Morning Agenda: The Powerful Development Bank at the Center of Puerto Rico’s Woes

THE POWERFUL DEVELOPMENT BANK AT THE CENTER OF PUERTO RICO’S WOES | East of San Juan stands a symbol of how Puerto Rico ended up mired in debt, Mary Williams Walsh and Michael Corkery report in DealBook.
The Trump International Golf Club Puerto Rico was built as a for-profit venture, subsidized by federal taxpayers and backed by the island’s Government Development Bank. The bank sold more than $50 million in tax-exempt bonds and guaranteed their payment.

The resort failed to attract enough golfers and went bankrupt. About a week ago, OHorizons Global, a private investment firm, paid just $2.2 million for everything, except the existing debt. The Government Development Bank is still making payments on the outstanding bonds.

The deal has given insight into the Government Development Bank, which is responsible for managing the $72 billion in debt that the island says it cannot repay. The bank helped borrow on behalf of public and private enterprises and ended up with much of the debt, even when deals failed to fulfill their original aim of developing Puerto Rico.

The bank was founded with a mandate to foster development, but was later given a huge range of other powers, including advising the government on transactions; financing private enterprise; and holding public money in trust. It helped engineer an economic boom after World War II, but the borrowing continued even as growth cooled.

Melba Acosta Febo, the bank’s president and chairwoman, conceded that even she found the “debt stack” confusing and said the golf venture was “a great example” of how the current state of affairs came about.

The bank is scheduled to make a $354 million bond payment on Tuesday — the first of a series of legal and tactical challenges through December. People briefed on the situation say that Gov. Alejandro García Padilla of Puerto Rico has said little of his intentions on the repayment.

Some advisers are urging him to make the payment and build good will in Congress, which could eventually allow access to bankruptcy courts. Others have been pushing for a default on the debt, saying that only a catastrophe would persuade Congress to help.

PFIZER DIDN’T NEED INVERSION TO AVOID TAXES | Too narrow a focus on tax inversions can make it easy to overlook the mountains of earnings that companies already have stored overseas, Jeff Sommer writes in the Strategies column. The truth is that companies haven’t needed tax inversions to avoid American taxes, Mr. Sommer writes.

Global tax rules already give multinationals incentives to keep their earnings outside the United States.

Companies in the Russell 1000 index held more than $2.3 trillion in earnings abroad at the end of 2014, twice as much as 2008, according to Audit Analytics. This number could understate the amount being held overseas since it did not look at the earnings that companies say is only held abroad temporarily and goes untaxed.

Pfizer had $74 billion “indefinitely” invested abroad, and its finances indicated it was holding an additional $70 billion or so on a temporary basis, according to Mr. Sommer’s calculations.
His calculations also showed that 15 companies with large foreign hoards, like Apple, General Electric and Procter & Gamble, were easily holding more than $1.1 trillion out of reach of the American tax system.

Shifting money overseas and reducing income tax is important to American companies. Even if tax inversions are ruled out of bounds, companies are avoiding United States taxes without them. “Unless the laws change, it is difficult to imagine them bringing all that money home,” Mr. Sommer writes.

ON THE AGENDA | The Institute for Supply Management releases the Chicago Business Survey at 8:45 a.m. The Texas Manufacturing Outlook Survey will be released at 9:30 a.m. The Pending Home Sales Index for October will be published at 10 a.m.

BTG CHIEF STEPS DOWN | Andre Esteves, the Brazilian billionaire, resigned as chairman and chief executive of Grupo BTG Pactual after he was arrested, Bloomberg News reports. BTG, the largest independent investment bank in Latin America, said he had renounced his posts after he was jailed indefinitely as part of Brazil’s largest corruption investigation.

The bank said that Persio Arida, who had been named interim chief when Mr. Esteves was arrested, will now serve as chairman.

Roberto Sallouti and Marcelo Kalim, partners at the bank, will step in as co-chief executives.

Mr. Esteves is accused of colluding with Delcídio do Amaral, a senator from President Dilma Rousseff’s party, to offer a star witness millions to flee the country and keep him from signing a plea agreement with prosecutors, Vinod Sreeharsha and Dan Horch report in The New York Times.
Mr. Esteves has denied the accusations.

Brazil’s Supreme Court agreed to keep Mr. Esteves in jail indefinitely at the request of the prosecutor general Rodrigo Janot.

BTG has sought to assure clients that the bank is operating normally, The Wall Street Journal reports. Mr. Arida emailed clients and trading partners on Friday to emphasize that the bank itself wasn’t the target of the investigation into corruption at Petróleo Brasileiro, the state-controlled oil company.

