PROFILE: ATISTA FAMILY RAZIL 3O T16 | J S, J&F ...

PROFILE: BATISTA FAMILY BRAZIL 3-OCT-16 | JBS, J&F INVESTIMENTOS, ELDORADO BRASIL CELULOSE, BANCO ORIGINAL

The Batista family founded and controls JBS, the world’s largest meat-processing company, which expanded globally via acquisitions in the past decade.

The family also owns pulp and paper company Eldorado Brasil Celulose, shoe maker Alpargatas, cosmetics and clean-ing product maker Flora and lender Banco Original.

Strong political connections and financing from state-owned banks facilitated the growth of JBS and other group com-panies. The family and its companies are now implicated in politically-linked corruption investigations.

JBS CEO Wesley Batista was detained for questioning by police on 5 Sep in an investigation of fraud at state pension funds that invested in Eldorado Brazil Celulose. He and his brother Joesley, the chairman of JBS, were suspended from management roles by a court order but reinstated in a deal with prosecutors.

INTRODUCTION

The family of Jose Batista Sobrinho controls JBS SA, which has grown rapidly from a regional beef producer into world’s largest meatpacker through a series of acquisitions funded in large part by the Brazilian government. The purchase of US-based Swift & Co. (renamed JBS USA Holdings) in 2007, Smithfield Inc (renamed JBS Packerland) in 2008 and NASDAQ-listed Pilgrim’s Pride Corp in 2009 gave JBS large shares of the US markets in beef, pork and chicken. Through its holding com-pany, J&F Investimentos SA, the family also controls pulp and paper company Eldorado Brasil Celulose SA, dairy product maker Vigor Ali-mentos SA, shoe and apparel manufacturer Alpargatas SA, online lender Banco Original SA and cosmetics and cleaning product maker Flora. J&F is also involved in the property, media and energy sectors. Jose Batista Junior controls a separate, beef-focused business group.

Jose Batista Sobrinho founded JBS predecessor Friboi in 1953 in Goias state. He is described variously as having started out as a butcher or rancher, but his primary business began with the acquisition of slaughter-houses. The company had government ties early on, obtaining contracts to supply beef to workers building the new capital, Brasilia. Most of the company’s expansion, however, has come under the leadership of his three sons: Jose Batista Junior, Wesley and Joesley. Each has had his turn as CEO, with Wesley holding the title as of 2016.

Media coverage of the Batista family often focuses on their rural origins and blue-collar upbringing. They present themselves as hyper-successful butchers, rather than owners of what has essentially become a state-backed investment fund. There is some truth to the rustic image – Jose Batista Sobrinho speaks with a country accent and boasts that he put his children to work in slaughterhouses as teenagers. But while the Batistas prefer to talk about their butchering skills, their business owes more to aggressive deal-making and government financing.

Shareholder-related risk

Succession Risk Risk associated with generational transfer of wealth and management

Moderate JBS founder Jose Batista Sobrinho, who is in his 80s, has handed over leadership to his sons but remains involved. All three sons have experience managing JBS and are in their 40s and 50s.

Political Risk Political exposure due to government relationships

High JBS has been Brazil’s top campaign contributor and the family is currently implicated in corruption investigations related to politically-linked financing.

Legal and Regulatory Risk Risk associated with lawsuits, prosecution and regulatory sanctions

High Joesley and Wesley Batista, the group’s top executives, have been implicated in corruption investigations. Joesley has been charged with financial crimes. JBS has been a target of anti-trust and labor regulators in Brazil and the US.

Transparency Risk Risk due to opaque corporate owner-ship and offshore holding structures

High A large stake in the family’s main holding company is held by Delaware-based Blessed Holdings, whose ultimate own-ership has been disputed. JBS denied being behind Blessed and has named offshore companies as the owners.

Governance Risk Risk associated with corporate governance, fraud and corruption

High Anti-trust regulator CARF imposed BRL 3bn in fines and back taxes on JBS for alleged fraud and damage to minority shareholders through mispricing of shares and use of an illegal structure in its 2009 merger with Bertin.

Expansion Risk Risk created by business growth and diversification

High Rapid expansion and diversification beyond the group’s core business may pressure the group’s financial and management resources.

Credit History Risk Bankruptcy or default risk related to share-holder history

Moderate Near-term liquidity is adequate but legal difficulties create uncertainty. The family has made use of the foreign capital markets, but also long relied on state banks for loans, some of which were converted to equity.

Ratings indicate the probability of business disruption or loss of investment value. High = over 50% or already occurring; Low = not of concern in the foreseeable future

CONTENTS PAGE

Family structure 3

Corporate structure 4

Affiliations 6

Risk factors 7

Capital structure (JBS) 8

Acquisitions 10

News 11


BNDES FINANCING AND AUDIT

The Batista family’s government relationships, particularly their ties with state-owned banks, have been both a strength and a weakness (see Affiliations on p.6 and Risk Factors on p.7). JBS was the largest donor in the 2010 and 2014 presidential election campaigns, giving mostly to President Dilma Rousseff’s Worker’s Party (PT) and the Brazilian Social Democracy Party (PSDB), but also to the Brazilian Democratic Move-ment Party (PMDB) of current president Michel Temer, according to campaign finance disclosures. Rousseff was suspended in May amid allegations the she allowed manipulation of government accounts, and was impeached in August.

