“The downgrade incorporates Moody’s view that the risks related to judicial processes and investigations involving JBS’s shareholders and its executives remain high,” the agency explained.
Joesley and Wesley Batista face trial on charges of insider trading and manipulation of the stock market. The brothers currently are being held in pre-trial detention by federal police in São Paulo. Federal prosecutors have indicated a plea agreement reached previously between the Batista brothers and prosecutors is in jeopardy of another revision — a factor Moody’s included in its ratings downgrade.
“Accordingly, uncertainty resurfaced following the new audio recording of a conversation between Mr. Joesley Batista and Mr. Ricardo Saud made public on Sept. 4, which lead to the revision of their benefits under the plea bargain agreement and increased disputes among shareholders,” Moody’s said. “Currently, the validity and effects of the leniency agreement still hold, but we believe that the revision creates overhang which could make difficult future asset sales and debt renegotiation with banks.”
Moody’s noted that the B3 rating incorporates the risks regarding the plea agreements and investigations “…which can directly or indirectly involve JBS, and its executives, and the extent to which these developments could harm the company’s liquidity and market access. It also incorporates the strong reliance on banks to roll-over short-term debt.”
The ratings agency added that the rating also considers the volatility of the protein industry.
In a new development for the company, JBS is preparing to open seven meat processing plants in Brazil that were idled due to a tax dispute with the local government of Mato Grosso do Sul. In a statement to MEAT+POULTRY, the company said “JBS SA informs that, after a meeting between Mato Grosso do Sul State Government representatives, State Public Prosecutors, collaborators and rural producers on the afternoon of Friday, Oct. 20, the beef operations at its seven cattle slaughterhouses in the state will resume on Tuesday, Oct. 24.
“The agreement with the Executive and the State legislature, represented by the President of the Mato Grosso do Sul’s Legislative Assembly, will maintain the necessary conditions for the preservation of JBS’ operations in the region, considered important for both the company and for Brazil, to protect 15,000 direct and 60,000 indirect jobs in the State, as well as guarantee business relations in the state of Mato Grosso do Sul.”
The company previously stated that the tax dispute and plant closures are “completely unrelated to any individuals.”