BTG Carries No Stigma in Mexico as Bondholders Await Javer IPO

Updated on
  • Scandal-rocked BTG is one of the underwriters on Javer sale
  • Javer's bonds have gained since BTG founder's arrest

For bond investors in Mexico homebuilder Servicios Corporativos Javer SAPI, the fact that scandal-hit Grupo BTG Pactual SA is helping underwrite the company’s IPO is no big deal.

While Sao-Paulo based BTG’s involvement in a capital-raising plan for Brazil’s Oi SA caused the telephone company’s notes to sink after the bank’s CEO was arrested Nov. 25, Javer’s $320 million of bonds due in 2021 have gained 1.5 percent. That compares with an average 1.5 percent decline for companies tracked by The Bloomberg USD Emerging Market Corporate Bond Index.

BTG’s turmoil won’t negatively affect Javer’s initial public offering because the company is well-regarded by investors, after it took advantage of the collapse of rivals to become Mexico’s biggest builder of government-subsidized homes, said InSight Securities Inc.’s Carlos Legaspy. BTG, one of the IPO’s bookrunners, is unloading assets to raise cash after founder Andre Esteves was detained for allegedly interfering in a corruption probe in Brazil. Evercore Partners Inc., a Javer private-equity backer, is the main underwriter of the share sale, the proceeds of which the homebuilder will use to buy back bonds.

“I don’t see a problem” with BTG being an underwriter, said Legaspy, who has accepted an offer to tender his Javer notes after the IPO. “If you have a well-known company, the syndicate becomes less relevant because their means to the access to the shares is nothing more than that. When it’s an unknown in the market, that’s different. It’s important for the underwriters to sell the story, introduce the market to the company.”

Monterrey-based Javer indicted at least as far back as August 2014 that it may sell shares to buy back its bonds. The IPO is now scheduled for Dec. 14. On Nov. 30, the company said it will repurchase up to $136 million of the notes for 107 cents on the dollar, up from a previous price of 104.938 cents. 

Javer Chief Executive Officer Eugenio Garza y Garza, Evercore and the Mexican unit of Banco Santander SA, the other underwriter on the deal, declined to comment on BTG’s involvement.

In a statement, BTG said it’s confident Javer will be “widely accepted” in the stock market and that its experience allows the bank to handle these types of transactions with “agility and professionalism, always meeting the expectations of our clients.”

BTG, Latin America’s biggest investment bank, has said it’s not being investigated and is cooperating with authorities in a probe into bribery at Brazil’s state-owned oil company. Esteves has denied wrongdoing through his attorneys.

His arrest has sent BTG’s stock and bonds into a nosedive and triggered a series of cuts to the bank’s credit ratings, prompting the bank to step up asset sales to raise cash. Clients have also pulled billions from BTG’s funds. The bank rose 13.6 percent to 13.75 reais on Friday in Sao Paulo, paring a slide since Esteves’s arrest to 55 percent.

BTG’s problems come just one month after announcing the hiring former Mexico Finance Minister and central bank Governor Guillermo Ortiz to chair its Mexico unit amid the bank’s plan to start an asset-management business in the country.

The tumult roiling BTG will have no bearing on Javer’s ability to sell shares, said Cornel Bruhin, a money manager at MainFirst Schweiz AG. He’s also planning to tender his Javer bonds.

Javer builds the most homes in Mexico with mortgages from government-run Infonavit, which controls about 70 percent of the home-loan market. In 2013, rivals led by Desarrolladora Homex SAB defaulted on $2.7 billion of bonds after the government changed housing subsidies to favor urban apartment construction instead of sprawling developments in far-flung commuter areas.

“BTG is no concern to me,” MainFirst’s Bruhin said in an e-mail. Javer CEO Garza y Garza “flagged investors well in the last two years and delivered what he promised.”