State-owned Brazilian Development Bank (BNDES) provided financing for the Batista family’s landmark acquisitions, including Swift, Smithfield and Pilgrim’s Pride. Other Brazilian conglomerates that enjoyed the patronage of BNDES include the EBX Group – controlled by Eike Batista (no relation), whose fall has come to symbolize Brazil’s economic collapse – and the Odebrecht Group, whose CEO Marcelo Odebrecht was sentenced to prison this year for paying kickbacks to Petrobras officials. BNDES has a history of picking and supporting “national champions” with the aim of cultivating globally competitive Brazilian companies. This has led to accusations of preferential treatment for politically favored conglom-erates, as well as complaints that the bank’s subsidized lending distorts markets in Brazil and abroad.

BNDES has provided both debt and equity financing, and at one point owned over 30% of JBS. The stake was reduced in 2012 when some shares were transferred to state-owned bank Caixa Econômica Fed-eral, and now stands at 20.36%. BNDES provided BRL 10.6bn in financing to JBS between 2005 and 2014, according to press reports citing Brazil’s Federal Court of Accounts (TCU).

An audit of BNDES by the TCU in 2015 found evidence that JBS had received “privileged treatment”. The TCU raised questions about the speed with which BNDES approved loans to JBS, and alleged that the financing caused losses to BNDES and the government. The audit is also investigating alleged irregularities in a loan to finance the attempted acquisition of National Beef, which was abandoned after an antitrust lawsuit by the US Justice Department, according to Brazilian daily Valor.

OTHER INVESTIGATIONS

J&F Investimentos and Eldorado Brasil Celulose are also implicated in the “Greenfield” investigation into fraud at state-owned pension funds. The funds are accused of acquiring stakes in favored companies at inflated prices. Wesley and Joesley Batista were briefly suspended from management roles last month before being reinstated in a deal with prosecutors.

While the Batista family’s companies are not central to the Lava Jato scandal, police investigated payments by JBS to a shell company under inquiry in the probe, Valor Econômico reported in 2014. The offices of Eldorado and J&F, as well as Joesley Batista’s home, were raided in July 2016 based on evidence from a plea bargain by Fábio Cleto, a former VP of Caixa Econômica Federal questioned in the Lava Jato investigation. Cleto claimed to have received bribes in exchange for loans to Eldorado.

In addition, Joesley has been charged with financial crimes in rela-tion to alleged illegal loans made indirectly by Banco Original to group companies. Batista family members and companies have denied all accusations against them.

NEW YORK IPO

Amid difficulties in Brazil, the Batista family is working to refocus JBS

overseas. While the pace of deals has slowed, JBS made two large

foreign acquisitions last year: it paid USD 1.45bn for Cargill Pork LLC,

and USD 1.5bn for poultry producer Moy Park Ltd, the UK unit of Bra-

zil’s Marfrig Global Foods SA. JBS announced in May that its overseas

holdings and some of its Brazilian assets would be listed on the New

York Stock Exchange as JBS Foods International. It cited access to cap-

ital as the motivation, but the move may also offer some insulation

against political and legal hazards in Brazil. Wesley Batista, who pre-

viously ran JBS’ US operations, will be the new company’s CEO.

He has also overseen a transition in JBS’ financing, issuing USD bonds in

recent years and reducing reliance on state-owned banks (see JBS

capital structure on p.8). However, it remains to be seen how the family

will weather ongoing investigations and the disruption of the political

relationships that helped propel its rise.

Key family members in JBS

Jose Batista Sobrinho (led JBS 1953-1980s) Regional growth

Founded JBS in 1953 as a butcher shop and expanded into slaughter-houses starting in the 1960s; developed government ties while supplying beef to contractors in Brasilia

Jose Batista Junior (1980s-2005) National expansion

Refocused JBS from regional to national market, and expanded domestically via acquisitions; began diversification beyond meat industry with founding of hygiene product-maker Flora; left JBS to run for political office

Joesley Batista (2007-2011) Acquisition-fueled global expansion

Oversaw the most aggressive period of JBS’ M&A-driven global expansion, marked by the acquisition of Pilgrim’s Pride, Swift and Smithfield with financing from BNDES; named chairman in 2011

Wesley Batista (2011-present) Consolidation and damage control

Moved to the US in 2007 to oversee the integration of acquisitions there; returned to Brazil in 2011 as CEO; leadership has been marked by reduced M&A, less dependence on Brazil government funds, and increased use international capital markets with frequent USD bond issuance


Batista Family

José Batista Júnior

b. 1960

Ex-chairman of JBS; owns JBJ

Investimentos, a meat-focused conglomerate

independent of JBS

Chairman of JBS and Eldorado; CEO of JBS

2007-2011

José Batista Sobrinho

b.1933Wife: Flora Mendonça

Founded JBS in 1953 in Goias state; director of JBS SA and Eldorado

Brasil Celulose

Wesley Mendonça

BatistaValere Batista

CEO of JBS 2011-present; director of Eldorado; previously

based in US as head of JBS USA Beef

Shareholder of J&F Investimentos

Vanessa Batista Vivianne Batista

Shareholder of J&F Investimentos; former head of CSR-focused

Instituto JBS

Shareholder of J&F Investimentos; director

of Instituto JBS

Wesley Batista Filho

President of JBS USA Beef; former head of

Asian sales for JBS Uruguay & Paraguay

Joesley Mendonça

Batista

Note: This chart is based on public information and is not intended to be comprehensive. It includes individuals relevant to the family business.


