Six lessons from blowing $30 billion in Brazil

Raul Gallegos – Bloomberg, 10/02/2013

Brazil’s OGX Petroleo & Gas Participacoes SA, the flawed jewel of ex-billionaire Eike Batista’s EBX conglomerate, is one step closer to bankruptcy after missing a $45 million dollar debt payment that was due yesterday. If OGX goes under, its largest U.S. creditors, Pacific Investment Management Co. and BlackRock Inc., stand to lose millions in Latin America’s largest corporate default. Batista’s salesmanship and Brazil’s growth boom drew investors to his over-hyped companies. The warning signs they missed offer precious investing lessons.

1. Avoid companies no one understands. Batista’s EBX is a head-scratching maze of 13 interconnected startup companies, and only six of them are publicly listed. For instance, OGX was the main client of shipbuilding unit OSX Brasil SA. OSX in turn leased space from Batista’s port operator LLX Logistica, another sister company. As one company ran into trouble the others did as well. Even Batista’s employees couldn’t figure out the corporate puzzle. A company spokesman once confessed to having trouble keeping up with the new companies Batista created.

2. Beware shoddy transparency. The EBX holding company and six other unlisted units never disclosed their finances. These black-box businesses were impenetrable, making it hard to understand how their financial status affected the related, publicly traded units. The veil obscured deals Batista struck with a host of partners, notably Abu Dhabi’s Mubadala Development Co.’s investment in EBX holding. These practices blindsided minority investors as Batista’s edifice began to crumble.

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Endgame for Brazil’s ex-billionaire, Eike Batista?

Alanna Petroff – CNN, 09/11/2013

Batista is battling stakeholders from all sides and has been accused of lying and insider trading as his oil and gas group, OGX (OGXPY), has seen its share price plummet by 98% over the past three years.

Once dubbed Brazil’s richest man with an estimated net worth in excess of $30 billion, Batista has fallen on hard times, with Forbes recently pegging his wealth at less than $900 million

OGX, which was the heart of Batista’ EBX Group of interlinked companies, is now facing “imminent default” according to credit rating agency, Fitch.

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How Brazil’s richest man lost 97% of his fortune in less than two years

Robert A. Ferdman – Quartz, 09/02/2013

In 2010, Eike Batista announced that he would soon become the world’s richest man, and it didn’t seem particularly hyberbolic. Brazil’s economy was thriving, and investors around the world were lining up to invest in his commodities empire, which consisted of six highly successful public Brazilian companies, including OGX, the country’s second largest oil company, and MMX, one of its largest miners. By 2012, his wealth stood at some $30 billion, making him the seventh-richest man in the world.

And then the last 18 months happened.

Amidst Brazil’s economic slowdown, Batista’s net worth hasn’t merely tumbled—it’s evaporated. Batista isn’t vying for the richest man any longer, or for a place among the world’s top 100, or even among its billionaires. According to estimates by Forbes, his worth has now dropped to an estimated $900 million, a 97% drop.

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Brazil’s beleguered billionaire Batista takes another beating

Kenneth Rapoza – Forbes, 08/29/2013

Eike Batista is in a fight for his billion dollar life. If that fight was akin to a boxing match, he’d be up against the ropes taking a slugging.  A left hook. A right hook. The bell goes off just in time as Eike gets pulled away from his opponent. Or better yet, opponents. This man is taking a beating from every one: shareholders, venture partners, congress, you name it.

On Thursday, Brazilian news weekly Veja said that BTG Pactual, run by FORBES’ No. 329, Andre Esteves, was in talks with Batista to back out of an investment deal they have with Eike’s EBX Group.

EBX is Eike’s holding company of roughly six different firms — from beleaguered oil firm OGX Petroleo to mining company MMX, which has vultures currently circling it.

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Once a symbol of Brazil’s might, billionaire sells controlling stake in a Company

Dan Horch – The New York Times, 08/13/2013

The troubled Brazilian businessman Eike Batista has taken further steps toward dismantling his once high-flying empire of energy, logistics and mining companies.

Mr. Batista announced Wednesday night in a filing with the Brazilian securities and exchange commission that he would sell a controlling stake in one of his companies, the LLX logistics firm, for 1.3 billion reais ($560 million). The buyer is EIG Global Energy Partners, an energy investment firm based in Washington that has invested in projects all over the world. Mr. Batista will also give up his management role in the company.

People briefed on the matter confirmed on Wednesday that another of his companies, the petroleum firm OGX, has hired the Blackstone Group as a financial adviser.

