Translated from CVM filing:
- EIKE BATISTA GIVES "PUT" FOR $ 1.0 BILLION IN FAVOR OF OGX -
Rio de Janeiro, October 24, 2012 - OGX Petroleo e Gas Participacoes SA ("Company" or "OGX") (Bovespa: OGXP3, OTC: OGXPY.PK), the Brazilian oil and natural gas accounts for the largest exploratory campaign private in Brazil, announced today that in view of the various business opportunities in the oil and gas, its controlling shareholder Eike Batista, granted the Company the right to require that he subscribe to new shares issued by the Company, the exercise price R $ 6.30 per share, until the maximum amount equivalent to U.S. $ 1.0 billion ("Put" or "Option").
The Option may be exercised at any time until April 30, 2014 and is subject to the need for additional share capital of the Company and the absence of alternatives more favorable conditions which will be determined by a majority of independent members of the Board of Directors of the Company.
"By granting this option, I emphasize my confidence in the quality of staff and assets of the Company, as well as new opportunities in the oil and gas industry offers to OGX," said Eike Batista, controlling shareholder and Chairman of the Board of Directors of OGX.
This would be about 4.91% increase in share count though at US$3.15 or so a share using current exchange rate.
Stock facts: More buying than selling: stock goes up. More selling than buying: stock goes down.OGXPY has been trending downward relentlessly despite all the #$%$ talk trying to pump it up. Is #$%$ the OGXPY oil?
Markets 10/26/2012 20:25
Eike puts his hand in his pocket, but 15% week sinks OGX
Roles of Hering clinic even with underwhelming result
Sao Paulo-the trump card of 1 billion dollars of Eike Batista surprised the market and was seen as a demonstration of confidence by the controller in his oil company, OGX (jobs community). According to analysts, the announcement has reduced the risk of stocks, but the market has continued to turn up their noses. Roles tumbled 14.8 percent on the week to 4.49 dollars.
In a statement sent to the Brazilian Securities Commission (CVM) on Wednesday night, Batista said the company will have the right to demand that she subscribe to new shares at the exercise price of 6.30 reais each until April 30, 2014.
With the move, the entrepreneur may have set a kind of "ceiling" to the actions, but also signaled it is willing to pay up to 40% more for each share, if the company needs. The papers pile up 67% devaluation in 2012.
"Without the option, the risk profile of the company, in our view, could skyrocket over the next twelve months", explained analysts Frank McGann and Conrado Alban, Bank Of America Merrill Lynch. "We believe that the movement seeks to reduce the concerns of investors about the sustainability of OGX's cash position and its ability to raise more money if necessary," says analyst Paula Kovarsky, of Itaú BBA
One of the problems, according to Fitch Ratings, is the allocation of resources to be injected into the company. If the money goes to new reserves still undeveloped, the impact would be negative because it would delay the increase in cash flow generation. The successive delays in the entry of money in the company have angered investors.
"On the other hand, if the resources are used to accelerate production and expedite the start of cash flow generation, such a measure would be positive for credit quality. Fitch notes that the put option may only be exercised where, if not favorable financing options are available, "says Ana Paula Ares, senior analyst of the Agency, in a statement.
In an interview with Bloomberg, Roberto Monteiro, Chief Financial Officer, said that the initiative of businessman will bring more capability to OGX exploration blocks that will be auctioned off by the Government in the 11th round of the national petroleum Agency. According to him, the company is also interested in buying exploration assets from other companies.
Investor confidence in the company has eroded in June, when the roles plummeted 41% in just one week. The market received little detailing on the flow very underwhelming from two wells in Blue Shark field, in the Campos Basin. In addition, delays in production have undermined even more credit for the company on the stock exchange. In July, Fitch arrived to cut the rating of the company.
The Citi Broker withdrew OGX nuisance post worst investment idea in the industry after the investment of billionaire and replaced by petrochemical Braskem (BRKM5). Still, the analyst Pedro Medeiros, who signs the report, States that OGX is a high-risk investment, due to the inherent risk associated with exploitation and its relatively small short-term cash
The effect of exercise of the put option, recently announced by OGX, can be both negative as positive about the company's credit quality, depending on what they decide to do with these resources. So says the report released on Friday by Fitch Ratings.
On last Wednesday (24), the controlling shareholder of OGX granted the company the right to demand the subscription of new shares, up to the equivalent of $ 1 billion-option that expires in April 30, 2014. The price per share was set at $ 6.30, slightly above the current market price.
If the OGX holding the option, Fitch believes that the impact on its credit quality may swing in both directions, ultimately, depending on how these resources will be used.
In the opinion of the Agency, "it would be negative for the credit quality of the company the use of resources for acquiring new reserves still undeveloped, which could increase the needs of investments, which likely would delay any increase in cash flow generation. On the other hand, if the resources are used to accelerate production and expedite the start of cash flow generation, such a measure would be positive for credit quality ".
Fitch also notes that the put option may only be exercised where, if not otherwise available financing options.
In July 3, 2012, Fitch downgraded the rating of the issuer's probability of default in foreign currency of OGX "B +" for "B", due to the substantial reduction in expected production volumes, which will cause a delay so that the company's cash flow turns positive and prolong the deleveraging process. The Agency also recognizes that OGX has financed in advance and held the equipment through its capital investment program.
Batista May Buy $1 Billion of OGX Shares With Put Option
By Peter Millard on October 24, 2012
Brazilian Billionaire Eike Batista granted OGX Petroleo e Gas Participacoes SA a put option that could require him to buy as much as $1 billion of new stock in the oil company he controls at a 36 percent premium.
OGX, based in Rio de Janeiro, will exercise the option should it need additional capital and in the absence of more favorable financing options, according to a statement distributed by Business Wire after the market closed yesterday. Batista will buy the shares at 6.30 reais each if OGX uses the option that expires in May 2014.
“This option underpins my confidence in OGX’s technical expertise and quality assets, as well as the new opportunities that the oil and gas sector offer to OGX,” Batista said in the statement.
OGX began reducing its drilling fleet in Brazil to cut exploration costs and focus on developing the oil fields it has discovered. The company has also expressed interest in competing for new exploration blocks when Brazil holds an auction as early as May.
OGX shares fell 7.8 percent to 4.63 reais in Sao Paulo yesterday. The stock has declined 66 percent this year, compared with a 0.7 percent gain in the key Bovespa Index.
“The move aims to reduce investor concerns regarding the sustainability of OGX’s cash position and its ability to raise more money if needed,” Itau BBA SA analysts Paula Kovarsky and Diego Mendes said in a note to clients yesterday.
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Yeah, close to nothing. 6.3 Reais / 2 = $3.15. Thats only a $3.15/$2.34 = 34.6% gain from today's prices. Wonder what happens with 'currency fluctuations' as you say -- Lets take the $1.8 dollar_real exchange rate that Goldman Sachs predicts for 2013. 6.3 / 1.8 = $3.5. $3.5 / $2.34 = 49.6% from today's prices.
Yea, it means close to nothing. I'll go back to buying my 2% ten year bonds (Ok, not really).