Holding companies

Alpargatas 31Mar2016

Alpargatas 31Mar2016 Alpargatas 31Mar2016

Alpargatas 31Mar2016 J&F2016 J&F2016 JBJ2016 JBJ2016

Mcap BRL 34bn J&F2016

JBS 2Q16 JBS 2Q16 JBS 2Q16 JBJweb2016

JBS 2Q16

Mcap USD 5.3bn JBS USAweb2016 JBS 2Q16 JBJweb2016

JBS 2Q16

JBS 2Q16 JBS 2Q16 J&Fweb2016

JBS 2Q16

JBS 2Q16 JBS 2Q16 J&Fweb2016

JBS 2Q16

Non-JBS

Batista Family Corporate Structure

(Meat Business)

J&F Investimentos SA

ZMFF 40.54%, ZMFP 6.81%, JJMB, WWMB, VLMB, VNMB & VVMB 5.58% each

Pinheiros Fundo de Investimento em Participações (FIP Pinheiros, formerly FIP Bertin)

24.76%

JBJ Investimentos SA

Controlled by José Batista Júnior

JBS SA [BOVESPA:JBSS3]Chairman: Joesley; CEO: Wesley; Dir: José Sr.

FB Participações 42.36%BNDESPar 20.36%

Caixa Economica Federal 6.92%Banco Original 0.19%

JBS USA Holdings Inc 100%

JBS USA Holdings Inc (formerly Swift & Co)

JBS USA LLC 100%

JBS US Holding LLC (USA)

JBS Foods SA

JBS SA 100%

Pilgrim's Pride (USA)[NASDAQ: PPC]

Directors: Wesley and Joesley Batista

JBS USA 75.3%

Bertin SA

JBS SA 100%

JBS USA Finance Inc

JBS SA 100%

JBS Investments GmbH (Germany)

JBS SA 100%

JBS SA 100%

ESAL GmbH (Germany)JBS USA LLC 100%

JBS Packerland Inc (formerly Smithfield Inc)

Swift Beef Co (USA)

JBS USA LLC 100%

JBJ Agropecuaria Ltda

Subsidiary of JBJ Investimentos

Fratelli Dorazio Investimentos SA


J&F Oklahoma Holdings Inc

Subsidiary of J&F Investimentos

J&F Floresta Agropecuária Ltda


Mataboi Alimentos Ltda

Subsidiary of Fratelli Dorazio Investimentos

J&F Participações Ltda

J&F Investimentos SA 100%

Swift Pork Co (USA)

JBS USA LLC 100%

JBS USA LLC

JBS USA Holdings Inc 100%

Seara Alimentos Ltda

JBS SA 100%

ZMF Fundo de Investimento em Participações (ZMFF):Joesley, Wesley, Valere, Vanessa & Vivianne Batista 20% eachZMF Participações Ltda (ZMFP): José Batista Sobrinho 100%, Flora Batista (nominal stake)JJMB Participações Ltda: Joesley Batista 100%, José Batista Sobrinho (nominal stake)WWMB Participações Ltda: WesleyBatista 100%,José Batista Sobrinho (nominal stake)VLMB Participações Ltda:Valere Batista 100%,José Batista Sobrinho (nominal stake)VNMB Participações Ltda:VanessaBatista 100%, José Batista Sobrinho (nominal stake)VVMB Participações Ltda:Vivianne Batista 100%, José Batista Sobrinho (nominal stake)

FB Participações SA


8.25% sr unsec notes 20207.25% sr unsec notes 2021



6.25% sr unsec notes 2023



FIP Pinheiros

Blessed Holdings 85.73%J&F 14.25%JJMB 0.01%

WWMB 0.01%

Blessed Holdings (Delaware)

Lighhouse Capital Insurance Co (Cayman Islands) 50%US Commonwealth Life, AI (Puerto Rico) 50%

[LCI: Colin Murdoch-Muirhead 75%, Cogent Holdings Intl 25%;USCL: Colin Murdoch-Muirhead 51%, James Walker 24%, Nicholas

Ferris & Paul Blackhouse 12.5% each;Cogent Holdings Intl: Nicholas Ferris & Paul Blackhouse 50% each]

Note: This organizational chart is based on public information. It contains key family companies but is not intended to be comprehensive. Shareholders and USD-denominated bonds are indicated for each company, with family members and family companies in italics. Companies are domiciled in Brazil unless otherwise noted. Market capitalization is as of 30 Sep 2016


Holding companiesAlpargatas 31Mar2016

Alpargatas 31Mar2016 Alpargatas 31Mar2016

Alpargatas 31Mar2016 J&F2016 J&F2016 JBJ2016 JBJ2016

Mcap BRL 4.8bn J&Fweb2016 J&Fweb2016 J&Fweb2016 BOweb2016

J&Fweb2016 VigorFS1Q16 Eldorado AR2015 BOweb2016

Folha 09Oct2015 Ambarweb2016 Eldorado AR2015 BOweb2016

JBJweb2016 J&Fweb2016 Eldorado AR2015 BOweb2016

JBJweb2016 J&Fweb2016 BOweb2016

Real Estate & Construction

Media

Restaurants Mobile Payment Application

Shoes & Clothing Dairy Products Pulp & Paper Financial Services

Cosmetics/Cleaning Products

Batista Family Corporate Structure (Non-Meat Business)

Alpargatas SA[BOVESPA:ALPA4]

Directors: Joesley and Wesley Batista

J&F Investimentos 44%

Conglomerado Financiero Original

J&F Participações Ltda. 100%

Dan Vigor Indústria e Comércio de Laticínios Ltda

Vigor Alimentos S.A. 100%

J&F Investimentos 72%

Vigor Alimentos SA[BOVESPA:VIGR3]

Chairman: Wesley BatistaDirector: Joesley Batista

Rishis Empreendimentos e Participações SA

Eldorado USA Inc

Eldorado International Finance GmbH (Germany)

Eldorado Brasil Celulose S.A. 100%



Eldorado Brasil Celulose SAChairman: Joesley Batista

Directors: Wesley and Jose Batista

J&F Investimentos 81%Petros 8.53%; Funcef 8.53%

JFG Incorporações


JFG Construções e Participações Ltda


Itambé Alimentos SA

Vigor Alimentos S.A. 50%.

