BTG-Backed Companies Slide as Damage From Esteves Arrest Spreads

  • Brasil Pharma, Banco Pan and BR Properties slump with bank
  • Esteves stepped down from BTG after his arrest was extended

The arrest of billionaire Andre Esteves is sending a ripple through the Brazilian stock market.

Shares of BTG Pactual have slumped 32 percent in the four days since the jailing of Esteves, then the lender’s chairman and chief executive officer. But BTG is not just a bank -- it’s also a major investor in companies from real estate to energy. Brasil Pharma SA, the pharmacy operator it controls, has lost 23 percent of stock-market value in the span. Commercial bank Banco Pan SA lost 8.9 percent, while real-estate developer BR Properties fell 5.1 percent.

The declines are part of a vicious cycle: the investments are falling as a result of concerns about BTG’s future, but the plummeting value of the assets hurts the bank at a time when it may need to sell holdings quickly for cash. BTG has already been scrambling to sell assets, including a minority stake in hospital group Rede D’Or Sao Luiz SA, in order to guarantee liquidity amid concerns that creditors may cut off funding. Esteves resigned all of his posts at the bank Sunday after a court said he would be held indefinitely amid accusations of trying to obstruct a widespread corruption investigation.

"As BTG loses the market’s confidence, the companies it controls lose it too," said Adeodato Volpi Netto, head of capital markets at the equity research firm Eleven Financial. "As BTG is forced to review its business model, the bank may lose the capacity to financially support the companies in which it has invested. In a scenario of rising capital costs and smaller offering of credit, those companies will have to seek other credit sources, paying much more."

The management change announced late Sunday did little to allay concern about the bank. BTG shares fell a fourth day on Monday, as did Brasil Pharma and Banco Pan. BR Properties was the exception -- the shares erased losses for the day after the stock exchange said in a statement there would be a block trade of about 6 percent of the company’s voting shares at an initial price of 10.22 reais apiece. The block trade will be intermediated by BTG Pactual CTVM, BTG’s brokerage.

BTG funds own about 38 percent of Brasil Pharma, 36 percent of BR Properties and 40 percent of Banco Pan.

The press offices of BTG, Banco Pan, Brasil Pharma and BR Properties didn’t immediately respond to phone calls and e-mails seeking comment.

Court documents accuse Esteves of trying to prevent testimony from a former executive of state oil company Petroleo Brasileiro SA. Esteves allegedly offered to provide financial support to help the ex-executive, Nestor Cervero, as part of a plan to help him flee the country. Esteves has denied any wrongdoing through his lawyer.

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