JBS's Batista Brothers Debt Surged as Family Shuffled Assets

July 5, 2017 02:20 PM

As corruption investigations mounted against meatpacker JBS SA’s corporate parent last year, beef tycoons Joesley and Wesley Batista quietly amassed full ownership of the holding company while boosting their combined personal debt to 2.6 billion reais ($790 million).

The brothers at the center of Brazil’s latest corruption scandal bought out their three sisters in closely held J&F Investimentos SA and paid less than a fifth of the market value for their indirect stake in the meatpacker, according to their individual 2017 tax filings that were released as part of a trove of documents in a criminal case. They reached a similar below-market deal with Blessed Holdings, which had appeared among JBS’S controlling shareholders since 2009 and whose previous ownership is now being investigated by Brazil’s securities regulator.

The tax documents show the brothers had taken full control as of December. Wesley and Joesley Batista each reported acquiring 20 percent stakes in J&F from the investment firms of sisters Valere, Vanessa and Vivianne for 591 million reais apiece, for a total purchase price of 1.18 billion reais. The acquisition included a combined 18 percent indirect stake in JBS that was valued at 5.6 billion reais, based on the meatpacker’s average share price in December. As of the end of 2016, Wesley and Joesley Batista had yet to pay for the increased stakes, swelling their personal debt to 1.3 billion reais per brother, according to the tax filings.

J&F and JBS declined to comment on the ownership change or the terms of the transactions.

The Batista family, led by the 45-year-old Joesley and Wesley, 47, shot into the global spotlight during a decade-long, $20 billion acquisition spree that turned their family-owned slaughterhouse into the world’s biggest beef producer. As part of a plea bargain reached in May, the brothers admitted to corruption and told Brazilian prosecutors that the company’s meteoric rise wouldn’t have been possible without a shady network of political kickbacks and a series of sweetheart deals with the government’s development bank. The fraud they described was so pervasive, allegedly involving the president and more than 1,800 other politicians, that it has tipped Brazil back into political chaos a year after the nation’s last head of state was impeached.

It’s unclear why the family decided to shuffle its assets, and the financial terms of the deals, including a payment schedule, haven’t been disclosed. The growing personal debts of the Batista brothers, however, come amid increasing concern J&F will face liquidity pressures after borrowing costs surged and prosecutors levied fines against the family and their business group. The two brothers agreed to pay 225 million reais in fines, while J&F will pay 10.3 billion reais over 25 years.

JBS was close to renegotiating about 22 billion reais of debt owed to banks, people familiar with the matter said last month, asking not to be identified talking about private discussions. The company’s $1 billion bonds due in 2020 plunged to as low as 86.88 cents on the dollar on June 12 from 104.7 cents before the scandal broke. They have since rebounded to 94.81 cents.

J&F is also selling assets as it tries to survive the scandal. The company plans to raise at least 8 billion reais through divestitures that include dairy company Vigor Alimentos SA and flip-flop maker Alpargatas SA, S&P Global Ratings said in a report. JBS is also seeking to raise 7 billion reais through selling assets including some South American beef operations to rival Minerva SA.

Two months before the Batistas consolidated the family holdings, they also bought out Blessed’s 21 stake in J&F for $300 million. The market value of the indirect stake in JBS that came along with the purchase was worth at least three times more. The brothers paid $30 million and financed the rest as of the end of last year, according to their tax filings. The CVM said in May it’s probing the veracity of information provided by JBS on the identity of the firms that previously controlled Blessed.

The Batista brothers’ indirect stake in JBS more than doubled to 42.3 percent. Even so, their fortune has declined as JBS’s market value fell by more than a quarter since May 17, when news of their plea bargain broke. The stock slid 1.2 percent to 6.53 reais as of 11:45 a.m. in Sao Paulo trading on Wednesday.

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