Flora Produtos de Higiene e Limpeza SA


Canal Rural Produções Ltda


FB Alimentos Ltda (Beef Bistrô)


Brasil Desenvolvimento Urbano Ltda


Banco Original SA(Cayman Branch)

Banco Original S.A. 100%

Original Corporate Corretora de Seguros Ltda


Original Asset Management Ltda


Pic Pay



J&F Investimentos SA

ZMFF 40.54%, ZMFP 6.81%, JJMB, WWMB, VLMB, VNMB & VVMB 5.58% each

Pinheiros Fundo de Investimento em Participações (FIP Pinheiros, formerly FIP Bertin)

24.76%

JBJ Investimentos SA

Controlled by José Batista Júnior

Fratelli Dorazio Investimentos SA


J&F Participações Ltda


ZMF Fundo de Investimento em Participações (ZMFF):Joesley, Wesley, Valere, Vanessa & Vivianne Batista 20% eachZMF Participações Ltda (ZMFP): José Batista Sobrinho 100%, Flora Batista (nominal stake)JJMB Participações Ltda: Joesley Batista 100%, José Batista Sobrinho (nominal stake)WWMB Participações Ltda: WesleyBatista 100%,José Batista Sobrinho (nominal stake)VLMB Participações Ltda:Valere Batista 100%,José Batista Sobrinho (nominal stake)VNMB Participações Ltda:VanessaBatista 100%, José Batista Sobrinho (nominal stake)VVMB Participações Ltda:Vivianne Batista 100%, José Batista Sobrinho (nominal stake)

FB Participações SA


FIP Pinheiros

Blessed Holdings 85.73%J&F 14.25%JJMB 0.01%

WWMB 0.01%

Blessed Holdings (Delaware)

Lighhouse Capital Insurance Co (Cayman Islands) 50%US Commonwealth Life, AI (Puerto Rico) 50%

[LCI: Colin Murdoch-Muirhead 75%, Cogent Holdings Intl 25%;USCL: Colin Murdoch-Muirhead 51%, James Walker 24%, Nicholas

Ferris & Paul Blackhouse 12.5% each;Cogent Holdings Intl: Nicholas Ferris & Paul Blackhouse 50% each]

Note: This organizational chart is based on public information. It contains key family companies but is not intended to be comprehensive. Shareholders and USD-denominated bonds are indicated for each company, with family members and family companies in italics. Companies are domiciled in Brazil unless otherwise noted. Market capitalization is as of 30 Sep 2016


AFFILIATIONS

Affiliation Notes

Brazilian Democratic Movement Party (PMDB)

The party of current president Michel Temer received about BRL 35m from JBS during the most recent national elections in 2014, according to press reports and campaign finance disclosures. Jose Batista Junior ran unsuccessfully for governor of Goias state as a member of PMDB.

Brazilian Development Bank (BNDES)

The Batista family has a longstanding relationship with the Brazilian Development Bank (BNDES), which has helped finance many of its acquisitions, according to corporate filings and press reports. In addition to being a lender to JBS and Eldorado Celulose, BNDES is the second-largest shareholder of JBS, with a 24% stake as of July 2016. The relationship between the family and BNDES is under investigation by Brazilian authorities as part of a broader audit of the bank. A November 2015 report by Brazil's Court of Accounts estimated BNDES' loss from JBS-related investments at BRL 847.7m. JBS has denied wrongdoing in its deals with BNDES.

Caixa Econômica Federal

Brazilian state-owned lender Caixa Econômica Federal holds a 6.92% stake in JBS as of July 2016. It has also been a lender to Eldorado Celulose. Former Caixa VP Fabio Cleto claimed in a plea bargain that he received kickbacks from Eldorado, and that the payments had been discussed with Joesley Batista, Folha de São Paulo reported. In 2012 Eldorado issued BRL 940m in bonds to infrastructure fund FI-FGTS, which is managed by Caixa. Separately, the “Greenfield” investigation into fraud at state-owned companies’ pension funds has investigated investments in Eldorado by Caixa’s Funcef fund. Wesley and Joesley Batista were questioned by police in Sept 2016.

Fabio Cleto

Fabio Cleto, a former VP of state-owned bank Caixa Econômica Federal, said in a plea bargain that he received kickbacks from Eldorado Celulose, Folha de São Paulo reported. His statement provided the basis for the Attorney General’s Office to ask the Brazilian Supreme Court to order raids on Eldorado and J&F offices on 1 July. According to newspaper O Globo, Cleto also claimed that part of that money went to Eduardo Cunha, the former president of the lower house of congress, and one of the main supporters of Dilma Rousseff’s impeachment.