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Batista leaves UPP partnership

Chesney Hearst – Rio Times, 08/12/2013

A spokesperson for Rio de Janeiro Governor Sérgio Cabral said over the weekend that Police Pacification Unit (UPP) projects are not in jeopardy following last week’s announcement that millionaire Eike Batista has suspended his annual R$20 million investments in a partnership with the UPP program, according to a report in “O Dia.”

The partnership between Batista, his petroleum and gas company, OGX, and the state of Rio began in 2010. Since then, Batista has committed R$20 million annually to the partnership for the implementation of new UPPs.

The funds – allocated by the Secretaria de Segurança (State Safety Secretariat) and not by Batista or OGX – were to used to to construct permanent Military Police headquarters in Ladeira dos Tabajaras/ Morro dos Cabritos in Copacabana. Equipment including vehicles, computers, guns, ammunition and uniforms were also purchased with the OGX funds.

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BlackRock dodges Pimco losses in abandoning OGX: Brazil credit

Boris Korby – Bloomberg, 07/16/2013

BlackRock Inc.’s (BHYIX) sale of about 70 percent of its holdings in bonds from billionaire Eike Batista’s oil producer is helping the largest asset manager avoid the losses suffered by Pacific Investment Management Co.

While Pimco, the manager of the world’s biggest bond fund, kept buying in the six months through March as the selloff intensified in bonds issued by OGX Petroleo & Gas Participacoes SA, BlackRock’s most recent regulatory filings show it cut its holdings to $69 million. Prices on OGX’s $2.56 billion of 2018 bonds have sunk to a record low 16 cents on the dollar from 77.6 cents at the end of March and 89.7 cents in September, making them the worst-performing dollar debt in emerging markets.

The rout, sparked by Batista’s failure to deliver the oil production he pledged from offshore fields he has called “bonanza” assets, is vindicating BlackRock’s decision as investors brace for what would be the biggest-ever corporate default in Latin America. Credit Suisse Group AG estimates Rio de Janeiro-based OGX, which forms part of a Batista empire whose combined market capitalization has fallen $38 billion in the past two years, will have about $13 million in cash by year-end.

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Billionaire Batista sells OGX shares for first time since IPO

Alex Cuadros – Bloomberg, 06/10/2013

Brazilian billionaire Eike Batista sold shares of his flagship oil producer OGX Petroleo (OGXP3) & Gas Participacoes SA for the first time, after plowing almost $1 billion of his own cash into the company.

OGX’s controlling shareholder sold 70.5 million shares from May 24 to May 29 for 121.8 million reais ($56.7 million), according to a regulatory filing yesterday. OGX slumped to a record-low 1.24 reais per share in Sao Paulo on June 7 before rebounding yesterday to 1.29 reais.

“For him to sell at this level, he must really need the cash,” said Fabio Cardoso, a partner at Rio de Janeiro-based equity advisory firm Adinvest Consultoria, in a telephone interview. “It’s not a good sign.”

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Brazil’s OGX evaluating funding options for concession auction

Jeff Fick – Fox Business/Dow Jones News Wires, 03/27/2013

Brazilian independent oil producer OGX Petroleo e Gas Participacoes SA (OGXP3.BR, OGXPY) plans to invest $1.3 billion in 2013, but that total doesn’t include the company’s potential participation in an important new auction of oil and natural-gas concessions, OGX’s chief financial officer said Wednesday.

Brazil is scheduled to hold the country’s 11th auction of oil and natural-gas exploration blocks in May, the first such sale since December 2008.

“We think that it is interesting for us to participate in the 11th bid round,” CFO Roberto Monteiro said during a conference call with analysts. “But we are not disclosing at the moment how much we want to spend or even if we will participate.”

Brazilian mogul’s oil firm takes hit

John Lyons and Matthew Cowley – The Wall Street Journal, 06/27/2012

SAO PAULO, Brazil—The oil and mining empire of Brazil billionaire Eike Batista suffered a sharp blow Wednesday as investors unloaded shares in Batista firms after its oil concern slashed production estimates at its first venture.

Shares of OGX Petroleo e Gas Participacoes OGXP3.BR -5.26% S/A, based in Rio de Janeiro, fell around 25% after the start-up company said its much anticipated first two wells would start producing around 5,000 barrels of oil per day—less than a third of some earlier estimates. Other companies such as ship builder OSX and mining company MMX also declined.

Mr. Batista, speaking on a conference call late Wednesday, expressed confidence that his oil company—Brazil’s biggest private oil venture—would start producing from other projects. On the call, he played up the company’s previous drilling success, saying that after drilling 100 wells it has had a hit ratio of more than 85% in the three areas it has drilled.

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