The Chain: Prima Foods, JBS to See Increased Scrutiny Over ESG, Deforestation Concerns Ahead of IPOs


March 13, 2020

Prima Foods SA, a meatpacker based in Brazil, is planning to launch an initial public offering (IPO). Prima Foods’ share offering is expected to be BRL 1 billion (USD 222 million). The company operates three slaughterhouses, which are located in Goias, Minais Gerias, and Mato Grosso do Sul, and almost two-thirds of its sales are exports, with China as the main destination. The company is planning to use the proceeds from going public to grow the company, whether through acquisitions or organic growth.

Prima Foods, the fourth-largest meat processor in Brazil, has limited direct deforestation exposure as its slaughterhouses operate in areas that have seen relatively little deforestation.

The company is owned by a member of the Batista family, which is the majority shareholder of JBS SA, the largest meat processor in the world and a key player in the Brazilian beef industry. Prima Foods’ ties to JBS SA raise longstanding ESG and corruption concerns, such as transparency, corporate governance, deforestation, and human rights. JBS SA has an outsized effect on land-use and forest conservation in the country, where the cattle industry contributes to approximately 80 percent of deforestation. In 2017, Joesley and Wesley Batista were arrested and faced trials for insider trading. Also in 2017, Brazil’s agency responsible for protecting the environment (Ibama) temporarily suspended operations at two JBS facilities for sourcing from illegally deforested areas. Last year, JBS came under scrutiny for its ties to deforestation and fires in the Amazon. CRR reported that a large number of fire alerts in September 2019, during the height of the fires, took place within JBS’ potential buying zones. Batista’s ownership and the company’s large market share suggest that Prima Foods could endure similar ESG issues that JBS SA has seen, which could lead to both reputational and financial risks.

JBS also plans IPO

Meanwhile, JBS is also reportedly moving forward with its own IPO in the United States. The offering would be for its international operations and would be independent of its Brazilian company, JBS SA. JBS had aimed to launch an IPO in 2017, but the long list of scandals forced the company to scrap its plans. Approximately 75 percent of the JBS’ revenue comes from markets outside of Brazil. JBS wants to move forward with its New York listing in the second quarter of 2020, but the IPO roadshow has been delayed as a result of disruptions related to the coronavirus. In December, JBS confirmed it has been again considering launching an IPO: “JBS has been studying a possible listing of its international assets in the USA. With this, the Company expects to achieve a capital structure that better reflects its global platform and allows it to compete as an equal with its international competitors, in addition to providing more opportunities to JBS and to its team members throughout the world.” The IPO may also coincide with the company moving its headquarters to Luxembourg or the Netherlands for tax planning reasons.

At the same time JBS International plans to become listed in the United States, Brazilian development bank BNDES will move forward with selling its 21.3 percent stake in the company. BNDES is the second-largest shareholder of JBS SA, behind only Batista-run J&F Investimentos SA. The sale will bring about major corporate changes for JBS SA, which has a market capitalization of almost USD 18 billion.

Although the JBS entity listed in the United States will be independent of Brazilian JBS SA, investors in JBS may be at risk of financing deforestation by purchasing U.S. shares of JBS from JBS SA shareholders. This could lead to reputation and possible financial risk for shareholders.

JBS will again face increased scrutiny from NGOs, investors, and policymakers ahead of the IPO for its history of corruption, deforestation, and other ESG violations, leading to calls for it to strengthen its corporate governance and sustainability policies. The Batista family currently owns more than 40 percent of JBS, a hurdle to improving its governance. Last year, Amazon Watch highlighted the growing risk to shareholders and financiers in companies operating along commodity supply chains in Brazil, including JBS SA. In the United States, some lawmakers have wanted to stop JBS SA’s penetration of the U.S market and have been calling for investigations of JBS USA for receiving aid from the U.S. Department of Agriculture. Just recently, the U.S. lifted its ban on beef imports from Brazil, possibly allowing deforestation-linked beef to re-enter the American market. This development could bring even more scrutiny of JBS, given that its beef volumes did not meet safety standards, leading to the ban in 2017.

 

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