MercoPress. South Atlantic News Agency

Emergency credit aid for Brazil’s ailing meatpacking industry

BNDES, the National Development Bank

Brazil's government will offer a ten billion Reales credit line from BNDES, the National Development Bank to support activities in agribusiness, Finance Minister Guido Mantega announced. He added the funds would go mostly to support Brazil’s ailing meatpacking sector and would be offered at an annual interest rate of 11.25%.

The measure, the latest of a series of Brazilian government initiatives to boost local credit circulation, was approved Thursday in an extraordinary meeting of the National Monetary Council.

Brazil's meatpacking industry has been particularly hard hit by falling demand during a slowdown of the global economy. This includes JBS SA, the world’s largest beef producer and Sadia SA, the country second-biggest food company.

The decision to pump 4.7 billion US dollars in the industry helped to rise share prices of most meatpackers particularly JBS, Marfrig e Comercio de Alimentos SA and Minerva SA the three leading companies in the industry.

With the credit line “the government aims to avoid further deterioration in the production chain, which has been under pressure” due to weak global demand, high debt levels and costlier credit, Credit Suisse AG analyst Marcel Morares wrote in a press column.

The credit line will likely provide the most benefit to the most indebted companies such as Sadia, Banco Bradesco SA analyst Fabio Monteiro pointed out in a note. Sadia apparently is in talks to sell assets or be taken over after reporting a fourth-quarter loss of 2.04 billion Reales on wrong- way bets on the Brazilian currency.

Sadia which is a popular supermarket brand lost nearly one billion Reales in short dollar futures positions starting in mid-September. The losses have put Sadia in a bind, leading Credit Suisse to say that the financial aid “might only provide short-term relief”.

“It definitely does not solve the company's urgent need of a capital injection in order to balance its extremely leveraged balance sheet” pointed out the Credit Suisse report. Sadia stock is listed on both the Bovespa stock exchange and in New York.