BTG Said to Weigh Commodities Arm Plan Including Stake Sale

  • BTG Pactual hasn't made final decision on options for unit
  • Company said to consider putting Esteves shares into trust

Grupo BTG Pactual SA, the Brazilian company reeling from the arrest of Chief Executive Officer Andre Esteves in a corruption probe, is mulling options for its commodities business including bringing in external investors to bolster funds, according to people with knowledge of the plan.

The bank is also considering whether to spin the commodities arm into a separate entity, one of the people said, asking not to be identified because the details are private. The board has made no final decision on the strategy, the people said. BTG declined to comment on the bank’s next steps and asset sales.

BTG is seeking to soothe investors after Esteves’s arrest on Nov. 25 sent the shares down 26 percent, doubled yields on the lender’s benchmark bonds and prompted clients to pull 4.2 billion reais ($1.1 billion) from some of its most liquid fixed-income funds in two days. Esteves, 47, resigned all of his posts at BTG after the Supreme Court extended his detention to an undetermined amount of time and the bank’s leaders spent the weekend in emergency talks to sell assets.

The shares dropped as much as 14 percent and were down 11.5 percent to 20.23 reais at 12:19 p.m. in Sao Paulo. They have declined about 28 percent this year.

Esteves Shares

Concerns about funding and liquidity prompted Moody’s Investors Service and Fitch Ratings to say last week that they are reviewing the bank’s credit rating for a possible downgrade. BTG funds about 23 percent of its balance sheet with equity and long-term debt, according to the firm’s financial statements, leaving the rest vulnerable to an increase in borrowing costs or an erosion of confidence among the bank’s creditors, depositors and trading counter parties.

As part of a push to boost cash, the bank is looking to sell its remaining 12 percent stake in hospital chain Rede D’Or Sao Luiz SA, two people with knowledge of the matter said last week. The most likely buyer is Singapore sovereign-wealth fund GIC Pte, a person with knowledge of the matter said on Sunday.

Representatives of Rede D’Or and GIC declined to comment. It may take days for a deal to be formalized, one person said.

Commodities Expansion

Esteves built the firm into Latin America’s largest independent investment bank, serving as both chairman and CEO. The company is considering putting his shares into a trust as it awaits further ruling tied to the corruption probe, according to the people. Esteves’s lawyers denied he sought to interfere with testimony in a corruption probe.

Under Esteves, the company expanded the commodities business into one of the country’s largest exporters, trading raw materials including soybeans and corn, as other banks left the business amid tougher regulatory requirements.

BTG has more than 40 desks dedicated to commodities, including offices in Shanghai, Singapore and Kiev, according to a second-quarter presentation, with about 400 employees working in the unit. Commodities already represent about a third of the revenue generated by the bank’s sales and trading business, which totaled 1.48 billion reais in the first half.

Glencore, Noble Group

Commodity traders and miners including Glencore Plc and Noble Group Ltd. have been grappling with a slump in prices of raw materials as slowing economic growth in China reduces demand in the biggest commodities user. 

The Bloomberg Commodity Index of 22 raw materials has plunged two-thirds from its peak, and fell to the lowest level since 1999 earlier this month. The first U.S. interest rate increase since 2006 is expected next month by a majority of investors, adding to the woes of commodities, mostly priced in dollars, by cutting the spending power of global raw-materials buyers.

Glencore has been trying to sell assets in the sector along with Noble Group, which is seeking to exit some businesses. The billionaire who controls Louis Dreyfus Commodities BV is also considering selling a minority stake in the trading house to external investors as she weighs options for financing the buyout of remaining family shareholders.

BTG’s commodities unit ranked 25th amid Brazil’s largest exporters in September, up from 79th at the end of 2014, according to the department of trade’s data. Brazil is the biggest exporter of sugar and coffee.

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