JBS SA, the world’s largest meat producer, surged the most in seven years after unveiling a radical corporate restructuring that will see the Brazilian company create a New York-listed unit to access cheaper capital.
The new unit, JBS Foods International, will hold the company’s non-Brazilian beef, chicken and processed-food businesses as well as its Brazilian chicken and processed-food unit Seara. JBS SA, the entity that currently trades in Sao Paulo, will in the future own just the Brazilian beef, leather and biodiesel businesses under the name of JBS Brasil, and will continue to be traded there.
J&F Investimentos, the holding company controlled by the Batista family, will still be the main shareholder of the JBS group, and Wesley Batista will remain as chief executive officer. Other senior executives including JBS USA CEO Andre Nogueira will also keep their current jobs.
"The listing of assets on the New York exchange is great from an equity investor perspective as they will unlock value doing that," said Ian McCall, a money manager at Geneva-based Quesnell Capital SA.
Brazilian companies have been hit by a once-in-a-century recession that’s hurting revenue, while costs climb amid soaring inflation and interest rates that at their highest since 2006. The economic downturn has been made worse by a political crisis that has all but paralyzed the country, pushing up financing costs and locking access capital markets. Not a single company has issued dollar bonds this year as investors and companies await for resolution to the political stalemate.
Senate Move
Shares of JBS surged 18 percent to 10.25 reais at 11:33 a.m. in Sao Paulo, giving it a market capitalization of 29.3 billion reais ($8.41 billion). Earlier they jumped 19 percent, the biggest intraday gain since October 2008. The Ibovespa benchmark gauge rose 0.8 percent after the Brazilian Senate earlier approved the impeachment of President Dilma Rousseff.
The company’s bonds fell as investors focused on its worsening credit metrics including a rising net-debt-to-earnings ratio. JBS’s $1 billion in notes due 2020 fell 1.2 percent, the most since Jan. 28, after it reported worse-than-expected first-quarter results.
JBS’s $750 million of 2024 bonds yield about 7 percent, more than double the yield of similar notes from its largest U.S. competitor, Tyson Foods Inc.
"Bondholders will not gain anything from the listing move as JBS is already a large, transparent, well-followed and understood credit," McCall said
Hedging Losses
JBS said separately in the early hours of Thursday morning that it swung to a record net loss of 2.74 billion reais ($794 million) in the first quarter from net income of 1.39 billion reais a year earlier. It lost 5.8 billion reais on its foreign-exchange hedging. The company was also hurt by a decline in cattle prices n the U.S. and Canada and the rise in the Australian dollar versus the U.S. dollar.
JBS has seen its shares fall as much as 32 percent this year following a series of unflattering headlines. In January, public prosecutors accused J&F CEO Joesley Batista of financial crimes. JBS and J&F denied any wrongdoing by its executives. Earlier this week, a Brazilian newspaper reported JBS made illegal political donations, raising concerns that it may be eventually dragged into the widening corruption probe surrounding Rousseff. JBS said its campaign donations have always been made within electoral rules.
The meatpacker, whose $20 billion buying spree in the past decade included U.S. companies Pilgrim’s Pride Corp. and Swift & Co., shelved a proposed initial public offering for its U.S. unit in 2009 when Brazilian markets offered better valuations. The plan was considered again a year ago, people with direct knowledge of the matter said last August.
Listing in New York "will increase its access to international financial markets, improving the liquidity for its shares, with the prospect of reducing its cost of capital," JBS said late Wednesday in a statement announcing the restructuring.
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