The Bait that is sneering Brazil

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SÃO PAULO – The entire Brazil seemed shocked last May 17, when the terms of the agreement reached between investigators and the president of the meat giant JBS, Joesley Batista, were made public. In exchange for immunity, the world’s foremost marketer of animal products detailed not only how he had bribed over 1,800 Brazilian politicians for years, but also knocked out the president of the country, Michel Temer, on a tape in which he seems to give his acquiescence to the sordid maneuvers of Batista to stop the judicial investigations against him. The JBS agreement with the Brazilian prosecutor’s office sounded like a coup. “Perfect crime,” came to qualify Temer himself. With serious allegations behind him, Joesley and his brother Wesley were granted permission to take refuge in the United States, one of the main centers of a business that already covers 23 countries and employs 230,000 people. But JBS also began paying a heavy price as the details of the big scandal unfolded. The day after the first disclosure, the São Paulo Stock Exchange had to suspend its activity for half an hour. On that day, JBS shares plummeted 35%. Since then, the stock market value of the company has depreciated by more than 1,3 million euros. “And it is possible that this is just the tip of the iceberg, we have to wait to know all the ramifications of the investigation,” explains Pablo Stipanicic Spyer, operations director of the consulting company Mirae Asset. “Volatility is now what defines JBS and it is very difficult to do an analysis on the direction of the company “ The alert came immediately to the risk assessment agencies. Moody’s, followed very soon by Fitch, downgraded the company’s rating from Ba2 to Ba3 for “increased risks related to potential future lawsuits, as well as corporate governance and liquidity.” The agreement of the Batista brothers with the Brazilian justice system also implies the payment of a large amount of money. After days of tug of war in the negotiation, last Wednesday, at the end of the day, the pact was closed: JBS will have to pay the highest fine in the country’s history. In total, 10.3 billion reais – about 2,8 million euros –  to be disbursed over the next 25 years. Joesley has also, at least nominally, given in command of the company. Heirs of the company created by his father, who started selling meat to companies that built Brasilia in the late 1950s, the brothers Joesley and Wesley managed to close 2016 with a total turnover of almost 47 billion euros. In the rural state of Goiás, with a peasant style and without having finished secondary education, the Batista created a holding that goes far beyond the meat: it includes dairy companies like Vigor, Eldorado Brazil, Havaianas, Amber and Oklahoma and Agricultural Forest, in addition to the television channel Canal Rural. The huge expansion of JBS is not explained without the support of a public entity, the National Bank for Economic and Social Development (BNDES). The progressive governments of Luiz Inacio Lula da Silva and his successor, Dilma Rousseff, promoted a policy of “national champions”, companies that, with the support of public money in very favorable conditions, launched an ambitious expansion both inside and outside Brazil. In a decade, JBS’s turnover grew more than 4,000%, driven mainly by new acquisitions, such as those of US firms Swift and Pilgrim’s Pride. All this was financed by credit: the company closed 2016 with net debt of 46.9 billion reais. The BNDES and another public entity, the Federal Savings Bank, supported this expansion by acquiring group debt and exchanging it by shares: they now control 26.24% of the group’s shares, but its share exceeded 30%. According to Joesley Batista’s confessions to justice, the company paid an illegal 4% commission for each loan to members of the then ruling Workers’ Party. The scandal has also forced the holding company to suspend its plans to list on Wall Street, an operation with which it expected an injection of 1.5 billion euros to continue its global expansion. Investment analysts consulted, who asked for anonymity, explain that the company’s position is now too fragile to expose itself to that leap. “Although the fine is paid in 25 years, it is a frightening amount. “The company would not find demand in the market,” explains one of those analysts. “And it is also being investigated by the Brazilian securities authority.” This investigation tries to clarify one of the most controversial actions of the Batista. On the eve of the newspaper O Globo publishing the content of Batista’s confession, JBS bought a large amount of dollars, up to 1 billion, according to Brazilian media. The next day, the value of the real plummeted against the US currency. Stock brokers have also spotted an infrequent JBS activity on the market during the days before the outbreak of the political bomb. In case that all this avalanche of investigations wasn’t enough, the group will have to deal with boycott campaigns against it that have been promoted by consumers and some distribution companies. Even the respected Consumer Defense Institute (IDEC) is encouraging Brazilians to stop buying products from JBS brands.

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