Blindsided JBS Bond Traders Lose $345 Million in Just Three Days

  • Joesley Batista was accused by prosecutors of financial crimes
  • A court in November expanded probe into JBS loans from BNDES

Bond investors in the world’s biggest meat producer are being blindsided -- again.

Sao Paulo-based JBS SA’s bonds have lost $345 million of market value since Monday, the day before Brazil’s public prosecutor accused Chairman Joesley Batista of financial crimes involving a series of loans to related companies. In December, the securities plummeted after a federal audit court said it found evidence JBS received “special treatment” from state-run development bank BNDES and expanded the probe. 

JBS, its parent company and Batista have denied any wrongdoing.

For the better part of 2015, the meat producer had stood out as one of the best performers in a bond market roiled by a widening graft probe at Brazil’s state oil producer, capitalizing on a weak currency to generate record profit.

And while JBS hasn’t been directly implicated in the latest probe, investors are concerned the investigation may mushroom and eventually ensnare the company, said Carlos Gribel, the head of fixed income at Andbanc Brokerage LLC.

“The main concern is that investigations could spread all over the group and expand to what is not known yet,” he said from Miami. “And we’ve seen that happening with other big local names before.”

Batista was among nine people charged with wrongdoing at Banco Rural SA and the conglomerate that includes JBS, according to a statement from federal prosecutors in the state of Sao Paulo. He is one of five Batista siblings, all of whom have an equal interest in JBS’s parent company -- J&F Investimentos -- and through which they and other family members control the meat producer.

The case centers on 80 million reais ($20 million) of loans to two companies controlled by J&F and received in 2011 from Banco Rural. JBS’s banking unit, Banco Original do Agronegocio SA, later lent the same amount to a company that is part of the conglomerate that owned Banco Rural, which was liquidated by the central bank in 2013. Prosecutors described the practice as a violation of laws that forbid financial institutions from lending to companies that belong to the same holding group.

In a regulatory filing Thursday, signed by Batista, J&F said it will prove it did nothing wrong when it made the loans. JBS said its transactions with BNDES were also done in accordance with central bank and capital-markets regulations. 

JBS’s $1 billion of bonds due 2020 have now lost 16.6 percent since Nov. 25, when the audit court said in e-mailed documents that it found evidence BNDES lost 847.7 million reais in transactions to help JBS purchase companies in the U.S.

In a statement Nov. 26, Rio de Janeiro-based BNDES denied wrongdoing and said its investments in JBS have been profitable.

The same notes fell to a record low of 88.8 cents on the dollar Friday as of 2:19 p.m. in New York, pushing yields up to 10.83 percent.

“The accusation we see now itself is quite small, but the problem is not just that,” said Klaus Spielkamp, the Miami-based head of fixed income at brokerage Bulltick. “The concern is regarding what might come next. So people sell now.”

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