BTG Pitched Commodities Expansion Plan to Potential Investors

  • Company plans commodities private equity fund, document shows
  • BTG Pactual sought investors for commodities unit in November

After the arrest of its CEO in November, Grupo BTG Pactual told potential investors in its commodities unit that it planned an expansion in 2016, taking advantage of the crash in raw materials prices to buy assets and start new businesses.

BTG Pactual Commodities said it planned to create private equity and credit funds as well as buy assets to “take advantage of the current down cycle,” according to a three-page document obtained by Bloomberg News. The document provides a glimpse into the financial performance and operations of the commodities business that former Chief Executive Officer Andre Esteves started in 2013.

Late last year, BTG Pactual sought out potential buyers or investors for its commodity unit to raise cash. There have been several expressions of interest in the business, but none good enough to secure a deal, according to people with knowledge of the process who asked not be identified because the matter is private. 

A BTG Pactual spokesman declined to comment on the document. Esteves, who was moved to house arrest from jail in December, has denied any wrongdoing through his lawyers. BTG has said it isn’t part of the investigation.

Profit Contribution

BTG Pactual said its commodities unit, led by former Noble Group Ltd. CEO Ricardo Leiman, generated an estimated $426 million in 2015 profit before taxes and bonuses at the time the document was distributed late last year. That compares with full-year profit by that measure of $432 million in 2014, BTG said in the document. 

BTG Pactual’s total 2015 net income climbed to 4.62 billion reais ($1.16 billion) from 3.42 billion reais the previous year, according to results published on the company’s website. It didn’t give a separate figure for the commodities unit.

Net revenues in that period of 2015 were an estimated $585 million from the company’s commodities trading business, which includes grains and oilseeds, sugar, fertilizers, coffee, cotton, oil, metals, minerals and ores, the document shows. That’s up from full-year net revenues of $568 million in 2014.

The data indicates that the raw materials unit has grown to secure a place behind the top global commodity-trading houses led by Vitol Group, Glencore Plc, Trafigura Group Pte Ltd., Mercuria Energy Group Ltd., Gunvor Group Ltd. and Noble as well as the biggest agricultural commodity traders, the so-called ABCDs of Archer-Daniels-Midland Co., Bunge Ltd., Cargill Inc. and Louis Dreyfus Commodities BV.

Trading Volumes

Traded volumes for the commodities group are projected to top 30 million metric tons in 2016, not including coffee trading, the document shows.

Based in London and with more than 650 employees in 34 offices worldwide, BTG Pactual’s commodities unit “has been premised on an ‘asset light’ strategy with three main components of revenue and returns: credit returns, physical merchandising and financial proprietary commodity trading,” according to the document.

BTG Pactual’s next development phase in commodities will focus on “equity and bond trading ramp-up” by leveraging the firm’s research, the company said. The balance sheet of the commodity unit’s equity and bond trading operations grew to $20 million in 2015, BTG said. The firm also plans to expand its commodities algorithm trading, it said.

Brazilian Exports

BTG Pactual exported more than $1 billion of raw commodities from Brazil last year.

Coal trading accounted for 40 percent of revenue in 2015, energy 24 percent, iron ore 15 percent and agriculture 11 percent. The firm is also “one of the largest global warehousing companies,” it said.

BTG Pactual joined a crowded field when it began a search for an investor or buyer for the commodities unit last year, joining at least five other large trading houses -- Glencore, Louis Dreyfus, Noble , Mercuria and Gunvor -- in weighing sales of parts of their operations.

Mercuria, the energy trader with operations in Geneva and Houston, sold a 12 percent stake in the company last month to China National Chemical Corp. Financial details of the transaction were not disclosed.

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