The arrest of Brazilian billionaire Andre Esteves tossed his investment bank, Grupo BTG Pactual SA, into a life-or-death struggle to sell assets and raise cash. A fire sale it’s not.
While there’s still no shortage of concern about the bank’s viability, speculation that its demise is imminent has largely faded, and its shares rallied a record 14 percent on Friday. Key to that success was a 6 billion-real ($1.5 billion) line of credit from the nation’s privately backed deposit-guarantee fund. The loan gave BTG enough confidence about liquidity that it passed up a chance to sell a 40 percent stake in Banco Pan SA at its market value to Banco BMG SA, a person with direct knowledge of the matter said. The offer, which was 580 million reais based on Friday’s share price, is now off the table.
While the line of credit from Fundo Garantidor de Creditos is helping BTG avert a liquidity crisis for now, asset sales are vital if it’s to survive 2016, according to a Dec. 7 analysis by Goldman Sachs Group Inc. BTG’s fourth-quarter funding gap is about 1.6 billion reais, an amount more than covered by the FGC credit line. But that gap will widen to 11 billion reais in the first nine months of 2016 and 18 billion reais by the end of next year, Goldman Sachs said.
“They can’t slow down the asset-sale process just because they got the line from FGC,” said Max Bohm, an analyst at Sao Paulo-based consulting firm Empiricus Research. “They need to show they’re selling quickly to calm markets and stop the free fall of their shares. For that to happen they need to accept the price buyers want to pay.”
One test will be how the firm reacts to an offer made Friday by GP Investments Ltd. to buy as much as 63 percent of real estate developer BR Properties, in which BTG is the biggest shareholder.
GP offered 10 reais per share, the company said in a regulatory filing, implying an enterprise value of 11.7 times projected earnings before interest, taxes and amortization, according to data compiled by Bloomberg. That’s more than the 9.4 times average multiple for Brazilian real estate companies with a market capitalization of at least $250 million, the data show. It’s also a 21 percent premium over Thursday’s closing price, though still 9 percent below the level on Nov. 24, the day before Esteves’s arrest. Banco Pan is down 8 percent since then.
BTG’s share surge after the GP announcement was its biggest since the firm’s initial public offering in April 2012, and pared the market-value decline since Esteves’s Nov. 25 arrest to 55 percent. Esteves, who resigned as chairman and chief executive officer of the Sao Paulo-based firm on Nov. 29, was jailed on suspicion he tried to obstruct a nationwide corruption probe involving Brazil’s state-owned oil company. He’s denied the allegations through his attorney.
As BTG’s credit ratings fell to junk and short-term funding sources dried up, the firm unloaded a stake in Rede D’Or Sao Luiz SA, Brazil’s biggest hospital chain, for 2.38 billion reais, and sold a 1.2 billion-real credit portfolio to Banco Bradesco SA. Both transactions were completed before the credit line from FGC.
The firm is also in talks to sell the Swiss asset manager it bought in September from Italy’s Assicurazioni Generali SpA for 1.25 billion Swiss francs ($1.26 billion). The company, BSI, is one of BTG’s best and most-liquid assets, according to Ricardo Mollo, a professor at the Insper business school in Sao Paulo. Mollo said he’s not surprised that BTG is taking an assertive posture in sale talks.
“BTG is a very aggressive bank with some of the best traders in the Brazilian markets,” Mollo said. “They will fight for survival in every possible way, and that includes negotiating through the end to get the best prices for all their assets.”
The bank plans to keep pushing for more asset sales, it said in an e-mailed statement Friday. “We are satisfied with the progress made in strengthening BTG in the past 16 days,” it said. “We’ve been working tirelessly to secure the stability of our business.”
BTG declined to comment about the Banco BMG offer for Banco Pan, as did Banco BMG CEO Antonio Hermann de Azevedo.
Also on the list of items for sale is BTG’s commodities business, a bright spot for the company when it announced in November that earnings had almost doubled. And the firm is shopping the rest of its 22 billion-real credit portfolio to some of Brazil’s other large banks, a person with direct knowledge of the matter said this month. BTG’s total loan portfolio was 43 billion reais at the end of the third quarter, though half are guarantees that can’t be sold, the person said.
About 7.5 billion reais of the total is pledged as collateral for the emergency credit line, FGC legal director Caetano de Vasconcellos said, adding that BTG has already withdrawn 2 billion reais from the 6 billion reais made available.
Created in 1995 and financed by the biggest lenders in Brazil, FGC has taken on new responsibilities since the 2008 financial crisis. It used to only pay creditors of bankrupt banks. Now it tries to prevent crises from developing, providing financing and guarantees to avert bank failures. It also helps the central bank in the consolidation of the financial system. Lenders’ contributions equate to 0.0125 percent of the total accounts and bonds subject to FGC protection.
“BTG Pactual has gotten support from other banks,” said Murilo Portugal Filho, president of Febraban, Brazil’s banking federation. “BTG is going to overcome this situation because of its good-quality assets.”
Even as the FGC line of credit provides breathing room, Brazil’s central bank is putting pressure on BTG, demanding it sell assets and reduce equity and derivatives trading to free up collateral, a person with direct knowledge of the matter said earlier this month. Regulators are monitoring BTG’s liquidity and operations closely and played an active role in obtaining the FGC loan. No direct funds were provided by the central bank, the person said.
Other assets that may be sold include stakes in retailer Uniao de Lojas Leader SA, physical-fitness chain Bodytech Participacoes SA and distressed-asset-management firm Recovery do Brasil, BTG said in a regulatory filing on Dec. 4.
The possible sale of BTG’s stake in parking-lot company Allpark Empreendimentos Participacoes e Servicos SA is attracting private-equity firms including KKR & Co. and Gavea Investimentos Ltda., people with knowledge of the matter said Friday. The company, Brazil’s largest parking-lot operator, could fetch about 1.5 billion reais, two other people estimated this month.
Not all its holdings are good candidates for easing BTG’s crisis.
“Some companies they own are highly indebted, such as Brasil Pharma, and won’t help much to raise cash,” Mollo at Insper said, referring to the Sao Paulo-based pharmacy company.
If BTG fails to sell enough assets and liquidity deteriorates, the central bank might be forced to intervene, the Goldman Sachs report said. Then the options get worse for partners of the firm, and include replacing the entire management team or liquidating the company, according to the report.
Fonte: Bloomberg – 14/12/2015
Centro de Gestão e Políticas Públicas do Insper amplia ações em ensino, pesquisa e difusão de conhecimento