Brazil's BTG Shows How to Bounce Back After Your CEO Is Arrested

  • BTG notes have jumped 82% from record low in December
  • Ex-CEO Esteves was jailed in November as part of graft probe

Three months after the arrest of Grupo BTG Pactual SA’s CEO Andre Esteves triggered the collapse of its bonds, the Brazilian bank is winning back investors in a big way.

BTG’s $700 million of notes due in 2018 have soared 82 percent from a record low in December as the bank’s partners quickly acquired Esteves’s controlling stake, obtained emergency financing and unloaded assets. That’s the biggest surge among 969 emerging-market bonds in that span.

And BTG’s rebound isn’t over, says Nashwa Saleh at Exotix Partners. On March 10, she recommended investors buy the bank’s 2020 notes as the lender focuses on its core businesses after divesting some 10 billion reais ($2.7 billion) in assets following Esteves’s arrest for allegedly obstructing Brazil’s biggest corruption probe. BTG’s $1 billion of notes due 2020 was little changed at 82.57 cents on the dollar at 2:14 p.m. in New York.

“We liked the fact that the bank and partners moved very quickly to take control of the bank and split from Esteves,” said Daniel Tafur, who oversees $250 million, including BTG’s bonds, as chief investment officer at Equilibria Capital Management. “They were also very quick to begin the divestment and restructuring process.”

Andre Esteves
Andre Esteves
Photographer: Fernando Frazao/Agencia Brasil

Four days after Esteves was jailed, he resigned all his posts at the firm he founded. The billionaire, who has denied wrongdoing, was released from prison Dec. 17 and has since been under house arrest. Prosecutors have accused Esteves of trying to interfere with the testimony of a former executive of Petroleo Brasileiro SA who was jailed in January as part of a widening bribery probe at the state-controlled oil producer.

BTG has said the bank itself isn’t being investigated.

Still, in a plea-bargain deal published by Brazil’s Supreme Court on Tuesday, Senator Delcidio Amaral alleged that BTG underpaid for oil assets in Africa it bought from Petrobras in 2013. Amaral was also arrested for allegedly interfering with the Petrobras executive in November.

In a statement, BTG said it’s confident of the fairness of its purchase in 2013.

On Dec. 4, BTG obtained a 6 billion reais rescue from Brazil’s deposit-insurance fund, known as FGC, as it faced a surge in redemptions. In the ensuing weeks, the Sao Paulo-based bank also raised cash by selling its stake in a hospital chain and unloading its distressed asset-management firm. The lender is also in talks to sell its Swiss bank BSI and its parking-lot company, known as Estapar, according to people with knowledge of the plans who’ve asked not to be identified because the discussions are private. 

“The implementation of the liquidity management plan as a whole, obtaining the backstop from the FGC or the FGC providing it very early in the process, was very positive,” Exotix’s Saleh said from London. “The market was in a panic rather than relying on fundamentals.”

BTG has also bought back an undisclosed amount of its perpetual bonds, according to its Jan. 19 earnings statement. The bank is now in talks with potential partners to help the lender purchase the 116.7 million of its shares that trade on the Sao Paulo exchange, said a person with direct knowledge who asked not to be identified because no final decision has been made.

“While smaller, BTG seems to be emerging stronger from this crisis,” said Carlos Gribel, the head of fixed income at Andbanc Brokerage LLC in Miami. “The bank will survive to pay its debt.”

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