August 11, 2016 / 11:57 AM / 2 years ago

Brazil, Marfrig mull ways to repay convertible debt early -report

SAO PAULO, Aug 11 (Reuters) - Brazilian meatpacker Marfrig Global Foods SA and state-owned development bank BNDES are discussing alternatives for early repayment of 2.1 billion reais ($672 million) in convertible debt issued by Marfrig which matures early next year, the newspaper Valor Economico reported on Thursday.

Marfrig’s controlling shareholder Marcos Molina has offered to repurchase the debt, which was first sold to the investment holding arm of BNDES six years ago, for about 1.2 billion reais, the Valor report said, citing unnamed sources.

Should BNDESPar, as the bank’s investment arm is known, execute the conversion at Marfrig’s current share price, it would incur a loss of about two-thirds of the investment, the paper said.

Either an early repayment or a repurchase would entail heavy losses to both the state-owned bank and Molina, the report said.

BNDES did not have an immediate comment.

During a conference call on Thursday, Marfrig Chief Executive Officer Martin Arias said he would not comment on “market speculation,” although he noted that calculations in the Valor story seemed “absurd.”

Years of government policies to create homegrown conglomerates have forced state lenders to fund expansion plans for Brazilian food processors and phone carriers.

The policies, which were enacted by Workers Party administrations since 2008, have unraveled as the nation’s budget deficit reached a record and the economy slipped into its harshest recession in decades.

The convertible debt, which could be transformed into equity at a price of 21.5 reais per share of Marfrig if executed, was sold to help Marfrig fund the acquisition of U.S. processed food maker Keystone Foods.

Shares of Marfrig closed on Wednesday at 5.49 reais.

Molina has a stake of about 30 percent in Marfrig, a meatpacker that has struggled for years with a high debt load and competition in Brazil; BNDES has a 19.6 percent stake.

$1 = 3.1233 Brazilian reais Reporting by Tatiana Bautzer

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