Brazil's BTG Pactual Bonds, Shares Slump After CEO Arrest

  • Yields on most liquid bonds nearly doubled to 12.5% after news
  • Arrest tied to Carwash investigation into builders, Petrobras

Grupo BTG Pactual SA’s benchmark bond yields nearly doubled after the lender’s billionaire Chief Executive Officer Andre Esteves was arrested in a corruption probe on Wednesday.

Yields on the bank’s $1 billion in bonds due 2020, its most liquid dollar-denominated notes, surged 5.62 percentage points to 12.34 percent as of 5:45 p.m. in Sao Paulo, the highest since the notes were issued in January 2013, after news of the arrest. The notes slumped 16.7 cents to 73.65 cents on the dollar, a record low. The group’s units traded in Sao Paulo fell as much as 39 percent and pared losses after BTG announced a buyback program.

Brazil’s Supreme Court authorized a warrant to detain the financier on suspicion he and the leader of the government coalition in the Senate, Delcidio Amaral, tried to suppress testimony in the sweeping investigation into a pay-to-play scheme between the state-run oil giant, Petroleo Brasileiro SA, and the nation’s biggest builders, according to a press official for the court. The real dropped 1.2 percent to 3.7453 per U.S. dollar while the country’s equity benchmark Ibovespa slumped 2.9 percent to 46,866.63. The bank’s stock posted its biggest drop ever.

"While the situation is still developing, Esteves is a key manager at BTG and a prolonged absence could be credit negative for the bank," Alcir Freitas, a senior bank analyst at Moody’s Investors Service in Sao Paulo, wrote in an e-mailed response to questions.

BTG Pactual is cooperating with the investigation and is willing to explain whatever is necessary to authorities, it said in an e-mailed statement that it without providing further details.

BTG’s units closed at 24.40 reais, a 21-percent drop. The company’s board approved on Wednesday a plan to buy back as many as 23 million units over the next 18 months, according to a regulatory filing.

“It makes sense for BTG to be doing that at this moment," said Joao Pedro Brugger, a money manager at Leme Investimentos, which oversees about 500 million reais in assets. "They’re showing they will use all tools available to calm down investors and convince the market that the management is confident in the future of the company.”

BTG’s $1.3 billion in perpetual subordinated notes, callable in 2019, dropped 22 cents to 70 cents on the dollar, with yields jumping to 12.48 percent, the highest since they were first sold in 2014.

BTG teamed up with Petrobras and other partners in 2010 to create rig-supplier Sete Brasil. Pedro Barusco, a former Petrobras executive and ex-Sete Brasil chief operating officer, confessed last year that he took bribes in exchange for contracts.

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