SAO PAULO, Sept 8 (Reuters) - Banco BMG SA's offer to repurchase global subordinated bonds due in 2019 and 2020 appears unattractive relative to current prices of the securities, JPMorgan Securities said on Tuesday, putting into question the feasibility of the plan under current terms.
In a client note, JPMorgan analyst Natalia Corfield said the buyback plan was long expected in the wake of BMG's decision last year to transfer its payroll lending business to a joint venture with Itaú Unibanco Holding SA, Brazil's largest bank by market value.
Under terms of the planned transaction, BMG is offering 94.5 cents on the U.S. dollar for the 9.95 percent bond due in Nov. 2019 at the Sept. 21 early bird date, and 91.5 cents for the 8.875 percent bond due in Aug. 2020 . Investors who do not tender by that date will get 91.5 cents for the 2019 bonds and 88.5 cents for 2020s.
Prices on BMG's 2019 and 2020 bonds closed on Tuesday at 95.25 cents and 89.50 cents, respectively. The tender offer expires at midnight on Oct. 5.
"Based on this and on the carry offered by the notes, we believe there is little incentive for investors to accept the current terms and conditions proposed," New York-based Corfield said in the note.
The plan comes after Brazil's steepest recession in a quarter century, potential tax increases, waning demand for credit and rising loan delinquencies have all weighed down the allure of Brazilian bank bonds, in spite of their relatively strong capital position and creditworthiness.
Prices on BMG bonds may experience further volatility on the back of Brazil's uncertain environment and the bank's own challenges, the note added. Corfield has a "neutral" recommendation on the notes.
Corfield said that BMG could buy as much as $100 million of the 2020 bonds, while the maximum accepted amount for the buyback of the 2019 debt should not exceed $100 million minus the aggregate principal amount of the 2020s notes tendered.
The upper limits could be increased at BMG's discretion, according to the terms of the tender. (Reporting by Guillermo Parra-Bernal; Editing by Cynthia Osterman)