Paulo Roberto Costa Former Petrobras director Paulo Roberto Costa, who was convicted in 2015 of racketeering and money laundering, had a contract with J&F to provide consulting services to the company, according to Folha Politica. The contract was found on a computer that was searched during the Petrobras kickback investigation, according to the report. J&F denied the existence of the contract.

Eduardo Cunha Fabio Cleto, former vice president of state-owned bank Caixa Econômica Federal, said in his plea bargain that a portion of the kickbacks he received in exchange for loans to Eldorado Celulose went to Eduardo Cunha, the former president of the lower house of congress, according to press reports.

Lúcio Funaro

Lobbyist Lúcio Funaro has emerged as a central figure in the Lava Jato scandal involving kickbacks paid for Petrobras contracts, according to press reports. At least two depositions by suspects in the case name Funaro as collecting money on behalf of Eduardo Cunha, the former president of the lower house of congress. The website G1 reported that according to Fabio Cleto, former VP of state-owned bank Caixa Econômica Federal, Joesley Batista gifted his house to Funaro. Batista family holding company J&F Investimentos denied the accusations and said that Joesley Batista, through his personal holding company JJMB, sold his home to Lucio Funaro’s wife. J&F said that the deal was legal and offered documentation to demonstrate this. Brazilian newspaper Extra reported that Cleto claimed to have taken a leisure trip to the Caribbean with Funaro and Batista in 2011. Batista and Funaro declined to comment on the matter, according to Extra.

JPMorgan Chase & Co. JPMorgan has advised JBS on several major acquisitions over the past decade, according to company filings.

Henrique Meirelles Henrique Meirelles was appointed Finance Minister in May 2016 by President Michel Temer. He served as president of the Central Bank of Brazil under President Luiz Inacio Lula de Silva. After his central bank tenure ended in 2011, Meirelles was appointed chairman of J&F Investimentos, the Batista family's main holding company, and held the position until becoming Finance Minister.

Colin Murdoch-Muirhead

Colin Murdoch-Muirhead is the controlling shareholder of Blessed Holdings, a Delaware-based company that owns an indirect 21% stake in J&F Investimentos, according to a filing by Alpargatas SA dated 31 Mar 2016. He controls Cayman Islands-based Lighthouse Capital Insurance Co and Puerto Rico-based US Commonwealth Life, AI, each of which owns 50% of Blessed Holdings. Blessed Holdings in turn owns 85% of Pinheiros Fundo de Investimento em Participações (FIP Pinheiros, formerly called FIP Bertin), which has a 24.76% stake in J&F Investimentos. The other shareholders of Blessed Holdings are James Walker, Nicholas Ferris and Paul Blackhouse. According to the website of Lighthouse Capital, Murdoch-Muirhead is a former senior executive of HSBC Bank of Bermuda. Blessed Holdings and FIP Bertin were employed in JBS’ 2009 acquisition of Brazilian meatpacker Bertin via a share swap. In 2013, Grupo Bertin filed a lawsuit in São Paulo alleging that shares from FIP Bertin, which it controlled, had been fraudulently transferred to Blessed, according to industry news website Meatingplace. Bertin also alleged that Blessed was controlled by the Batista family. JBS at the time denied having any relationship with Blessed. The matter was settled out of court as part of Bertin’s exit from JBS in 2014, according to press reports.

Iris Rezende Iris Rezende is a senator and former governor of Goias state, where JBS was founded and is based. According to Piaui magazine, during the company's early period of expansion, it was rumored that Rezende a patron or even a partner of Jose Batista Sobrinho. The family has denied benefiting from political patronage.

Joao Santana

Political publicist and campaign advisor Joao Santana has admitted, as part of a plea bargain, to handling illegal donations to Dilma Rousseff’s presidential campaign, according to press reports. His wife, Monica Moura, told prosecutors in May 2016 that JBS made illegal contributions to the Worker's Party (PT) in 2014, according to O Globo. She alleged that JBS made the payments through a company called Focal. JBS told O Globo that it had no records of those payments and no relationship to Focal or its owners.

Workers' Party (PT) Brazil’s former ruling party (2003-2016) has received substantial donations from JBS over the past decade. According to data compiled by newspaper Estadao, JBS donated roughly USD 107m to the party over this time period. The Batista family's companies received loans and equity financing from state-owned banks and pension funds while PT was in power.


RISK FACTORS

Risk Factor Notes

Eldorado Brasil Celulose, J&F Investimentos and Joesley Batista: police raid

Brazilian police raided the offices of Eldorado Brasil Celulose and holding company J&F on 1 July 2016 amid accusations Eldorado had paid bribes in exchange for loans from Caixa Econômica Federal. The headquarters of Eldorado are located in the same building as JBS, and the meat company issued a press release stating that it was not under investigation. The São Paulo home of Joseley Batista was searched by police on the same day, according to Folha.

Eldorado Brazil Celulose and J&F Investimentos: Pension fund (Greenfield) investigation

Wesley and Joesley Batista were barred by a federal court on 6 Sept 2016 from holding management roles after being implicated in the “Greenfield” investigation into fraud at state pension funds. They were allowed to return to their jobs after reaching a deal with prosecutors to provide BRL 1.52bn in guarantees by 21 Oct. Jose Batista Jr and Jose Batista Sobrinho were named interim CEO and chairman of JBS in the interval. Prosecutors are investigating alleged overpayment for shares of Eldorado Brasil Celulose by pension funds Funcef (affiliated with Caixa Econômica Federal) and Petros (affiliated with Petrobras) in 2009. Wesley Batista was detained by police for questioning on 5 Sept, as part of an operation targeting over 100 individuals and companies, according to press reports.

