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UPDATE 1-JBS slumps as Brazil lawmakers urge probe of major holder
September 5, 2017 / 9:23 PM / 17 days ago

UPDATE 1-JBS slumps as Brazil lawmakers urge probe of major holder

(Adds comments from top lawmaker, analyst; adds background throughout)

By Guillermo Parra-Bernal and Maria Carolina Marcello

SAO PAULO/BRASILIA, Sept 5 (Reuters) - Shares of Brazil’s JBS SA fell the most in 14 weeks on Tuesday on concern a plea deal between the controlling Batista family and prosecutors could be revised, leading to further scrutiny of the meatpacker’s business. Prosecutor-General Rodrigo Janot said on Monday that Joesley Batista, one of the brothers who control JBS, and a fellow state’s witness in the deal seemed to have inadvertently recorded a four-hour conversation mentioning the names of politicians, prosecutors and Supreme Court justices about crimes not mentioned in the deal. He said the content was “very troubling.”

Janot, who leaves office later this month, said Joesley Batista could lose immunity from prosecution and other benefits. Shares of JBS slumped as much as 11 percent early in the day, signaling that revoking the deal could slow efforts by JBS to cut debt, sell assets and protect margins.

The stock closed down 8.3 percent to 7.87 reais on Tuesday, extending losses this year to 28 percent. Reuters reported on Aug. 25 that JBS expected to clinch the sale of two subsidiaries before the end of this month.

“The plea bargain agreement is the core pillar behind the company’s quick stabilization of operations, cash flow and profitability,” Antonio Barreto, an analyst with Itaú BBA, wrote in a client note.

CONTROVERSY

In a statement, J&F Investimentos SA, the holding firm through which the Batistas control JBS, said Janot had hastily interpreted the recording, which contained “considerations of hypotheses” and did not compromise the good faith of the witnesses.

Controversy about the recordings comes as the investment arm of state development bank BNDES is seeking to remove Wesley Batista as chief executive officer of JBS.

Earlier in the day, the heads of Brazil’s houses of Congress urged a probe into Janot’s allegations. Lawmakers also opened a separate investigation into the links between JBS and BNDES, whose investment arm BNDES Participações SA is JBS’ No. 2 shareholder.

JBS began leaning heavily on BNDES in 2005, when Joesley Batista pitched bank officials on making the company a dominant global player. JBS got about $3 billion from BNDES in the form of two capital injections and a convertible debt issuance that the bank eventually exercised.

“It seems to me that the recordings could lead prosecutors to reconsider the benefits given to the witnesses,” Lower House Speaker Rodrigo Maia told reporters.

In the plea deal, the Batistas confessed to bribing 1,893 politicians and handed over evidence to prosecutors that linked President Michel Temer to endorsing hush payments to a possible witness in a graft probe. Temer, who is returning from an official trip to China, has repeatedly denied wrongdoing. (Additional reporting by Bruno Federowski and Eduardo Simões in São Paulo; Editing by Meredith Mazzilli and Phil Berlowitz)

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