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August 17, 2016

Farming Corporation Bom Jesus offers Creditors Land to Pay Loans

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

We have been reporting for the last several months that a handful of the big corporate farming companies in Brazil have run into significant financial trouble due to poor yields for their soybean and corn crops and also due to the fact that they conducted their business in dollars. The currency situation in Brazil is highly volatile and obviously they did not do an adequate job in laying off their currency risk.

One example is a company called Bom Jesus, which is headquartered in Rondonopolis, Mato Grosso. Bom Jesus is one of Brazil's largest corporate farming entities producing soybeans, corn, and cotton on 240,000 hectares (592,000 acres). They are currently under judicial reorganization because they could not pay the R$ 2.6 billion reals that they owe to 28 creditors, led by Banco Santander Brasil. As part of their reorganization, they announced in court last week that part of their repayment plan will involve the possible transfer of land titles to creditors as a way to satisfy their debts.

The creditors of Bom Jesus may opt for one of two options. Option A is to extend payments for 12-15 years with a 2-3 year grace period for the first payment. The total discount in the principal has not yet been determined. The second option is that they will transfer the title of some of their properties to creditors to pay off their obligations. The creditors could then solicit investors to purchase the properties. Bom Jesus has stated that they intend to continue operations while the restructuring is being negotiated.

Bom Jesus is just the latest in a handful of large farming corporations in Brazil that have run into serious financial difficulties. Unfortunately, they have been forced to restructure their debts in the midst of Brazil's worst recession in eight decades, which increases their financing costs even more. It remains to be seen how successful these corporations will be in their restructuring efforts.

These large farming corporations have been one of the driving factors in the expansion of soybean and corn production in Brazil in recent years. Their poor financial situation is now one of the reasons why Brazil may expand their soybean acreage in 2016/17 at the slowest rate in a decade.