Batista Failing in $1 Billion Earnings Pledge
Stock Chart for OGX Petroleo e Gas Participacoes SA (OGXP3)
Billionaire Eike Batista’s energy and mining companies lost almost as much money in the second quarter as in all of 2011, reducing the chances that Brazil’s richest man will deliver the profits he promised for this year.
Oil company OGX Petroleo & Gas Participacoes SA, iron-ore miner MMX Mineracao & Metalicos SA, shipbuilder OSX Brasil SA (OSXB3) and two of his listed units posted a combined net loss of 926.5 million reais ($459 million) in the past quarter, compared with 941.8 million reais for 2011. The five companies, including power utility MPX Energia SA and port developer LLX Logistica SA (LLXL3), had a loss before interest, taxes, depreciation and amortization of 160 million reais in the period.
The results follow production setbacks at OGX and declining iron-ore prices for MMX, jeopardizing Batista’s pledge in March to generate Ebitda of $1 billion this year as part of “a major turnaround.” Analysts expect his six Rio de Janeiro-based companies, including CCX (CCXC3) Carvao da Colombia SA, which was listed in May, to post a combined Ebitda loss of 111 million reais this year, data compiled by Bloomberg show.
“It’s a show-me story requiring patience from investors and the catalysts aren’t really there,” said Eric Conrads, who helps manage $1 billion in stocks at ING Groep NV in New York. “They have to deliver at least in line with expectations.”
OGX touched a three-year low in June after cutting output estimates at its first project by as much as 75 percent and has declined 54 percent in Sao Paulo this year, dragging down shares of Batista’s other commodity companies. MMX has dropped 18 percent, MPX (MPXE3) has fallen 8.2 percent and LLX has lost 5.3 percent this year. OSX is up 2.6 percent.
OGX gained 0.3 percent to 6.25 reais today and MMX slid 1.6 percent to 5.49 reais in Sao Paulo. MPX declined 2 percent to 11.70 reais, while LLX fell 0.9 percent to 3.19 reais and OSX added 1.3 percent to 11.80 reais.
The stock plunge slashed Batista’s net worth, which peaked at $34.5 billion on March 27, to $20.6 billion yesterday, according to the Bloomberg Billionaires Index daily ranking. Batista, who aims to become the world’s richest person by 2015, currently ranks 23rd on the list.
Batista plans to invest $50 billion in 10 years to expand mining, energy and port projects in Brazil, Colombia and Chile. He has raised about $6 billion in share sales in the past six years and at least another $4.1 billion in bond sales in international markets since 2011. This year, he sold stakes in his EBX Group Co. holding company valued at $2.3 billion to Mubadala Development Co. and General Electric Co. In May, he said he will sell an additional stake worth $500 million by September.
OGX, which had $2.9 billion in cash at the end of June, has enough money to cover investments and doesn’t plan to sell more debt, Chief Financial Officer Roberto Monteiro said on an Aug. 15 conference call with analysts. It may raise as much as $700 million by selling oil production in advance to help finance investments, he said.
Batista, in addition to setting the $1 billion target for combined Ebitda this year, also said in a March 2 interview with Bloomberg that the companies would double the measure of profit in 2013 and triple it in 2014. Last year, he said EBX, which controls his mining and energy empire, would generate $15 billion in Ebitda by 2015.
“We are running like, what’s the name of this Jamaican guy? Usain Bolt,” Batista said, referring to the first sprinter to win three gold medals in two straight Olympic Summer Games.
The companies controlled by Batista’s EBX are in an investment phase, the holding company said in an e-mailed response to questions, declining to comment further.
MMX, the biggest source of revenue among Batista’s companies, this month posted a quarterly net loss that topped analysts’ estimates after a weaker Brazilian real boosted debt costs and iron-ore sales fell.
‘Exposed to Debt’
The real plunged 9.1 percent in the second quarter, the worst performance against the dollar among the world’s 16 most- traded currencies. The decline boosted the cost of servicing foreign debt and buying equipment, said Lucas Brendler, who helps manage about 6 billion reais at Banco Geracao Futuro de Investimento, including OGX shares.
“His companies are very, very exposed to debt indexed in dollars,” Brendler said by telephone from Porto Alegre, Brazil. “When you have a depreciation, it’s very tough on the results.”
CCX, a sixth listed company that Batista spun off from MPX in May, also lost money in the second quarter as it prepares to start production in 2014.
Batista’s companies are in an initial stage and the earnings aren’t representative of their potential, Aloisio Lemos, an analyst at brokerage Agora Corretora, said by telephone from Rio de Janeiro.
“Weak results are natural for companies in an initial stage,” he said. “You can’t imagine doing projects of this magnitude based in an economic scenario of one or two years. You need a longer-term view.”
The poor operating results last quarter will likely make it more difficult for Batista to keep luring investors, ING’s Conrads said.
“You’re not in a world, at least on the earnings front, where there is room for complacency,” Conrads said. “This year, there were too many disappointments.”