Joesley Batista: criminal charges for financial violations

On 19 Jan 2016, the Federal Court of São Paulo State accepted a criminal complaint by the Federal Prosecutor’s Office against Joesley Batista and others related to alleged violations of financial system laws, according to Eldorado Brasil Celulose disclosures. Prosecutors claimed that Banco Original used an indirect structure to illegally make loans to group companies. Banco Rural (which is not controlled by the Batista family) allegedly lent money to J&F Investimentos and Flora, while Banco Original lent the same amount to Banco Rural.

Joesley Batista: Goias State tax evasion

In 2013, Joesley Batista was charged with tax evasion by the federal prosecutor for the state of Goias. Eldorado Industria e Comercio de Carnes, a meat packer of which Batista was the controlling shareholder, allegedly failed to pay BRL 4.8m in taxes in 1998 and 1999, according to press reports. The prosecutors said that the company, which had been removed from the tax registry, maintained an active bank account during that time and conducted undeclared transactions.

Jose Batista Jr.: expulsion from Brazilian Democratic Movement Party (PMDB)

Jose Batista Jr. was expelled from the Goias state branch of the Brazilian Democratic Movement Party (PMDB) in 2015, according to O Globo. The expulsion was due largely to Batista’s support for an opposing party’s candidate, Marconi Perillo of the Brazilian Social Democratic Party (PSDB), over PMDB candidate Iris Rezende. Batista had planned to run for governor in 2014 but withdrew after Rezende announced his candidacy.

JBS: Bertin merger fraud allegations and BRL 3bn fine

In February 2016, O Estado do São Paulo reported that the Administrative Council of Fiscal Resources (CARF) had imposed a total of BRL 3bn in fines and back taxes related to the 2009 acquisition by JBS of Bertin’s meatpacking business through a share swap. Tax authorities claimed to have found irregularities in the pricing of shares in the merger, and alleged that the deal had harmed minority shareholders. In addition, CARF said the acquisition has been carried out using an illegal structure. Batista holding company J&F Investimentos responded that the deal had been done with “total transparency.” According to Folha, as of March 2016, Bertin was contesting the penalty.

JBS: Brazil anti-trust fines and acquisition of JBS competitor by JBJ Investimentos

In April 2013 the Brazilian Antitrust Authority (CADE) issued a report warning that of JBS' last 12 acquisitions, seven had not been reported to CADE within the legally mandated period. CADE imposed fines of BRL 7.4m, and ordered JBS to report all future acquisitions, including deals that did not meet the usual criteria for mandatory reporting. However, it is not clear whether CADE's requirements apply to other companies owned by the Batista family in the same industry. In December 2014, JBJ Investimentos, a company controlled by José Batista Jr., acquired Fratelli Dorazio Investimentos SA, which controlled distressed Brazilian JBS competitor Mataboi Alimentos SA.

JBS: Brazil child labor fine

In April 2016, JBS subsidiary Seara was fined approximately BRL 2m for the use of child labor, according to Valor Economico, citing the office of the labor prosecutor in Santa Catarina state. JBS was also ordered to pay BRL 500,000 in damages. The company appealed the ruling. JBS was cited as saying that the proceeding against Seara was initiated on 8 November 2011, when the subsidiary was owned by competitor Marfrig. JBS acquired Seara in September 2013.

JBS: Brazil labor fine In April 2016, JBS was fined BRL 7m fine over the non-negotiated collective dismissal of 650 workers when it closed a plant in the state of Mato Grosso, Valor Economico reported.

JBS: Goias State tax irregularities

The government of the state of Goias claimed in 2014 that it had discovered 49 irregularities in JBS' financials over nine years, and that the company owed a total of BRL 1.3bn in back taxes. At the time, according to O Popular, this accounted for 18% of total tax debt in the state. JBS denied wrongdoing.

JBS: Petrobras (Lava Jato) investigation

In December 2014, Valor Econômico reported that federal police were investigating payments by JBS totalling BRL 800,000 to a shell company under inquiry in the Lava Jato investigation. JBS responded that the payments were legitimate and related to the purchase of an industrial facility and a distribution center.

JBS: political contributions According to Brazilian daily O Estado de São Paulo, JBS made political contributions totalling more than BRL 367m in the 2014 national elections. About 30% of the donations went to the Workers' Party, 20.8% to the Brazilian Social Democracy Party (PSDB) and 9.7% to Michel Temer’s Brazilian Democratic Movement Party (PMDB). JBS was the top political contributor in the country, representing 18.7% of all large donations.

JBS: US Justice Department anti-trust lawsuit to prevent National Beef acquisition

JBS has faced anti-trust action in the US. After receiving Justice Department approval in March 2008 for its acquisition of Smithfield Beef, JBS agreed the same year to acquire National Beef Packing Co. The Justice Department, together with 13 state attorneys general, filed a lawsuit in the US District Court for the Northern District of Illinois to prevent the merger on competition grounds. JBS eventually called off the acquisition. JBS' acquisitions became a political issue in the 2008 presidential campaign. Hillary Clinton opposed the Smithfield deal, and told the South Dakota Rapid City Journal that she would “fight consolidation” in the beef industry.

JBS: US labor fines According to labor rights watchdog Good Jobs First, US companies owned by JBS have been penalized 60 times since 2010 by the Environmental Protection Agency (EPA) or Occupational Safety and Health Administration (OSHA), paying a total of USD 2.65m in fines.


