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Brazil's golden boy files for bankruptcy; an example of overblown expectations?

Sunday, November 3rd 2013 - 00:03 UTC
Full article 9 comments
President Rousseff only 18 months ago :“Eike is our standard, our expectation and, above all, the pride of Brazil when it comes to a businessman in the private sector” President Rousseff only 18 months ago :“Eike is our standard, our expectation and, above all, the pride of Brazil when it comes to a businessman in the private sector”
Critics contend Batista misled investors about the size of the oil fields that OGX had found in recent years Critics contend Batista misled investors about the size of the oil fields that OGX had found in recent years

Just a few year ago, flashy Brazilian billionaire Eike Batista was bragging that he would soon overpass Carlos Slim as the world's richest man. He even liked to show visitors his Mercedes-Benz McLaren parked right in the living room of his mansion. But his fall has been deep and fast.

Batista's OGX oil company filed for bankruptcy protection Wednesday in a stunning reverse for the champion speedboat racer who came to symbolize the country's economic boom with Brazilian flair.

Batista was born to privilege. His father was a Mines and energy minister and also led what was then the state-run Vale mining company, which has since been privatized. The younger Batista made his first fortune in his 20s, scouring the Amazon to buy up gold, which he resold in Brazil's big cities and Europe.

Those beginnings led to his current conglomerate of oil, mining, infrastructure and real estate companies, all suffering as his once high-flying OBX faces possible liquidation.

Married for more than a decade to Luma de Oliveira, a former model and one of Brazil's most beloved Carnival queens with whom he had two sons, his life was as much fodder for celebrity scandal sheets as business pages.

Now 56, Eike Batista's fortune has reportedly dwindled to less than one percent of the 34.5 billion dollars that Forbes magazine estimate he was worth in early 2012. He's ordered that his luxury yacht be cut up and sold for scrap.

Critics contend Batista misled investors about the size of the oil fields that OGX had found in recent years and say his troubles are a new sign that Brazil won't soon see an end to its economic slide. The economy grew 7.5% in 2010, but crept just a 0.9% gain last year amid a downturn in world commodity prices and Brazilian consumer spending.

Just 18 months ago, President Dilma Rousseff attended a ceremony marking OGX's first offshore oil production and said resolutely that state-run oil company Petrobras would go into deep partnerships with Batista's firm.

“Eike is our standard, our expectation and, above all, the pride of Brazil when it comes to a businessman in the private sector,” Rousseff told those in attendance.

Some say Batista's failure to deliver on producing offshore oil and the resulting inability to obtain more investor credit was a byproduct of a toughening economic environment as well as underlying weaknesses in his Batista's company.

OGX, created in 2007, didn't deliver on its promises to produce significant amounts of offshore oil even though it reported many finds since 2010, when its market value reached 34 billion. In the first half of this year, the company averaged output of just 8,500 barrels a day and racked up more than 2.5 billion in losses.

Critics say Batista has lied to investors, citing a correction made earlier this month for a promising OGX offshore field. In 2012, OGX said the field held nearly 1 billion barrels, but a few weeks ago it lowered that projection to 285 million barrels, too late for those who plowed cash into buying the company's stock.

Miriam Leitao, one of Brazil's top economic columnists, wrote on her blog for the O Globo newspaper Wednesday that Batista's “main error was to declare that he had what he didn't, to mislead the investor.”

“He's always exaggerated the potential of his companies and thus increased his stock. ... He built a house of cards,” Leitao wrote.

With the filing for bankruptcy protection before a Rio de Janeiro state court, Batista's OGX Petroleo e Gas Participacoes SA, part of his EBX Group conglomerate, now has 60 days to come up with a restructuring plan. Investors holding 3.6 billion in debt will then have 180 days to accept or reject the plan. If it's not accepted, the company will be liquidated.

Batista's decline has become a symbol of Brazil's own economic woes. After a decade-long boom in which investors poured cash into Brazil and Batista's enterprises, the country's economy has been in a rut for three years.

