BB Will Not Extend Series A Bonds

Banco do Brasil (#BB#) will not extend the deadline or modify interest rates on a convertible bond series issued in 1996, of which the A series are convertible between March 1 and June 30 in 2001, BB investor relations director Antonio Luiz Rios da Silva told BNamericas.com. The A series accounts for around 20% of the total bonds issued, and is valued at some US$870mn (R$1.7bn) in today's prices. The bonds were issued to existing shareholders in proportion to their existing stakes at a value of R$8.50 per 1,000 lot. They appreciate in line with the inflation index, but are not tied to the bank's share price, da Silva said. Therefore, the series A bonds are convertible at R$12.40 per 1,000, while the bank's shares trade at around R$10 per share, which da Silva claimed does not reflect the true value of the bank. "We are taking a series of measures to make sure the market is fully aware of the value of our company, and the share price will reflect this before March," da Silva said. However, he admitted that at current market prices, bondholders will not convert their bonds into shares. "They will have to wait for the B and C series to mature," he said. These expire in 2006 and 2010, respectively. A share buyback is not being contemplated, as this would make the bank's target of reaching a capital adequacy ratio greater than 11% even more difficult, da Silva said. The bank's ratio rose from 9.4% in September 1999 to 10% in September 2000, but must gain a full percentage point to reach the Central Bank's minimum requirement. One of the principal factors undermining the bank's share price is the lack of liquidity in BB shares, da Silva said, as the majority of the bank's shares are held by the Federal Treasury (71.8%), the BB pension fund, Previ (13.6%) and the National Development Bank (BNDES) (5.9%), meaning a free float of around 10% of the company's stock, which is distributed amongst approximately 350,000 shareholders. "We acknowledge the fact that the Federal Treasury must give up some of its shares, but at this moment there is no study," da Silva said. "We want to restructure the ownership base, and in the event of future capital increases we want the support of the capital markets." Restructuring does not mean the government would lose control of the bank, he added Meanwhile, the bank is examining further capital increases through bond issues, but no decision has yet been taken, da Silva said.