JBS SA CAPITAL STRUCTURE

Instrument Currency Coupon Maturity Face

Outstanding (BRL m)

Face Outstanding

(USD m)

Next Call Date

Est Annual Interest (USD m)

Leverage at Face

2018 USD 475m Secured Credit Facility USD 3.8 25-May-18 1,611.9 408.3 18

2018 USD 500m Secured Bank loan USD 7.875 31-Dec-18 1,973.8 500.0 29.4

2020 USD 400m Secured Credit Facility USD 18-Sep-20 1,579.0 400.0

Total Secured Debt 5,164.7 1,308.3 0.4x

2016 USD 300m Sr. Unsecured Int. bond USD 10.5 4-Aug-16 724.8 183.6 - 19.3

2016 USD 350m Sr. Unsecured Int. bond USD 10.25 5-Oct-16 798.6 202.3 - 20.7

2020 USD 700m Sr. Unsecured Int. bond USD 8.25 1-Feb-20 2,775.5 700.0 57.8

2020 USD 1.0bn Sr. Unsecured Int. bond USD 7.75 28-Oct-20 3,947.5 1,000.0 28-Oct-17 77.5

2021 USD 1.15bn Sr. Unsecured Int. bond USD 7.25 1-Jun-21 4,606.4 1,150.0 83.4

2023 USD 775m Sr. Unsecured Int. bond USD 6.25 5-Feb-23 3,059.3 775.0 5-Feb-18 48.4

2024 USD 750m Sr. Unsecured Int. bond USD 7.25 3-Apr-24 2,960.3 750.0 3-Apr-19 54.4

2024 USD 750m Sr. Unsecured Int. bond USD 5.875 15-Jul-24 2,991.7 750.0 15-Jul-19 44.1

2025 USD 900m Sr. Unsecured Int. bond USD 5.75 15-Jun-25 3,607.7 900.0 15-Jun-20 51.8

2025 USD 500m Sr. Unsecured Int. bond USD 5.75 2025 1,972.0 500.0 28.8

2020 USD 1bn - Term loan USD 1.43 11-Feb-20 1,943.5 500.0 7.1

Revolving credit facility USD/CAD

3.0 - 4.5 1,093.8 277.1

Export notes BRL 14.08 3,435.4 870.3 122.5

Rural credit BRL 6.7 682.3 172.8 11.6

Working capital financing 2.42 - 16.58

2,095.1 530.8

PP&E financing 2.80 - 5.23 1,054.5 267.1

Advances on currency exchange contracts 2.43 9,129.7 2,312.8 56.2

Other 13,672.6 3,483.6

Total Unsecured debt 60,550.7 15,325.4 4.5x

Total debt 65,715.4 16,633.7 4.9x

Cash and cash equivalent 24,008.3 6,081.9

Net debt 41,707.1 10,551.8 3.1x

Minority interest 1,507.2 381.8

Market capitalization 31,300.0 7,825.0

Enterprise value 74,514.3 18,758.6 5.5x

Data as of 31 Dec 2015. Source: Debtwire, Corporate documents, S&P Capital IQ, market sources. 1) Enterprise value and leverage were calculated using book value of debt. 2) BRL 3.9475 per USD.


JBS ACQUISITIONS (2005-present)

Completion Date

Target Buyer Seller USD (m) Country

4/14/2016 Scott Technology Ltd JBS Australia Pty Ltd 69 Australia

10/30/2015 Cargill Pork, LLC JBS USA, LLC Cargill Meat Solutions Corp 1450 USA

9/28/2015 Moy Park Group JBS SA Marfrig Global Foods SA 1507.3 Brazil

3/30/2015 P&M Quality Smallgoods Pty Ltd JBS Australia Pty Limited Affinity Equity Partners; Lederer family 1248.2 Australia

6/29/2015 Tyson Do Brasil Alimentos Ltda; Tyson de Mexico, SRL de CV

Pilgrim's Pride Corporation; JBS Foods SA

Tyson Foods Inc 575 Brazil, Mexico

8/6/2014 Avebom Industria de Alimentos JBS SA 47.3 Brazil

10/6/2014 Ceu Azul Alimentos JBS SA 110.9 Brazil

7/9/2014 Andrews Meat Industries Pty Ltd JBS Australia Pty Ltd Andrews Family Australia

2/28/2014 Slaughterhouse in Anastacio JBS SA 10 Brazil

4/4/2014 Frinal SA Frigorifico e Integracao Avicola JBS SA R.P. Administracao e Participacao 42.9 Brazil

6/24/2014 Massa Leve JBS SA 109.1 Brazil

9/18/2013 Agroveneto SA - Industria de Alimentos JBS SA 62.1 Brazil

1/30/2014 Vigor Alimentos SA (55.38% stake) FB Participacoes SA 693.3 Brazil

10/1/2013 Seara Alimentos SA; Grupo Zenda JBS SA Marfrig Global Foods SA 2761.9 Brazil

6/4/2013 BRF Brasil Foods (Ana Rech Industrial Unit and Granja Andre da Rocha)

JBS SA BRF SA 99.7 Brazil

4/8/2013 XL Foods Inc. (US operations) JBS USA, LLC XL Foods Inc. 20 USA

2/18/2013 Canal Rural J&F Participacoes Financeiras SA

Grupo RBS Ltda 76.3 Brazil

4/18/2013 FR Participacoes; SSB Administracao e Participacoes; Tiroleza Alimentos; Rodo GS

JBS SA Brazil

1/31/2013 Independencia S.A. JBS SA 85.4 Brazil

1/14/2013 XL Foods Inc (Canadian operations) JBS SA XL Foods Inc 100 Brazil

3/26/2012 Pilgrim's Pride Corporation (7.30% stake) JBS USA LLC Lonnie Pilgrim (Private Investor) 107.7 USA

10/24/2011 Hypermarcas SA (Domicile products line) Flora Produtos De Higiene E Limpeza SA

Hypermarcas SA 78.9 Brazil

Source: Mergermarket.


