BTG Plans to Spin Off $1.6 Billion Commodities Arm as Engelhartby
Shareholders may get 65% stake; management gets `portion'
Separation follows arrest of BTG founder Esteves in November
Grupo BTG Pactual is spinning off its commodity-trading unit and renaming the division Engelhart Commodities Partners in a deal valuing the business at about $1.6 billion.
BTG shareholders may be eligible to receive equity in the new entity or take their stake in the form of additional shares in the bank, the company said in a statement Friday. The Brazilian bank is considering a plan that would provide to BTG investors about 65 percent of its stake in Engelhart, which will have $5.7 billion in assets. Senior employees would hold “a portion” of the Luxembourg-based unit’s equity under an incentive program, the company said.
The formal separation of the commodity-trading house, headed by Chief Executive Officer Ricardo Leiman, is designed to retain talent and insulate the unit from the Brazilian bank following the arrest of its founder and former CEO Andre Esteves in November in a corruption investigation, according to a person familiar with the plan.
Founded in 2013, the commodity-trading arm has been a bright spot for BTG amid troubles at other operations. The business has grown rapidly in three years to secure a place behind some of the world’s biggest trading houses. Its profit before tax, costs and bonuses exceeded $500 million in 2015, according to the person, who asked not to be identified because the accounts are private.
While commodity producers have suffered amid plunging prices, many traders have thrived thanks to increased volatility and a market structure called contango, which allows them to lock in profits by storing oil and petroleum products for future sale at higher prices. Trading houses including Trafigura Group and Gunvor Group Ltd. reported record profits from oil trading in 2015.
Engelhart, named for an amalgam of the company’s commodity-trading desks including energy, grains, LME metals and so-called hards trading, employs about 750 people in 34 offices in 19 countries with major operations in London, Geneva, Sao Paulo, Singapore and Stamford, Connecticut. The firm recorded profit before taxes, costs and bonuses of more than $300 million in the first three months of 2016, the person said.
BTG held talks with potential buyers for the commodity unit late last year but the discussions didn’t yield a deal.
Esteves, who has denied any wrongdoing, was released from prison on Dec. 17 and has since been under house arrest. BTG, which has said it isn’t being investigated itself, is selling assets in the wake of the probe and the arrest. Assets under management at BSI, the Swiss private bank BTG is selling to EFG International AG, shrank by 16 percent to 77.2 billion francs ($80.7 billion) at the end of December.
BTG’s hedge-fund unit is shutting its Hong Kong offices and Chief Investment Officer Antoine Estier is leaving, a person familiar with the matter said last month. The BTG Pactual GEMM Fund saw assets drop to about $250 million in March, another person said, from more than $4 billion in November.
Engelhart expects to trade about 30 million metric tons of raw materials in 2016 including grains, sugar, oil, coal and metals, according to a document related to the previous sale process obtained by Bloomberg News.
The company expects the transaction to be completed in the third quarter.