October 26, 2016 / 8:50 PM / a year ago

JBS bonds slump after reorg plans falter

NEW YORK, Oct 26 (IFR) - JBS SA’s bonds slumped Wednesday after a majority shareholder opposed plans to regroup the world’s largest beef exporter under a new Ireland-based entity.

Its 2020s, 2023s and 2024s were two to three points lower at 104.00-105.00, 96.75-97.75 and 101.50-102.50, respectively, according to a trader.

The company’s share price was also hit hard, dropping more than 15% by early afternoon, according to Thomson Reuters data.

JBS said it had canceled the restructuring plan after BNDESpar, the investment arm of Brazilian development bank BNDES, had opposed the plan.

The news comes as a blow to fixed-income investors, who had bet that the move would lower funding costs and take away some of the country risk associated with its origins in Brazil.

Under the plan, the bonds were to be transferred to a Europe-based holding company and subsidiary of JBS Foods International - a new entity intended to be listed in New York.

“If JBS SA was going to be transferred to the new entity, it would have been a developed market issuer,” Omar Zeolla, a credit analyst at Oppenheimer & Co, told IFR.

“That would have made it a better credit.”

Bondholders agreed in August to amend indentures to allow for the global reorganization announced in May.

But the Brazilian government earlier this year replaced the head of BNDES and BNDESpar, who had supported JBS’s international expansion, according to Reuters.

“I am not sure why they didn’t do this before,” said Zeolla. “I am sure they would have known that the BNDES wasn’t on board with the reorganization.”

The company’s CEO Wesley Batista said that the listing of its North American division under JBS USA may be an alternative, Reuters reported.

BIG BEEF

JBS has been in the crosshairs since a judge in September ordered several top executives at J&F, the company that owns JBS, to step down as part of a fraud investigation.

“(Through the reorganization) JBS would have been able to reassure investors that it was able to distance itself from its woes in Brazil, while finding some new, cheaper funding routes in the international equity markets,” Gimme Credit analyst Cedric Rimaud wrote on Wednesday.

On top of the restructuring failure, Rimaud said, JBS’s troubles lie mostly with deteriorating credit metrics following an aggressive expansion strategy.

Fitch earlier this month affirmed its BB+ rating with a stable outlook on JBS SA, but noted that its net debt-to-Ebitda adjusted for dividend payments to minority shareholders would reach around 4.7x by year’s end.

At the time, the rating agency had factored in the New York listing and efforts to deleverage after JBS had spent about R$15.5bn (US$4.94bn) on acquisitions in 2015. (Reporting by Paul Kilby; Editing by Marc Carnegie)

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