JBS also bought Canada’s second-largest beef-packing plant, XL Foods Inc. in Alberta.
The value of $1 billion worth of JBS notes has dropped by 11 per cent in three weeks after Brazil’s federal audit court said Npv. 25 that it found evidence the company received “special treatment” in capital injections from state-run development bank BNDES.
JBS’s debt had returned 10.3 percent this year before the announcement, the highest in Brazil’s corporate-bond market which is embroiled in a graft scandal, recession and political crisis, reports Bloomberg news agency.
The bank has bought almost 6 billion reais ($1.5 billion) of JBS shares since 2007.
“It is worrisome,” Omar Zeolla, an analyst at Oppenheimer & Co., said from New York. “The company could be required to compensate the bank.”
The audit court, known as TCU, said in e-mailed documents on Nov. 25 that it found evidence BNDES lost 847.7 million reais in transactions to help JBS purchase companies in the U.S.
The bank allegedly overpaid for the company’s shares and gave up a premium payment when JBS acquired Swift & Co. in 2007, the beef unit of Smithfield Foods Inc. in 2008 and Pilgrim’s Pride in 2009, the court said in the documents.
According to Jose Nantala Freire, a lawyer at Peixoto & Cury Advogados, “the investigation is still in the early stages. Consequences can be huge” if the court finds evidence of misconduct by JBS executives, Bloomberg reports.
JBS had managed to sidestep the slump in Brazilian bonds this year by generating record profits and slashing its leverage to an eight-year low. Leverage is s measure of the percentage of debt.
The company garners more than 80 percent of its sales in dollars, which means it’s in stronger shape than most Brazilian companies which face huge challenges because the nation’s currency has collapsed.
The currency fell again this week to 32 percent less than when the year began.
“The fundamentals are not bad, but headline risk remains latent,” said Eduardo Ordonez, a money manager in Copenhagen at BI Asset Management, which oversees $1 billion of emerging-market corporate bonds.