPOs while seeking to shore up investor confidence with a campaign arguing the police probe misstated facts. JBS has no intention to delay the $1 billion IPO of JBS Foods in New York, which it hopes to finalize in May or June, one of the people said.

BRF continues to analyze selling a $1.5 billion stake in One Foods through a London IPO or a private placement, another person said.

Sovereign wealth funds are in talks with BRF over a private stake sale in One Foods. Bank of America Corp and Morgan Stanley & Co are advising BRF on the deal, Reuters reported last week.

Neither firm has seen a pushback from potential investors, said the people, who spoke under the condition of anonymity, because of the sensitivity of the matter. JBS and BRF, both based in São Paulo, declined to comment.

SEEKING CLARITY

The scandal has slashed about $2.2 billion worth of market value from JBS and BRF since Friday, according to Thomson Reuters data.

JBS shares tumbled nearly 11 percent on Friday, the day the scandal broke, the biggest daily plunge since Oct. 26, when a government agency vetoed a plan to move some operations outside Brazil.

BRF is near its lowest level in more than four years. This week, stocks of both firms have slowly recovered, suggesting Friday's selloff might have been overdone.

According to two New York-based and three London-based fund managers, investors are likely to seek more clarity about the facts surrounding "Operation Weak Flesh."

"The future prospects for any transaction like this, anywhere, will be unclear until all the parties involved remove the overhang on the matter," said Nick Field, who helps manage $26 billion in emerging market equities for London-based Schroder Investment Management.

Field, like the other fund managers, declined to say whether his firm might participate in either IPO.

Both companies and industry groups have launched public relations campaigns to repair the damage.

BRF rejected allegations by police that it mixed cardboard in its products and said there was no evidence it sold rotten meat. JBS said all exporting plants in Brazil followed strict international procedures.

CONFERENCE CALLS

JBS executives plan to hold conference calls with banks working on the JBS Foods IPO as early as this week, allowing them to verify information on the probe with third-party sources, the first person said.

While BRF is the more exposed to Brazil - with 55 percent of its sales and most of its poultry production there - none of its halal plants are suspended as part of the probe.

Analysts like Ronaldo Kasinsky of Santander Investment Securities remained wary, saying the ongoing investigation could deal a real setback to both deals. Investors could fret over valuation, undertake a closer look at operational and safety standards or stretch out due diligence procedures, he said.

Others like Carlos Laboy of HSBC Securities were confident the deals would go through.

The IPO of JBS Foods, which serves 350,000 clients around the world, could help parent company JBS morph from a meatpacker into a highly-valued, global food processing player.

JBS will name the banks underwriting the IPO in a filing with the U.S. Securities and Exchange Commission, one of the people said.

For BRF, the One Foods deal should propel expansion into Asian Muslim nations. One Foods already controls 45 percent of the halal poultry market in Saudi Arabia, United Arab Emirates, Kuwait, Qatar and Oman.

Source: Reuters