He also said in an interview on Friday that the bank was “much bigger than any emblematic figure.”

| Contact amie.tsang@nytimes.com

Anheuser-Busch InBev to sell Peroni and Grolsch | Anheuser-Busch InBev is planning to put the two SABMiller brands up for sale, to allay concerns that the combined entity will have too much dominance over Europe’s premium beer market, The Financial Times reports, citing a person familiar with the matter.
THE FINANCIAL TIMES

Louis Dreyfus Family Asks to Be Bought Out | Members of the founding family of Louis Dreyfus Commodities, one of the world’s largest traders of coffee, sugar and wheat, have asked Margarita Louis-Dreyfus, the Russian-born billionaire who now controls the company, to buy out most of their stake.
THE FINANCIAL TIMES

iKang Chairman Faces Competing $1.5 Billion Takeover Proposal | China’s iKang Healthcare Group received a preliminary $1.5 billion acquisition offer from an investor group that includes its main rival, setting the stage for a face-off with the company’s chairman who earlier this year made a bid to take the health-care service provider private.
BLOOMBERG NEWS

HNA Group to Combine $4 Billion Property Unit With Its Listed Builder | The parent of Hainan Island Construction plans to combine a property unit with its listed developer in a transaction valued at $4.1 billion.
BLOOMBERG NEWS

Nokia Tries to Reinvent Itself, Again, by Taking Over Alcatel-Lucent | Rajeev Suri, Nokia’s 48-year-old chief executive, says his company’s $16.6 billion takeover of Alcatel-Lucent is exactly what Nokia needs to execute its yearslong makeover, which has included layoffs and the sale of unwanted assets.
Bits Blog »

Takeda and Teva to Form Partnership in Japan | Takeda Pharmaceutical is forming a partnership with Teva Pharmaceutical Industries to sell generic drugs and certain off-patent medicines in Japan, as the Japanese government pushes for use of more affordable treatments.
BLOOMBERG NEWS

Deutsche Bank Created Complex Tax Avoidance Strategies | Deutsche Bank has been devising complex international tax avoidance strategies for some of its largest corporate clients, even as governments attempt to close loopholes involving moving money to other jurisdictions, according to documents seen by The Financial Times and people familiar with the process.
THE FINANCIAL TIMES

Breakingviews: The Pain in Spain Falls Mainly Away From BBVA | Unlike its domestic peers, the Spanish bank didn’t lend to the teetering engineering group Abengoa. Nor did it invest in Bankia’s initial public offering or Spain’s bad bank, Sareb, Fiona Maharg-Bravo writes.
Breakingviews »

Private Equity Looks to Tap Hedge Fund Growth | Private equity groups and others are increasingly turning to hedge funds as they seek to capitalize on the maturing industry’s rich fees and growth.
THE FINANCIAL TIMES

Correction | The Fair Game column of Oct. 17 misstated Kohlberg Kravis Roberts & Company’s disclosures to investors regarding monitoring and transaction fees received and allocated as an expense to various K.K.R. investment vehicles. While the firm did not tell investors the exact amounts charged to different vehicles that receive fee offsets, it did disclose the full amount of fees it was entitled to receive. The column, using incomplete information supplied by a K.K.R. spokeswoman, also described incorrectly K.K.R.’s disclosures regarding the amount paid to settle a class-action lawsuit. The exact amount was included in an expenses table that was part of a report sent to investors after the firm distributed a 2014 auditor’s report; it was not disclosed only in the notes to that report.
NYT

South China Sea Work Delays Planned I.P.O. | A Chinese dredging company that is the world’s largest has delayed a planned initial public offering in Hong Kong as it responds to queries from the city’s stock exchange about dredging work done for Beijing in disputed territory in the South China Sea, The Wall Street Journal reports, citing people with knowledge of the matter.
THE WALL STREET JOURNAL

Tech I.P.O.s Look Better in Europe than Silicon Valley | With companies from Paris to London and Berlin raising record money, newly listed stocks have gained 20 percent in the month following their initial public offerings, eclipsing the 6.7 percent gain for those in the United States, based on weighted averages.
BLOOMBERG NEWS

Alibaba Hampers Rival’s Fundraising | Alibaba is selling its $1 billion of preferred shares in Meituan-Dianping, the online booking and discounts platform backed by Tencent, at a steep discount — a move that will put a brake on the Groupon-style company’s fundraising efforts, according to investors who spoke to The Financial Times.
THE FINANCIAL TIMES

Regulatory Fines Soar in Britain | Fines issued by the Financial Conduct Authority, the Serious Fraud Office and the Competition and Markets Authority soared 271 percent to 2.5 billion pounds, or about $3.7 billion, during the two years through November, the accounting firm Ernst & Young said.
BLOOMBERG NEWS

E.U. Approves State Support for Greek Lender | European Union regulators have approved 2.72 billion euros, or about $2.88 billion, of state support for the Greek lender Piraeus Bank, saying the payment didn’t violate European Union rules on government aid for companies.
THE WALL STREET JOURNAL