Reuters: Regulatory News: UPDATE 1-Brazil's FGC offers 49.3 pct discount in Cruzeiro bond buyback

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UPDATE 1-Brazil's FGC offers 49.3 pct discount in Cruzeiro bond buyback Aug 15th 2012, 00:00 Tue Aug 14, 2012 8:00pm EDT * Cruzeiro, FGC expect to finish buyback Sept. 12 * FGC offers to buy back bonds at 49 pct discount * Bank also launches tender for domestic creditors By Danielle Assalve and Guillermo Parra-Bernal SAO PAULO, Aug 14 (Reuters) - Bondholders of Brazilian troubled bank Banco Cruzeiro do Sul will receive about half of their investments as part of a bond repurchase program, an executive said on Tuesday. Cruzeiro do Sul was seized by Brazil's central bank on June 4 and put under the administration of privately held deposit guarantee fund FGC the same day. FGC and Cruzeiro launched the global bond buyback plan that will receive tenders until Sept. 12, said Celso Antunes, the FGC executive currently in charge of the bank. According to Antunes, the tender offer is the best solution for Cruzeiro do Sul, since it would help lower the bank's debt load and boost its allure among potential suitors. FGC, which offered to buy the bank's bonds at a 49.3 percent discount, has a mandate to find a buyer for the lender for 180 days that could be extended once more. "We are working hard to find a market solution for this situation," Antunes said at a news conference. He reiterated that the tender needs the adhesion of at least 90 percent of Cruzeiro bondholders to succeed. Despite the large discount, bondholders might agree to the buyback or else risk seeing the bank forced into liquidation - a decision that would wipe out any remaining value for their bonds. It is also ruling out a government- or banking sector-led bailout of Cruzeiro, analysts told Reuters on Tuesday. The tender will also be conditional to a firm bid to buy control of Cruzeiro do Sul, Antunes added. The price on Cruzeiro's 8.875 percent bond due in September 2020 fell to about 30.5 cents on the U.S. dollar on Tuesday. When the seizure was announced, the securities were trading close to 70 cents a piece. The Cruzeiro seizure was the third in the last year and a half, a sign that years of rapid growth have resulted in deteriorating funding and liquidity conditions as well as a relaxation of credit risk and accounting controls among some mid-sized lenders. Antunes said a round of auditing at the bank detected 2.25 billion reais in total losses, of which about 1.3 billion reais came from the flawed accounting of shares in a fund made of loan-backed securities on its balance sheet. Concerns about transparency standards, slow industry consolidation and eroding profits have led many investors to shed Brazilian mid-cap bank stocks and bonds for a few months. Shares of Brazil's mid-cap banks are down 18 percent in dollar terms since this year's peak in March, according to the MSCI Brazil Small and Mid Financials Index. Link this Share this Digg this Email Reprints

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