JBS SA, the world’s largest beef producer, headed for the biggest decline in a month as plans to renegotiate terms of a convertible bond sale to Brazil’s development bank increased concern shareholders will be diluted.

JBS fell 20 centavos, or 2.6 percent, to 7.37 reais in Sao Paulo trading at 11:08 a.m. New York time, leading declines in the Bovespa index. A closing at that price would make it the biggest drop since Nov. 26.

The Brazilian meatpacker is in talks to sell 4 billion reais ($2.4 billion) of 8.5 percent local bonds that must be converted into stock in five years to the state bank known as BNDES. The notes would replace existing debt and eliminate the need for an initial share sale of JBS’s U.S. unit, according to a regulatory filing last night. The deal increases the likelihood holdings of current stock owners will be diluted when the debt is converted, according to Link Investimentos SA.

“Previously, dilution was a possibility,” Rafael Cintra, an analyst at Link Investimentos who rates the stock “outperform,” said in a telephone interview from Sao Paulo. “Now it’s practically certain.”

The conversion of the bonds into stock may increase the number of shares by 17 percent, Raymond James & Associates Inc. analyst Daniela Bretthauer wrote in a report today.

JBS, the Sao Paulo-based company led by Chief Executive Officer Joesley Mendonca Batista , controls more than 10 percent of global beef processing after takeovers including Swift & Co. in 2007 and two Smithfield Foods Inc. units in 2008.

Negotiations

JBS said it’s in an “advanced stage of negotiations” with BNDES over the debt sale. The company also said it paid 521.9 million reais to BNDES to extend the deadline of the U.S. unit initial sale to December 2011, according to the filing, sent to Brazil’s regulator yesterday evening.

The initial bonds sold to BNDES were to be exchanged for Brazilian depositary receipts of the U.S. unit should it go public no later than the end of this year. In case the IPO didn’t happen, the bonds would be exchanged for shares of JBS SA by the end of next month, according to the original terms.

JBS postponed the planned U.S. unit IPO twice this year, citing market conditions.

The beef company is seeking to extend the maturity of its debt to BNDES to expand its distribution network after buying Greeley, Colorado-based Pilgrim’s Pride and Brazil’s Bertin SA.

Sara Lee Corp., the U.S.-based maker of Jimmy Dean foods and Ball Park hotdogs, recently rejected a takeover offer from JBS, deeming the price too low, according to two people with direct knowledge of the situation.