By Jeb Blount and Guillermo Parra-Bernal
RIO DE JANEIRO/SAO PAULO (Reuters) - OGX Petróleo e Gas Participações SA (SAO:OGXP3), the cash-strapped Brazilian oil company controlled by former billionaire Eike Batista, said on Tuesday that debt restructuring talks with holders of $3.6 billion (2.2 billion pounds) in bonds had ended with no agreement.
The announcement, made in a predawn securities filing, came just hours after Reuters reported that OGX was preparing to file for bankruptcy protection in a Rio de Janeiro court as early as Tuesday, according to three sources with direct knowledge of the situation.
The company did not say why the talks collapsed. But sources close to the negotiations told Reuters in recent days that areas for disagreement between Batista, management and creditors ranged from the scope of a potential capital injection to the terms of a Batista departure from OGX, which has total debts of over $5 billion.
OGX's shares and bonds slumped in the wake of the announcement. Its stock dropped more than 20 percent, adding to a 90 percent-plus plunge this year, while the price on its 8.375 percent bond due in April 2022 slid to 9 cents on the dollar, down from about 10 cents on Monday and near an all-time low of 6 cents earlier this month.
OGX bonds are down 89 percent this year, the worst-performing bonds among emerging market corporate debt, according to Thomson Reuters data.
Once the flagship company of Batista's sprawling industrial and commodities empire, OGX's failure to meet expected oil output targets caused investors to doubt its ability to come up with enough revenue to service its debts. That, in turn, sparked a domino effect that forced Batista to start dismantling his Grupo EBX conglomerate to raise cash to pay debt.
The meltdown of EBX - which included a port operator and a shipbuilder as well as mining, energy and entertainment companies - is a dramatic change of fortunes for the 56-year-old Batista, who just 18 months ago ranked as the world's seventh-wealthiest person. His rapid decline has also become a symbol of Brazil's own economic woes after the end of a decade-long boom that made it one of the world's hottest emerging economies.
OGX declined to comment further on the end of the debt talks or a potential bankruptcy protection filing.
Talks with a creditors' committee formed by half a dozen investment funds kicked off in August, as dwindling confidence in Batista's ability to shore up OGX caused its bonds to slump. Pacific Investment Management Co, the world's largest bond fund manager known as Pimco, and BlackRock Inc (NYS:BLK) are on the committee, whose members own more than half of OGX's outstanding bonds.
Officials at Pimco and BlackRock in Newport Beach, California, and New York, respectively, could not be immediately reached for comment.
LARGEST IN LATIN AMERICA
If OGX does seek court protection from creditors, it would be the largest-ever corporate bankruptcy filing in Latin America, according to Thomson Reuters data. The decision whether to file comes as a 30-day grace period for OGX to pay $44.5 million in interest to investors was about to expire.
OGX wants to exclude its OGX Maranhão natural gas unit from a bankruptcy protection filing, a source close to the situation told Reuters on Monday. Power producer Eneva SA (ENEV3.SA) reached a deal on Monday with OGX Maranhão's creditor banks to buy up to 66.7 percent of the unit should parent company OGX fail to honour its debts.
Eneva was previously known as MPX Energia SA, which was part of the EBX conglomerate. Batista, who founded the company, remains part of Eneva's controlling group alongside Germany's E.ON (EONGn.DE).
If an OGX bankruptcy request is approved by a court, the company will have 60 days to come up with a corporate restructuring plan. The company's creditors as well as the judge overseeing the case will then have 30 days to endorse or reject the plan.
OGX had buyout and financial advisory firm Angra Partners, Blackstone Group LP (NYS:BX) and Lazard Ltd (NYS:LAZ) as advisors in the negotiations with bondholders. The creditors' committee hired investment-banking firm Rothschild and law firms Cleary Gottlieb Steen & Hamilton LLP and Pinheiro Neto Advogados to advise members on the talks.
During talks, OGX and the bondholders discussed a potential $150 million credit line aimed at funding the company's exploration campaign for a few more months. But there was disagreement over Batista's plan to cut OGX's debt by offering bondholders a stake in the company as well as the terms of his potential departure from the company, sources said.
(Additional reporting by Sabrina Lorenzi; Editing by Todd Benson and Alden Bentley)