Brazilian meatpacker JBS SA's stocks and bonds plunged on Monday as investors worried about the legal and financial consequences stemming from its central role in Brazil's latest corruption scandal.
The selloff came as holding company J&F Investimentos, controlled by billionaires Joesley and Wesley Batista, resumed negotiations with Brazilian prosecutors over a multi-billion dollar fine that would settle charges they bribed President Michel Temer and a raft of other politicians.
JBS shares lost 31.3 percent, closing at a 45-month low of 5.98 reais and wiping out more than 9 billion reais ($2.76 billion) in market value.
Joesley Batista, 44, now JBS's chairman, is widely credited with masterminding an aggressive series of foreign acquisitions, including Swift Foods and Pilgrim's Pride Corp. Those takeovers, made with the help of 8.1 billion reais in funding from state development bank BNDES, helped build JBS into the industry heavyweight it is today.
But lately he has become best known for his role in helping prosecutors tape Temer and other politicians in a series of conversations in which they appeared to admit to receiving bribes from the Batistas or condoning their payment to others.
Adding to the legal clouds over the group, one of Temer's congressional allies is launching a probe into insider trading allegations that market regulator CVM began investigating at the end of last week, a lawmaker told Reuters on Monday.
Both probes will examine whether JBS's controlling shareholder benefited from moves to buy dollar futures and sell JBS shares before a plea deal implicating Brazil's president was made public.
Against that backdrop, investor hopes have quickly faded that JBS, which originated as a butcher selling beef to workers building the country's futuristic capital city Brasilia, would list its U.S. subsidiary this year. That offering could have raised billions of dollars and its absence has made investors more pessimistic about JBS' credit outlook.
One source close to the company said the initial public offering, which the company expressed confidence about as recently as last week days before the scandal broke, has become virtually impossible for the medium term.
Leniency Agreement Pending
JBS bonds maturing in 2024 were traded as low as 93.43 cents on the dollar on Monday, after opening at 99.70, according to MarketAxess data. Yields on the bonds have risen from 6 percent to 8.6 percent over the last two weeks.
Moody's Investors Service downgraded the rating on JBS debt by one notch to "Ba3," warning that further cuts will hinge on the details of the legal settlement.
After J&F declined prosecutors' proposal to settle charges they paid extensive bribes to politicians paying a 11.2 billion reais fine, talks over a leniency deal resumed this week.
In a Monday statement announcing the resumption of talks on the leniency deal, Brazil's federal prosecutor's office said the total amount the holding company pays could be higher.
"This leniency agreement fine does not include the payback of losses to public coffers", the statement said.
J&F said that it has retained Brazilian law firm Trench, Rossi Watanabe to negotiate a leniency deal with prosecutors. The firm recently hired former prosecutor Marcelo Miller to work on the negotiations.
Investors had been hoping for a quick resolution to the impasse, according to trader Luiz Roberto Monteiro at Renascença DTVM brokerage.
The stock has lost 48 percent this year, also depressed by probes into alleged corruption in Brazil's meat inspection system and into suspected fraud in extending loans and share purchases by BNDES.
JBS and J&F, a sprawling conglomerate led by the Batista brothers, have admitted to paying the bribes in a case that has sparked calls for Temer's resignation.
Temer has denied wrongdoing said he will not resign.
Initial reports about the plea deal did not mention any restrictions on the Batista brothers keeping both ownership and executive roles with JBS.
By early Monday afternoon, almost 20,000 people had signed an online petition to scrap the plea deal calling the terms of the agreement too "friendly."
Five law firms in the United States are trying to get investors to join class action lawsuits to recover share losses. Most of the actions are related to the earlier meat inspection probes but one firm specifically mentioned the latest allegations.