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 Sao 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 October 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.
Copyright Reuters, 2017