Brazil scandal tests JBS, BRF push for overseas units IPOs | Reuters
By Guillermo Parra-Bernal and Paula Arend Laier | SAO PAULO SAO PAULO Brazil's two largest food processors are striving to restore confidence in their quality controls as they pursue plans to list overseas units after a scandal over alleged bribery of health officials that triggered bans on Brazilian meat exports. On Friday, police named Brazil's JBS SA, the world's top meatpacker, and BRF SA, the largest poultry producer, alongside dozens of smaller peers in a probe into alleged payments to officials to forgo inspections and overlook practices including processing rotten meat.The scandal broke weeks before JBS and BRF were due to launch the initial public offerings of their foreign-based units JBS Foods International and One Foods Holdings Inc - which is BRF's halal meats unit.
By Guillermo Parra-Bernal and Paula Arend Laier
| SAO PAULO
SAO PAULO Brazil's two largest food processors are striving to restore confidence in their quality controls as they pursue plans to list overseas units after a scandal over alleged bribery of health officials that triggered bans on Brazilian meat exports. On Friday, police named Brazil's JBS SA, the world's top meatpacker, and BRF SA, the largest poultry producer, alongside dozens of smaller peers in a probe into alleged payments to officials to forgo inspections and overlook practices including processing rotten meat.The scandal broke weeks before JBS and BRF were due to launch the initial public offerings of their foreign-based units JBS Foods International and One Foods Holdings Inc - which is BRF's halal meats unit. The deals could fetch a combined $2.5 billion and help accelerate expansion outside Brazil.While JBS and BRF have denied wrongdoing, the reputation of one of Brazil's flagship industries has been hard hit. Exports of Brazilian meat fell to $74,000 on Tuesday from a daily average of $63 million before the scandal.China, the largest consumer of Brazilian meat, suspended shipments from the South American country at the weekend, with Hong Kong following suit and the European Union halting purchases from four Brazil-based facilities.Still, four people involved in the deals said JBS and BRF would press ahead with the IPOs while seeking to shore up investor confidence with a campaign arguing the police probe misstated facts. JBS has no intention to delay the $1 billion IPO of JBS Foods in New York, which it hopes to finalize in May or June, one of the people said. BRF continues to analyze selling a $1.5 billion stake in One Foods through a London IPO or a private placement, another person said.Sovereign wealth funds are in talks with BRF over a private stake sale in One Foods. Bank of America Corp and Morgan Stanley & Co are advising BRF on the deal, Reuters reported last week.Neither firm has seen a pushback from potential investors, said the people, who spoke under the condition of anonymity, because of the sensitivity of the matter. JBS and BRF, both based in São Paulo, declined to comment.
The scandal has slashed about $2.2 billion worth of market value from JBS and BRF since Friday, according to Thomson Reuters data.JBS shares tumbled nearly 11 percent on Friday, the day the scandal broke, the biggest daily plunge since Oct. 26, when a government agency vetoed a plan to move some operations outside Brazil. BRF is near its lowest level in more than four years. This week, stocks of both firms have slowly recovered, suggesting Friday's selloff might have been overdone.According to two New York-based and three London-based fund managers, investors are likely to seek more clarity about the facts surrounding "Operation Weak Flesh."
"The future prospects for any transaction like this, anywhere, will be unclear until all the parties involved remove the overhang on the matter," said Nick Field, who helps manage $26 billion in emerging market equities for London-based Schroder Investment Management. Field, like the other fund managers, declined to say whether his firm might participate in either IPO.Both companies and industry groups have launched public relations campaigns to repair the damage.BRF rejected allegations by police that it mixed cardboard in its products and said there was no evidence it sold rotten meat. JBS said all exporting plants in Brazil followed strict international procedures.
JBS executives plan to hold conference calls with banks working on the JBS Foods IPO as early as this week, allowing them to verify information on the probe with third-party sources, the first person said.While BRF is the more exposed to Brazil - with 55 percent of its sales and most of its poultry production there - none of its halal plants are suspended as part of the probe.Analysts like Ronaldo Kasinsky of Santander Investment Securities remained wary, saying the ongoing investigation could deal a real setback to both deals. Investors could fret over valuation, undertake a closer look at operational and safety standards or stretch out due diligence procedures, he said.Others like Carlos Laboy of HSBC Securities were confident the deals would go through.The IPO of JBS Foods, which serves 350,000 clients around the world, could help parent company JBS morph from a meatpacker into a highly-valued, global food processing player.JBS will name the banks underwriting the IPO in a filing with the U.S. Securities and Exchange Commission, one of the people said.For BRF, the One Foods deal should propel expansion into Asian Muslim nations. One Foods already controls 45 percent of the halal poultry market in Saudi Arabia, United Arab Emirates, Kuwait, Qatar and Oman. (Reporting by Guillermo Parra-Bernal, Paula Arend Laier; Editing by Andrew Hay)
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By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States
BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.