By Guillermo Parra-Bernal, Jeb Blount and Nick Brown
SAO PAULO/RIO DE JANEIRO/NEW YORK, Oct 28 (Reuters) -A ttempts to save Eike Batista's flagship oil company, thebusiness most responsible for the meltdown of his oncehigh-flying industrial empire, have been hampered by internalconflict and unpredictable decisions by the Brazilian tycoon,sources with direct knowledge of the situation told Reuters.
The difficulty of reading Batista, who less than 18 monthsago owned the world's seventh-largest fortune, and mixed signalsfrom advisers and managers to his companies have disruptedattempts to renegotiate about $5 billion of bond and bank debtsat OGX Petróleo e Gás Participações SA. Meanwhile,the company is running out of cash to keep its operations going.
Even as new investors sign up to invest in other companiesin Batista's Grupo EBX energy, mining and logisticsconglomerate, the conflicts and delays at OGX risk turning abankruptcy filing widely expected by investors into a messyaffair - rather than opening the way to a smooth restructurin -the sources said.
At worst, if delays continue, OGX could face liquidation,which would leave precious little for creditors, one of thesources said, though this is seen as unlikely.
An OGX bankruptcy filing would be the biggest ever by aLatin American company, according to Thomson Reuters data. Notonly would it be a sign of how far Batista's star has fallen,but it would also provide a stiff test of whether Brazil'seight-year-old bankruptcy law provides adequate protection tocreditors.
Batista's dramatic decline has become a symbol of Brazil'seconomic woes after the end of a decade-long boom that made itone of the world's hottest emerging economies. If foreigninvestors do not feel they have been treated fairly in therestructuring process, they may be less willing to invest inother Brazilian companies.
The delays in restructuring have left OGX out of cash and atrisk of having Brazil's government revoke oil leases, thecompany's main asset. While a bankruptcy would not automaticallylead to a cancellation of the leases, OGX needs to find new cashquickly to meet minimum capital spending requirements with thegovernment, Brazil's oil industry watchdog ANP said on Oct. 17.
A 30-day grace period that OGX has to deposit $44.5 millionin interest payments to bondholders ends on Thursday. OGX hasbeen trying to persuade holders of $3.6 billion in bonds toconvert them into shares and pour an additional $150 millioninto the company to avoid a shutdown. OGX also faces a $100million bond interest payment in December.
Building consensus among creditors, shareholders and Batistahimself is essential so that OGX can file for bankruptcyprotection and then move the restructuring process quicklythrough the courts, preventing OGX from defaulting on itscontractual agreements with the ANP, two of the sources said.
"Bankruptcy is the only option right now," one of thesources said.
OGX plans to file for bankruptcy protection as early asTuesday, three sources said on Monday. Executives, however, wantto exclude the company's OGX Maranhão gas unit, which is intalks to sell a stake to power producer Eneva SA,from the bankruptcy filing, one of the sources said.
Debt holders include Pacific Investment Management Co, whichruns the world's largest bond fund, and BlackRock Inc,though it is not clear how much they currently own. Pimco andBlackrock both declined to comment.
In the past year, OGX shares have fallen more than 90percent, the result of lower-than-expected output from its firstoffshore field and as it has cut into its cash reserves becauseof spending to prepare other fields to start producing oil. TheOGX plunge set off a chain reaction among Batista's other listedbusinesses, forcing him to bring in new investors and dilute hisown holdings while being unable to use his remaining shares ascollateral for loans needed by the companies.
In interviews with six sources with knowledge of therestructuring discussions, one called the OGX talks withcreditors a "circus" and another described them as a "mess."Three said Batista's mercurial style has made things harder foreveryone involved and exacerbated conflicts between a tangledweb of advisers.
The advisers taken on by Batista include high-pricedcorporate cleanup men, seasoned dealmakers and even Batista's89-year-old father, a former Brazilian mining minister and theformer chief executive officer of Vale SA, theworld's top iron ore miner.
"Every day is a new adventure," said one of the sources."You can't tell what he is thinking," the source added,referring to Batista, who in Brazil is widely known as just"Eike."
Batista declined repeated interview requests through EBX, asdid his lawyer and chief aide. OGX and its sister company,shipbuilder OSX Brasil SA, declined to respond to ane-mailed list of questions.
Once a fixture in the Brazilian society pages, the56-year-old former power-boat racer has all but disappeared fromthe public eye since the dismantling of EBX began. Some peoplesay Batista is working hard to try to keep his companiesoperating and is actively searching for new financing.