OGX's decision to seek protection from creditors came as no surprise. After missing a 44.5 million dollars interest payment owed to bondholders on October 1, OGX scrambled to restructure its debt before the end of a 30-day grace period or be declared in default on 3.6 billion in bonds.

Investors worldwide will be watching as the OGX proceedings unfold. If bondholders feel they are not treated fairly in the restructuring process, foreign investors may think twice before investing in other Brazilian companies, analysts say.

Below is the status of the five other listed EBX companies:

 - MPX Energia SA

German utility E.ON SE took the reins of power generator MPX Energia in March, tripling its stake with a roughly one billion dollars investment and changing the company's name to Eneva SA in September.

In July, Batista stepped down as chairman of the operator of coal and natural-gas fired power plants after halving his stake to 27% this year. Batista may sell his remaining stock, the company said in a September filing. E.ON is Eneva's biggest shareholder, with 38% of its stock.

 - LLX Logística SA

Batista ceded control of port operator LLX to US investment group EIG Global Energy Partners LLC in August in a deal worth about 559 million at the time, guaranteeing he would step down as chairman of LLX's board.

Batista's once-controlling stake has shrunk to 21% of LLX, whose star project is the Port of Açú, billed as Latin America's biggest investment in port infrastructure.

 - MMX Mineração e Metálicos SA

Mining company MMX sold control of a key iron port to Dutch energy firm Trafigura Beheer BV and Abu Dhabi-based sovereign wealth fund Mubadala Development Co for nearly one billion dollars in October.

In the deal Trafigura and Mubadala, Batista's largest single creditor, got a 65% stake in MMX Porto Sudeste Ltda, a port under construction that is slated to open by mid-2014.

China's Wuhan Iron and Steel Co, also known as Wisco, and Korea's SK Networks, a unit of SK Holdings Co, own minority stakes in MMX.

 - OSX Brasil SA

Shipbuilder OSX is working to refinance debts in order to avoid filing for bankruptcy protection; apparently the company had no plans to file for protection “at the moment.”

In May, OSX scaled back construction of its shipyard at Açú, which was designed to be the largest in the Southern Hemisphere. This month the shipbuilder, which is 10% owned by Korea's Hyundai Heavy Industries Co Ltd, said it may consider several options, including a merger with rivals, without elaborating.

 - CCX Carvão da Colombia SA

Coal mining company CCX said on Tuesday it was entering final talks to sell about 450 million of Colombian assets to Turkish group Yildirim Holding Inc.

The companies hope to finalize the sale of the Cañaverales and Papayal open-air mines by the end of December, a deal valued at about 50 million, CCX said. Talks to sell the underground San Juan mine and associated rail and port infrastructure, valued at about $400 million, are expected to conclude by the by the end of April 2014.

Batista announced plans to delist the coal miner in January, less than a year after the company went public. He abandoned the plans to delist in June.

Financial Tags: OGXP3.

Top Comments

Disclaimer & comment rules
  • CabezaDura

    And how come Vaca Muerta where the real reserves are can’t get any investment... ?? I know The Devil is in the detail...
    If some Argentine golden boy friends of the government would have done this and bankrupted, the government would have nationalized the company covered its debt and overpaid his junk.

    Nov 03rd, 2013 - 01:30 am 0
  • ChrisR

    This guy must be a relative of Mantega, The Liar in Chief for Dilma.

    Typical egotistical numbnut: very personable by the look of it and can talk-the-talk. Pity he is a cripple when it comes to walking-the-walk.

    Brazil, the future is behind it.

    1 CabezaDura

    Until Argentina has a new, honest, government that can be trusted NOT to thieve investor's money then why SHOULD investors put their money into the place?

    Can you EVER see that scenario coming about?

    Nov 03rd, 2013 - 12:30 pm 0
  • yankeeboy

    Methinks this guy is indicative of the country as a whole.

    Nov 03rd, 2013 - 01:17 pm 0
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