ACQUISITIONS (2005-present)

Completion Date

Target Buyer Seller USD (m) Country

5/31/2011 Bertin Higiene e Limpeza J&F Participacoes Financeiras SA Heber Participacoes Ltda 219.1 Brazil

7/13/2010 Toledo Group JBS SA 14 Brazil

9/20/2010 Rockdale Beef Pty Ltd JBS Australia Pty Ltd Mitsubishi Corp; Itoham Yonekyu Holdings 41.2 Australia

2/22/2010 Tatiara Meat Company JBS Australia Pty Ltd A Moksel AG 27.5 Australia

1/31/2010 Bertin Ltda JBS SA BNDES Participacoes SA; J&F Participacoes Financeiras SA; ZMF Fundo de Investimento em Participacoes

6814.8 Brazil

12/28/2009 Pilgrim's Pride Corp (64.00% stake) JBS USA LLC 2750 USA

5/28/2009 Slaughter plant in Teofilo Otoni JBS SA 8.3 Brazil

10/23/2008 Smithfield Beef Group JBS SA Smithfield Foods Inc; Continental Grain Co 565 Brazil

5/7/2008 Tasman Group Services Pty Ltd JBS Southern Australia Pty Ltd 148.4 Australia

5/22/2008 Inalca S.p.A. (50.00% stake) JBS SA 560.9 Brazil

2/1/2008 Col Car SA Swift Armour SA 20.3 Brazil

7/12/2007 Swift & Company J&F Acquisition Co HM Capital Partners LLC; Booth Creek Management Corp

1500 USA

1/10/2007 SB Holdings JBS SA Brazil

11/1/2006 CEPA SA Swift Armour SA 15.8 Brazil

9/5/2005 Swift Armour SA (85.00% stake) JBS SA GSC Partners; JPMorgan Latin America Capital Partners

200 Brazil

Source: Mergermarket.


NEWS

Date Headline

28 Sep 2016 China places temporary ban on chicken imports from two Brazilian JBS slaughterhouses for sanitation reasons - report (translated)

23 Sep 2016 Eldorado to finalize expansion project financing structure within six months - CEO

20 Sep 2016 OAS settles with prosecutors for USD 73.4m in Greenfield probe (translated)

19 Sep 2016 JBS announces filing of registration statements with US SEC as part of corporate reorganization

19 Sep 2016 JBS, Marfrig make first fresh beef exports to US (translated)

19 Sep 2016 Gol Linhas Aereas, Vale and JBS among companies affected by Brazil's decision to add Ireland and Austria to its tax haven list

15 Sep 2016 Eldorado’s aggressive hedging strategy raises risk perception

13 Sep 2016 JBS's Batista brothers return to management after company parent pays BRL 1.5bn collateral (translated)

13 Sep 2016 JBS board appoints Jose Batista Junior as interim president and CEO

12 Sep 2016 Brazil’s Federal Audit Court reviewing Caixa loan used by J&F to buy Alpargatas from Camargo Correa (translated)

09 Sep 2016 Eldorado and JBS plunge on Greenfield probe – Trading Chatter

06 Sep 2016 Eldorado expansion project facing delay due to corruption probe

05 Sep 2016 Brazil court orders JBS owners to be removed from company's management (translated)

22 Aug 2016 JBS could halt operations at Mato Grosso plant over water shortage (translated)

18 Aug 2016 Brazil’s AG wants Caixa corruption investigation to be submitted to lower court hearing Petrobras probe (translated)

17 Aug 2016 JBS USA Lux, JBS receive consents from holders of a majority in aggregate principal amount of each series of notes due 2020, 2021, 2023, 2024, 2025

16 Aug 2016 Eldorado Celulose's second production line at Tres Lagoas plant to be operational by early 2019 (translated)

15 Aug 2016 Pilgrim Pride CCR downgraded to BB from BB+ on deteriorating parent company operations - S&P

12 Aug 2016 JBS, JBS USA downgraded to 'BB' from 'BB+' on weaker liquidity - S&P

11 Aug 2016 JBS to increase prices and cut production in light of higher costs

01 Aug 2016 Brazil opens its markets to US beef imports, US allows Brazilian beef imports in return

26 Jul 2016 Sao Paulo court orders JBS to suspend layoffs at Epitacio plant (translated)

19 Jul 2016 JBS to shut down Presidente Epitacio plant (translated)

Disclaimer: We have obtained the information provided in this report in good faith from sources that we consider to be reliable, but we d o not independently verify the information. The information is not intended to provide tax, legal or investment advice. We shall not be liable for any mistakes, errors, inaccuracies or omissions in, or incompleteness of, any information contained in this report. All such liability is excluded to the fullest extent permitted by law. Data has been derived from corporate disclosures, regulatory announcements, government publications, media reports, press releases, presentations and Debtwire intelligence.

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