R. Blair Thomas, CEO of EIG Global Energy Partners LLC, theU.S. company that agreed in August to invest 1.3 billion reais($596 million) in Batista's LLX Logística SA,recently had dinner with Batista in Rio de Janeiro, and foundhim to be in good spirits.
"While there is still work to do, he has successfullybrought in international investors for three of his companies,"Thomas said. "There is a general recognition in the market thatsome of the assets were quite good."
Indeed, Batista, known as an unabashed optimist, promised acomeback in a July 9 op-ed piece in a Brazilian newspaper.
"Over the past few months, I have seen my business obituaryin the pages of blogs, newspapers and magazines. I see myselffar from that image of a retired Eike," he wrote.
While, according to two of the sources, Batista will likelyhave to give up most or all of his stake in OGX to bondholders,he retains 27 percent of Eneva, a power producer formerly knownas MPX Energia SA that he founded; a controlling stake in miningcompany MMX Mineração e Metálicos SA after sellingits port operations; and a 21 percent stake in LLX, owner of thegiant Port of Açu compound north of Rio de Janeiro.
The situation at OGX has already held up a plan by Malaysianstate oil company Petronas to pump $850 million intoOGX and complicated efforts to get new financing frombondholders and banks. Petronas wants a debt restructuring tohappen before any payment.
One major example of the disruptions arising from Batista'ssharp changes in direction involved negotiations with OGXcreditors. On Sept. 20, Batista abruptly fired OGX ChiefFinancial Officer Roberto Monteiro - the main liaison betweenthe company and creditors. Talks screeched to a halt.
Soon after, advisers and OGX CEO Luiz Carneiro persuadedBatista to bring the former CFO back - this time as aconsultant. But on Oct. 15, Batista fired Monteiro again andthen showed the CEO and the legal affairs director the door,too.
The clash with OGX management began when Carneiro announcedearly in September that the company would exercise a put optionobliging Batista to buy $1 billion in shares at above-marketprices. Batista is challenging the put option in court.
Realizing minority shareholders planned to sue Batista andOGX executives, Carneiro felt he had no choice but to exercisethe option, forcing his interests to diverge from Batista's, oneof the sources said. Carneiro and Monteiro could not be reachedfor comment.
"All Batista wants is to get out of this put option," oneof the sources said. "Almost every piece of debt on each ofthese companies is guaranteed by him personally."
Two of the sources said the ousting of the executivesoccurred after an unnamed "new investor" pledged cash for OGX ifnew management were hired.
In another sign of confusion, three scheduled board meetingsat Batista's shipbuilding company, OSX, were canceled since newdirectors were named on Sept. 11. OSX, which depends on OGX forall its revenue, told Reuters on Monday that management has noplans to file for bankruptcy protection "at the moment."
The lack of meetings has prevented the board from reviewingor guiding the work of OSX CEO Marcelo Gomes, who was appointedon Aug. 23 and is busy trying to sell OSX ships and otherassets. Gomes could not be reached for comment.
One of the big problems in the restructuring talks has beenthe number of different advisers working for Batista and hiscompanies, three of the sources said.
Brazilian investment banker André Esteves' Grupo BTG PactualSA had been heavily involved on the advisory sidebut its earlier attempt to rescue Batista's companiesconcentrated on MMX, LLX and the former MPX. BTG Pactual, whichdeclined to comment, is "in the final stages" of its financialadvisory mandate with Grupo EBX, a source with knowledge of thesituation told Reuters.
As BTG Pactual focused on those three companies instead ofOGX and OSX, Batista and his managers hired three additionaladvisory firms to handle the problems facing the oil producerand the shipbuilder. But the advisers have not always had thesame agendas and their failure to work in lockstep helped causethe clashes of recent months, the sources said.
The three financial advisers are Blackstone Group LP,Lazard Ltd, and Rio-based buyout and advisory firm AngraPartners. Angra has had the most influential role in OGX's debtrestructuring, one source added. The three firms declined tocomment.
Carneiro's departure bolstered the influence of Angra, whichis led by dealmaker Ricardo Knoepfelmacher, two of the sourcessaid. Knoepfelmacher, known in Brazil as "Ricardo K," has triedto steer OGX and OSX toward bankruptcy protection to save them.
Meanwhile, as negotiators huddle in boardrooms in Rio andNew York, OGX employees are literally at sea, using what two ofthe sources said was what little cash the company has left tomake a last-ditch effort to hook up its offshore Tubarão Martelofield to an OSX vessel, hoping it can start producing withinweeks.
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