Brazil Prosecutors Seek $5 Billion in JBS, BNDES Case
(Bloomberg) -- Brazilian prosecutors filed a case against JBS SA, its holding company J&F Investimentos SA and 14 people for alleged fraud in loans from the nation’s development bank that helped the company become the world’s largest beef producer.
Prosecutors are seeking compensation of 21 billion reais ($5 billion) for alleged irregularities in loans made between 2007 and 2011, according to a statement Tuesday. Prosecutors request JBS, J&F and its founders Joesley and Wesley Batista be convicted for wrongdoing regarding transactions between the meat giant and BNDES that resulted in illegal enrichment.
The calculation for the compensation includes JBS shares BNDES should have received totaling 3.9 billion reais, as well as dividends and an “improper waiver” of interest on a loan to JBS for the purchase of Swift in Argentina, which resulted in a loss of 4.2 billion reais to the development bank, the prosecutors said. The lawsuit seeks full compensation for damages to the bank plus a fine equivalent to three times the amount of impairment, as well as payment of collective moral harm and accumulated losses.
JBS said it hasn’t been notified of the case and that all BNDES investments in the meat company happened in accordance with market values and complying with the law, according to a statement sent by the company’s press official. BNDES invested 5.6 billion reais in the company and had a total return of 20.5 billion reais, based on its current stake at the meatpacker, share sales and dividend payments, according to JBS.
Holding company J&F said in a statement the prosecutor conducting this investigation has made up accusations and that it trusts that the Prosecutors Office commitment under the leniency agreement signed in 2017 will be met. Shares in the meat supplier fell as much as 3.7% in Sao Paulo in early trading hours on Tuesday, before easing losses. Bonds due in 2026 declined 0.5%.
“This is a potentially negative news as the amount prosecutors require as compensation is really high,” said Soummo Mukherjee, an analyst at Lucror Analytics in Florida, adding it’s not clear how much JBS should be compelled to pay and that there should be room for negotiations between the company and prosecutors to reduce the fine and extend maturities.
Even in the worst case scenario, JBS has a strong cash position and a favorable outlook for cash generation, which should allow the company to make a significant payment. The company’s free cash-flow reached about 8 billion reais in 12 months ended in September. “JBS has a strong cash that was expected to be used in acquisitions. The money can be used for others purposes if needed,” Mukherjee said in a telephone interview.
BNDES played a crucial role in the Brazilian meat producer’s expansion overseas. In addition to the loan to acquire Swift Argentina in 2005, the lender injected 5.6 billion reais for the acquisition of Swift & Co. in 2007, the beef-producing units of Smithfield Foods Inc. in 2008 and poultry producer Pilgrim’s Pride Corp. in 2009. An additional 2.5 billion reais had been poured into Bertin SA, which was acquired by the Batistas in 2009.
In 2017, Joesley Batista admitted to paying bribes in return for transactions with the state bank. The revelations raised questions about unfair competition abroad as JBS gobbled up more than 40 rivals on four continents between 2007 and 2017.
Last month, the development bank, which is JBS’s biggest shareholder after the Batista family, announced a plan to sell part of its 21.3% stake in the meat giant as part of a plan to exit investments in private companies and replenish government coffers. The share offering is expected to reach about 8 billion reais.
By Tatiana Freitas