August 11, 2016 / 2:07 PM / 2 years ago

UPDATE 1-Brazil's Marfrig calls report of debt repayment talks 'absurd'

(Recasts to add Marfrig comments, share performance, quarterly results)

SAO PAULO, Aug 11 (Reuters) - The head of Brazilian meatpacker Marfrig Global Foods SA on Thursday said details of a newspaper report it was in talks with state development bank BNDES over early debt repayment were “absurd.”

Citing unnamed sources, the Valor Economico newspaper also reported that Marfrig’s controlling shareholder, Marcos Molina, offered to repurchase of 2.1 billion reais ($672 million) in convertible debt, which was first sold to the investment holding arm of BNDES six years ago.

If BNDESPar, the bank’s investment arm, executes the conversion at Marfrig’s current share price, it would incur a loss of about two-thirds of the investment, the paper reported. Either an early repayment or a repurchase would entail heavy losses to both the state-owned bank and Molina, the report said.

During a conference call on Thursday, Marfrig Chief Executive Officer Martin Arias said he would not comment on “market speculation,” but added that the calculations in the Valor story were “absurd.” BNDES declined to comment.

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 Marfrig share if executed was sold to help Marfrig fund the acquisition of U.S. processed food maker Keystone Foods.

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.

Earlier Thursday, Marfrig posted an unexpected second-quarter loss of 132 million reais, compared with analysts’ consensus estimate of a profit of 9.6 million reais.

Shares of Marfrig fell 5.3 percent in morning trading in Sao Paulo to 5.20 reais. ($1 = 3.1233 Brazilian reais) (Reporting by Tatiana Bautzer; Editing by Guillermo Parra-Bernal and Jeffrey Benkoe)

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