“It is the only asset of any value that would be left” said Aurélio Valporto

Financial Times
Samantha Pearson
29/10/2013

Eike Batista’s empire crumbles as talks with OGX creditors fail

Samantha Pearson in São Paulo OCTOBER 29 2013

 The dramatic fall from grace of Brazilian tycoon Eike Batista entered its final stages on Tuesday as his oil company OGX edged closer to a bankruptcy that would trigger Latin America’s largest ever corporate default.

 Several months of voluntary restructuring talks with holders of $3.6bn of bonds ended in failure, prompting the company to prepare for a bankruptcy protection filing in a Brazilian court, people close to the company said.

 But the company, which has until Thursday to make a debt payment or be judged as officially in default, indicated in documents released late on Tuesday that it had enough cash to continue operating until the end of December.

 This could buy it time to try to reopen negotiations with creditors, this time under a formal court process, and to avoid an immediate showdown with Brazil’s oil regulator, which has the right to confiscate the oil concessions of insolvent operators.

 Mr Batista, who was Brazil’s richest man until a year ago, set up OGX in 2007. The the ‘x’ – which features in all of the company names in his empire – was supposed to denote the promise of outsized multiple returns.

 The oil company missed a $45m payment on its bonds at the beginning of this month and was granted a grace period to negotiate with creditors of 30 days, which expires on Thursday.

 If OGX submits a bankruptcy filing, it will have 60 days to present a restructuring plan, according to Brazilian law.

 OGX’s shares have slumped more than 90 per cent this year after the company failed to meet production targets and suspended development of its only three producing oil wells.

 For investors, who once believed the oil start-up could become the private sector’s version of Petrobras, Brazil’s dominant state-controlled oil group, the production failures came as a heavy blow and sparked a crisis of confidence across Mr Batista’s companies.

 When the restructuring talks stalled this month, creditors and Mr Batista’s business partners scrambled to protect their interests in the event of bankruptcy.

 On Monday, Eneva, the energy company that Mr Batista ceded control of to Germany’s Eon this year, struck a deal with the creditor banks of OGX to buy its natural gas business, OGX Maranhão, if it filed for bankruptcy. Eneva, in which Mr Batista still holds a stake, signed an option to buy 66.7 per cent of the shares it does not already own in the venture for R$200m ($91.5m) in the event of bankruptcy.

 The deal has caused anger among investors, however, who fear OGX plans to exclude the natural gas unit from the bankruptcy filing, depriving them of one of the company’s most promising assets and keeping it indirectly in the hands of Mr Batista.

 “It is the only asset of any value that would be left over from OGX to be shared between creditors and shareholders in the event of bankruptcy,” said Aurélio Valporto, who is leading a group of investors planning to sue Mr Batista. OGX declined to comment.

 

https://www.ft.com/content/1b7d0158-409d-11e3-ae19-00144feabdc0