- Shares of the meatpacker also tumble for a second day
- Accusation from prosecutors involves nine JBS executives
Investors in the world’s largest meat producer are sending prices of its bonds to record lows after Brazil’s public prosecutor accused executives including JBS SA Chairman Joesley Batista of financial crimes involving a series of loans made to related companies.
The Sao Paulo-based company’s $750 million of bonds due 2024 dropped 6.9 percent Wednesday to 79.9 cents on the dollar. The $1 billion of notes due in 2020 tumbled 5.3 percent to 89.9 cents. The $775 million notes due in 2023 declined 6.2 percent to 79.9 cents, while yields soared to 10.3 percent, a record high. JBS shares slumped the most in seven years, falling 15 percent to 8.41 reais in Sao Paulo.
Nine people connected either to the conglomerate that includes JBS or Banco Rural SA were charged with wrongdoing, according to a Tuesday statement from federal prosecutors in the state of Sao Paulo. According to the accusation, in 2011 companies in the JBS business group received 80 million reais ($20 million) of loans from Banco Rural, and then the group’s banking unit lent 80 million reais to a company that is part of the business group that includes Banco Rural.
The investigations are under court secrecy, meaning details are private. JBS parent company, J&F Investimentos said in an e-mailed statement Tuesday that the company executives “feel confident and prepared to present their defense, which will prove regularity of financial operations.” The press office for Sao Paulo-based JBS had no immediate comment. Banco Rural was liquidated by the central bank in 2013, and an e-mail sent to an address on its website wasn’t returned.
Although JBS’s balance sheet “looks healthy, smart investors in the company should be wary of the credit,” Omar Zeolla, an analyst at Oppenheimer & Co., said in a phone interview from New York. “Brazil has proved that once these accusations start, nobody can predict when there will be an end.”
JBS’s bonds had plunged to a record low in December after Brazil’s federal audit court said it found evidence the company received “special treatment” in capital injections from state-run development bank BNDES. At the time, JBS’s press office said transactions with BNDES were conducted in a clear and transparent way and that bond declines had been in line with other high-yield securities in the U.S. and Latin America.
In a Nov. 26 statement, Rio de Janeiro-based BNDES denied wrongdoing and said its investments in JBS have been profitable.
Joesley Batista, one of five Batista siblings, all of whom have an equal interest in the parent J&F, through which they and other family members control JBS, couldn’t immediately be reached for comment.
The investigation into JBS comes amid widening concern about corruption in Brazil, where some of the country’s biggest companies and most important politicians have been swept up in allegations that they participated in, or may have turned a blind eye to, a bribery scheme known as Lava Jato, or Carwash.
The plunge of JBS bonds "tells us about how sensitive all Brazilian names are to any headline that has anything to do with investigations, corruption, or any of the phantoms that have haunted the markets since Lava Jato originated," said Rafael Elias, head of emerging-market strategy at Cantor Fitzgerald in New York.