The Chain: JBS’ Corporate Ownership to Change as BNDES Looks to Sell 50 Percent of Its Stake in Company


December 5, 2019

Brazil’s development bank is seeking to sell 50 percent of its stake in meatpacker JBS SA, a move that could bring about major corporate ownership changes. The National Bank for Economic and Social Development, abbreviated BNDES in Portuguese, currently holds 21.3 percent of JBS’ shares. BNDES is the second largest investor in JBS, behind J&F Investimentos SA at 40.2 percent.

The BNDES sale of its stake in JBS, which has a market capitalization of USD 17.7 billion, would total USD 1.9 billion (8 billion Brazilian reals). The sale is part of a broader BNDES plan to divest its holdings. Brazilian President Jair Bolsonaro, whose policies favor agricultural development over environmental protection, wants to limit the role of both the state and international actors in the Brazilian economy, while also reversing investments made by his predecessors.

BNDES has come under criticism over the years for investing in larger companies that have ties to corruption and environmental damage instead of providing assistance to smaller private firms. A report in 2013 highlighted that its investments are heavily concentrated in the oil and gas, electricity, mining, food, pulp and paper industries. In 2017, Brazilian authorities investigated fraud and irregularities while looking into whether JBS received preferential treatment tied to financing from BNDES. The bank also invests in and lends to other controversial meatpackers, such as Marfrig and BRF.

BNDES includes sustainability criteria tied to its lending. Under its Resolution 1854, companies involved in cattle slaughtering and/or production of meat products are required to follow certain social and environmental criteria and guidelines in order to receive financial support. Companies also have to provide monthly performance auditing reports. However, even though BNDES made funds available to meatpackers to implement these guidelines, there is still no traceability of indirect supply chains, and various evidence shows that JBS is still buying deforestation-linked cattle. In order for BNDES to remain on the board and have veto power, it would need to hold on to at least 15 percent of its stake.

The sale, expected in December or January, coincides with increased reputation risks for JBS and its investors and financiers. Amazonian fires that spread across Brazil during the summer were tied to the meatpacker’s suppliers. As the company came under heightened scrutiny, it scrubbed a transparency initiative that indicated the origins of its beef supply. Chain Reaction Research reported in October that 145,482 fire alerts in September were within JBS’ potential buying zone. JBS is also coming under increased examination in the United States, where lawmakers are trying to halt JBS SA’s growth into the U.S. market. Privately-held JBS USA is under fire for receiving aid from the U.S. Department of Agriculture (USDA), which could have knock-on effects against other JBS entities. “Based on well-supported and documented facts, JBS SA invested in U.S. subsidiaries as a result of numerous criminal violations that call into question the justification for their continuation as USDA contractors,” said Congresswoman Rosa DeLauro, a Democrat from Connecticut and one of a number of U.S. lawmakers calling for investigations into JBS.

Against the backdrop of JBS’ ongoing connections to deforestation in Brazil and allegations of corruption, the company’s financiers and investors, including BNDES even with a lower stake, could face reputation risks and pressure to change the company’s policies.

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