By Guillermo Parra-Bernal, Jeb Blount and Nick Brown
SAO PAULO/RIO DE JANEIRO/NEW YORK (Reuters) - Attempts to save Eike Batista's flagship oil company, the business most responsible for the meltdown of his once high-flying industrial empire, have been hampered by internal conflict 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 months ago owned the world's seventh-largest fortune, and mixed signals from advisors and managers to his companies, has disrupted attempts to renegotiate about $5 billion of bond and bank debts at 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 companies in Batista's Grupo EBX energy, mining and logistics conglomerate, the conflicts and delays at OGX risk turning a bankruptcy filing, that is widely expected by investors, into a messy affair rather than opening the way to a smooth restructuring, the sources said.
At worst, if delays continue, OGX could even face liquidation, which would leave precious little for creditors, one of the sources said, though this is seen as unlikely.
A bankruptcy filing by OGX would be the biggest ever by a Latin American company, according to Thomson Reuters data. Not only would it be a sign of how far Batista's star has fallen, but it would also provide a stiff test of whether Brazil's eight-year-old bankruptcy law provides adequate protection to creditors.
Batista's dramatic decline has 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. If foreign investors do not feel they have been treated fairly in the restructuring process they may be less willing to invest in other Brazilian companies.
The delays in restructuring have left OGX out of cash and at risk of having Brazil's government revoke oil leases, the company's main asset. While a bankruptcy would not automatically lead to a cancellation of the leases, OGX needs to find new cash quickly to meet minimum capital spending requirements with the government, Brazil's oil industry watchdog ANP said on October 17.
A 30-day grace period that OGX has to deposit $44.5 million in interest payments to bondholders ends on Thursday. OGX has been trying to convince holders of $3.6 billion in bonds to convert them into shares and pour an additional $150 million into the company so that it does not have to shut down its operations. OGX also faces a $100 million bond interest payment in December.
Building a consensus among creditors, shareholders and Batista himself is essential so that OGX can file for bankruptcy protection and then move the restructuring process quickly through the courts, preventing OGX from defaulting on its contractual agreements with the ANP, two of the sources said.
"Bankruptcy is the only option right now," one of the sources said.
Debt holders include Pacific Investment Management Co, which runs the world's largest bond fund, and BlackRock Inc, though it is not clear how much they currently own. Pimco and Blackrock both declined to comment.
In the past year, OGX shares have fallen more than 90 percent, the result of lower-than-expected output from its first offshore field and as it has cut into its cash reserves because of spending to prepare other fields to start producing oil. The OGX plunge set off a chain reaction among Batista's other listed businesses, forcing him to bring in new investors and dilute his own holdings while being unable to use his remaining shares as collateral for loans needed by the companies.
In interviews with six sources with knowledge of the restructuring discussions, one called the OGX talks with creditors a "circus" and another described them as a "mess." Three said Batista's mercurial style has made things harder for everyone involved and exacerbated conflicts between a tangled web of advisers.
The advisers taken on by Batista include high-priced corporate cleanup men, seasoned dealmakers and even Batista's 89-year-old father, a former Brazilian mining minister and the former chief executive officer of Vale SA, the world'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. His lawyer and chief aide did not respond to questions. Once a fixture in the Brazilian society pages, the 56-year-old former power-boat racer has all but disappeared from the public eye since the dismantling of EBX began.
OGX and its sister shipbuilder OSX Brasil SA declined to respond to an e-mailed list of questions.
Some people say that Batista is working hard to try to keep his companies operating and is actively searching for new financing.
R. Blair Thomas, CEO of EIG Global Energy Partners LLC, the U.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 found him to be in good spirits.
"While there is still work to do, he has successfully brought in international investors for three of his companies," Thomas said. "There is a general recognition in the market that some of the assets were quite good."
Indeed, Batista, known as an unabashed optimist, promised a comeback in a July 9 op-ed piece in a Brazilian newspaper.
