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BTG Assuming $2.3 Billion of Debt to Buy Panamericano

Billionaire Esteves Buys Panamericano Amid Brazil Probe
Pedestrians pass a Banco Panamericano SA bank branch in Sao Paulo. Photographer: Paulo Fridman/Bloomberg

Brazilian billionaire Andre Esteves’ Banco BTG Pactual SA is buying a controlling stake in Banco Panamericano SA by assuming 3.8 billion reais ($2.3 billion) of debt to cover the bank’s losses, according to the nation’s deposit insurance fund.

BTG will pay no cash for the stake it’s buying from Silvio Santos, Sao Paulo-based Panamericano’s founder, said Antonio Carlos Bueno, the executive director of the deposit fund, which is financed by the country’s banks. By taking over the 17.5-year debt with the deposit fund, BTG is paying the equivalent of 450 million reais, as measured in net present value terms, for the 51 percent of Panamericano voting shares, Bueno said.

“The debt is still there,” Bueno said in a telephone interview from Sao Paulo. “We just changed the debtor.”

Bueno said that BTG can pay off the debt at a discount “at any time.” BTG said in a e-mailed response to questions that it’s not taking on the debt with the insurance fund.

“The bank will pay 450 million reais for all of Grupo Silvio Santos’s shares in Panamericano,” BTG said. “The parties will agree upon the method of payment.”

Panamericano surged 23 percent after BTG offered to pay minority stockholders 4.89 reais a share, a 15 percent premium over yesterday’s closing price. BTG will make partner Jose Luiz Acar Pedro the new chief executive officer at Panamericano, according to a statement yesterday. Panamericano’s former executives are being investigated for alleged accounting fraud that saddled the bank with losses and prompted the deposit fund to arrange a bailout in November.

‘Water to Wine’

BTG will own 37.6 percent of Panamericano’s total capital after the purchase, while state-owned savings bank Caixa Economica Federal, which has been running the lender since the Nov. 9 bailout, will have 36.6 percent, according to a statement yesterday.

“Now there’s two shareholders with relevant positions and a strong interest in improving the bank’s operations,” said Bruno Pereira, a bank analyst at Leblon Equities Gestao de Recursos Ltda., which held 694,000 shares of Panamericano as of Sept. 30, according to data compiled by Bloomberg. “In terms of recovering its business, it’s turned from water to wine.”

Santos, whose holding took out a 2.5 billion real-loan from the deposit insurance fund on Nov. 9, said he sold to BTG on expectations it will help the bank grow. An additional 1.3 billion loan was needed to cover the losses, Bueno said.

“Now I’m free, the only company sold was the bank,” Santos, the 80-year-old host of a Sunday variety show, said after meeting with officials yesterday at BTG offices in Sao Paulo.

The stock jumped 96 centavos to 5.22 reais at 3:58 p.m. New York time today. Financial stocks on the MSCI Brazil Index climbed 2 percent.

Minority Shareholder Buyout

Panamericano’s bonds also gained, with its 8.5 percent debt due in 2020 jumping 4 cents on the dollar to 102.5 cents, according to Trace, the bond price-reporting system of the Financial Industry Regulatory Authority. The yield fell to 8.11 percent.

The purchase comes as the government continues its investigation, which has boosted funding costs for smaller banks, prompted increased scrutiny of Brazil’s 59 billion reais asset-backed fund industry and damped euphoria among investors in Latin America’s largest economy. The Bovespa stock index is down 6.6 percent since the probe started, compared with a 2.5 percent drop for MSCI Inc.’s developing-market index and a 5 percent advance for the Standard & Poor’s 500 Index.

Asset-Backed Securities

By selling to Esteves, who became Brazil’s youngest self-made billionaire in 2006, Santos brings in a “well-respected” banker to the helm of Panamericano, said Saulo Sabba, who helps manage 1.3 billion reais as investment director at Banco Maxima SA in Rio de Janeiro. Esteves, 42, may treat the purchase more as a private equity investment and keep it separate from BTG, Sabba said.

“He’s probably buying the opportunity, fixing it up and then will try to sell it at a premium, rather than merge the two banks,” Sabba said.

Esteves led the sale of Rio de Janeiro-based Banco Pactual SA to UBS AG in 2006 for $2.6 billion. He bought UBS Pactual back amid the global financial crisis in 2009 for $2.5 billion and merged it with a bank he founded in 2008 to form BTG Pactual.

“The market may focus on Esteves taking over the management and he’s well respected,” Sabba said.

Shares of Panamericano, the biggest provider of used car loans in the country, dropped 41 percent through yesterday since Santos first bailed out the bank.

Capital Rules

Panamericano’s probe marks the first investigation into Brazil’s asset-backed securities industry, which has grown in the past decade to 312 funds. The central bank is investigating Panamericano’s accounting of credit portfolios sold to other banks, which often re-packaged the assets into funds backed by future cash flow, known as FDICs.

The nation’s securities regulator proposed in January to step up disclosure requirements for the industry.

Funding costs for small Brazilian banks increased after the investigation began. Yields on Banco Cruzeiro do Sul SA’s 2020 notes rose more than 150 basis points to as high as 9.56 percent on Jan. 28 from 8 percent on Nov. 8, while Banco Industrial e Comercial SA’s debt due in 2020 climbed as much as 140 basis points to 8.6 percent on Jan. 26, data compiled by Bloomberg show. Average yields on Brazilian corporate bonds rose 51 basis points, or 0.51 percentage point, since the probe started.

‘Not a Money Man’

Brazil’s central bank tightened capital rules on Dec. 3 to head off what happened in the U.S. two years earlier after investors poured money into the subprime-mortgage market. The move further limited funding options for smaller lenders, like Panamericano, which helped fuel a five-fold expansion of consumer credit in Brazil to 743.5 billion reais in October from 137.9 billion reais in December 2002, according to the central bank.

As part of the probe, police conducted nine searches of former Panamericano executives, seizing documents and computers.

Maria Celina Vansetti, the head of Latin American bank research at Moody’s in New York, said the sale of Panamericano’s control may reduce concern about the stability of Brazil’s financial system.

“It ends the uncertainty that existed since November and that created some risk aversion,” she said in a telephone interview from Sao Paulo. “There is still another big uncertainty about Panamericano’s results, to learn the exact size of the so-called accounting inconsistencies.”

Panamericano hasn’t detailed its losses or reported its third-quarter earnings.

Santos said yesterday he’s relieved to have sold his stake.

“I’m a TV man, not a money man,” Santos said. “My bank behaved well. It only had bad management, which led to what you know.”

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