| SAO PAULO
SAO PAULO Brazil's BRF SA is analyzing other options instead of an initial public offering for halal food unit One Foods Holdings Ltd (IPO-ONE.L), and has engaged in talks for a private stake sale to sovereign wealth and buyout funds, four people familiar with the plan said on Wednesday.
Momentum for One Foods' IPO has lost steam in recent weeks in the light of parent company BRF's management mishaps that led to disappointing fourth-quarter results, and competition from other upcoming Middle East-related capital markets transactions, the people said.
Reuters reported on Jan. 5 that BRF (BRFS3.SA), the world's largest poultry exporter, wanted to raise $1.5 billion from the One Foods IPO, which may take place by early April. The company confirmed a day later it was studying the IPO in London and also gauging a possible private placement.
According to one of the people, sovereign wealth funds Qatar Investment Authority and the Abu Dhabi Investment Authority have signaled they would be more willing to participate in a private placement of stock than an IPO at this point.
Two of the people said a private placement would help increase the value of One Foods, which is estimated to be around $6.5 billion. BRF hired the investment-banking units of Bank of America Corp (BAC.N) and Morgan Stanley & Co to underwrite the IPO, with Citigroup Inc (C.N) acting as an adviser.
The situation highlights the extent of turmoil inside BRF, which has in recent weeks shown the door to a number of top executives. Failing to clinch a deal for One Foods risks slowing Chairman Abilio Diniz's efforts to expand BRF's halal operations across the Middle East and Muslim Asia.
Citigroup is leading the private placement effort, two of the people said. Private equity funds have also been approached for the private placement deal, the people said.
São Paulo-based BRF and the Abu Dhabi fund declined to comment, as did Morgan Stanley and Bank of America. Citigroup and QIA, as the Qatar wealth fund is known, did not have an immediate comment.
The people asked for anonymity to discuss the issue freely. Some aspects of the talks are confidential.
BRF wants proceeds from the sale of the One Foods stake to help propel the latter's expansion into Asian Muslim nations. One Foods has 10 plants and 15,000 employees, and already controls 45 percent of the poultry market in Saudi Arabia, United Arab Emirates, Kuwait, Qatar and Oman.
One Foods was formally launched as a standalone company in January, underscoring BRF's wish to expand in the halal meat segment independently from other regions. The market for meat cuts that comply with Muslim dietary rules is expected to grow to $60 billion by 2020.
Competition from other Islamic-linked deals could hamper the One Foods IPO, two of the people said.
Saudi Arabia is expected to market an Islamic bond in coming days, while companies in Kuwait and other Gulf nations are working on several London offerings for this and next year.
According to one of the people, the inability of BRF's management to kickstart results is already irking some key shareholders. Singapore's GIC Pte Ltd [GIC.UL] has already requested to exit a co-investment agreement it made with Brazilian private equity firm Tarpon Investimentos SA (TRPN3.SA) in BRF in 2013.
Both GIC and Tarpon, BRF's largest shareholder and which picked former partner Pedro Faria as BRF's chief executive officer, are negotiating the former's exit from the agreement, the person said.
A decision may be reached in April, when the vehicle governing the co-investment expires, the person added.
Many shareholders blame Tarpon-led management at BRF for the stock's lackluster performance. Since Faria took the helm of the food processor in September 2014, shares are down 30 percent.
Tarpon declined to comment and GIC did not immediately respond to an e-mail seeking comment.
Shares of BRF rose on Wednesday for the first day in four days, adding 0.1 percent to 38.36 reais. The stock is down 21 percent this year.
(Additional reporting by Hadeel Al Saiegh in Dubai; Editing by Bernard Orr)