"Over the past few months, I have seen my business obituary in the pages of blogs, newspapers and magazines. I see myself far from that image of a retired Eike," he wrote.
While, according to two of the sources, Batista will likely have to give up most or all of his entire stake in OGX to bondholders, he retains 27 percent of the capital of Eneva SA, a power producer he founded and formerly known as MPX Energia SA; a controlling stake in mining company MMX Mineração e Metálicos SA after selling its port operations; and a 21 percent stake in LLX, owner of the giant Port of Açu compound north of Rio de Janeiro.
The situation at OGX has already held up a plan by Malaysian state oil company Petronas to pump $850 million into OGX and complicated efforts to get new financing from bondholders and banks. Petronas wants a debt restructuring to happen before any payment.
One major example of the disruptions arising from Batista's sharp changes in direction involved negotiations with OGX creditors. On September 20, Batista abruptly fired OGX Chief Financial Officer Roberto Monteiro - the main liaison between the company and creditors. Talks screeched to a halt.
Soon after, advisers as well as OGX CEO Luiz Carneiro convinced Batista to bring the former CFO back - this time as a consultant. But on October 15, Batista fired the former CFO again and then showed the CEO and the legal affairs director the door too.
The clash with OGX management began when Carneiro announced early in September that the company would exercise a put option obliging Batista to buy $1 billion in shares at above-market prices. Batista is challenging the put option in court.
Realizing minority shareholders planned to sue Batista and OGX executives, Carneiro felt he had no choice but to exercise the option, forcing his interests to diverge from Batista's, one of the sources said. Carneiro and Monteiro could not be reached for comment.
"All Batista wants is to get out of this put option," one of the sources said. "Almost every piece of debt on each of these companies is guaranteed by him personally."
Two of the sources said the ousting of the executives occurred after an unnamed "new investor" pledged cash for OGX if new management were hired.
In another sign of confusion, three scheduled board meetings at Batista's shipbuilding company OSX have been canceled since new directors were named on September 11. OSX depends on OGX for all its revenue and two of the sources said the shipbuilder will likely request bankruptcy protection at the same time as OGX or shortly thereafter.
The lack of meetings has prevented the board from reviewing or guiding the work of OSX CEO Marcelo Gomes, who was appointed on August 23 and is busy trying to sell OSX ships and other assets. Gomes could not be reached for comment.
One of the big problems in the restructuring talks has been the number of different advisers working for Batista and his companies, three of the sources said.
Brazilian investment banker André Esteves' Grupo BTG Pactual SA had been heavily involved on the advisory side but its earlier attempt to rescue Batista's companies concentrated on MMX, LLX and the former MPX. BTG Pactual, which declined to comment, is "in the final stages" of its financial advisory mandate with Grupo EBX, a source with knowledge of the situation told Reuters.
As BTG Pactual focused on those three companies instead of OGX and OSX, Batista and his managers hired three additional advisory firms to handle the problems facing the oil producer and the shipbuilder. But the advisers have not always had the same agendas and their failure to work in lock-step helped cause the clashes of recent months, the sources said.
The three financial advisers are Blackstone Group LP and Lazard Ltd, and Rio de Janeiro-based buyout and advisory firm Angra Partners. Angra has had the most influential role in OGX's debt restructuring, one source added. The three firms declined to comment.
Carneiro's departure bolstered the influence of Angra, which is led by dealmaker Ricardo Knoepfelmacher, two of the sources said. Knoepfelmacher, known in Brazil as "Ricardo K," has tried to steer OGX and shipbuilder OSX toward bankruptcy protection to save them.
Meanwhile, as negotiators huddle in boardrooms in Rio de Janeiro and New York, OGX employees are literally at sea, using what two of the sources said was what little cash the company has left to make a last-ditch effort to hook up its offshore Tubarão Martelo field to an OSX vessel, hoping it can start producing within weeks.
(Additional reporting by Jennifer Ablan in New York; Editing by Todd Benson and Martin Howell)
- Investment & Company Information
- Eike Batista