Eike Batista’s net worth is $6.8 billion less than previously estimated because new details on his deal to sell a stake in his EBX Group Co. imply a lower value for his Brazilian commodities empire, according to the Bloomberg Billionaires Index.
After making repeated vows to become the richest person on the planet, Batista’s $12.7 billion fortune places him 73rd in the world, according to the ranking. He was 36th on Dec. 12.
Batista, under terms of the sale of 5.63 percent of EBX to Abu Dhabi’s Mubadala Development Co. for $2 billion in March, agreed to cede an unspecified additional stake in his holding company in 2019 if he fails to deliver a 5 percent annual return on the sovereign-wealth fund’s investment, according to a person with knowledge of the deal.
The initially disclosed terms of the transaction valued 56- year-old Batista’s conglomerate at $35.5 billion. Based on share prices for his publicly traded stakes at the time, the deal valued his closely held ventures at $10.6 billion. Bloomberg’s ranking no longer applies that premium to the closely held units because the full terms of the deal imply a lower overall value for Batista’s empire.
“I would probably put a pretty steep discount on these unlisted assets,” said Ed Kuczma, who helps oversee about $36.4 billion in assets at Van Eck Associates Corp., which doesn’t hold shares of Batista’s companies. “They’re not generating cash flow and it’ll probably be a while before they are. Just given the recent track record of his listed companies, if they came to market investors would demand a discount.”
Batista’s net worth climbed to its peak of $34.5 billion at the end of March after he announced the deal with Mubadala, briefly making him the world’s eighth-richest person. Now he’s down $9.8 billion for the year, more than anyone else on the Bloomberg Billionaires Index, as the value of his publicly traded natural-resource and logistics startups plunged amid delays and missed output goals. He’s the third-richest person in Brazil, after Anheuser-Busch InBev (ABI) investor Jorge Paulo Lemann and construction heiress Dirce Camargo.
Batista declined to comment on Bloomberg’s new net worth valuation. In an e-mail, he repeated the statement he had sent on Nov. 30, when he first lost the title of Brazil’s richest to Lemann.
“Brazil deserves to have more Brazilians on this list,” Batista said in the e-mail.
Press officials at EBX in Rio de Janeiro and Mubadala in Abu Dhabi both declined to comment on the structure of their transaction, referring questions to the March statement announcing the deal.
Mubadala took a “preferred equity interest” in Batista’s Centennial Asset Brazilian Equity Fund LLC and other offshore vehicles, the two companies said in a joint statement at the time. The deal gave Mubadala 5.63 percent of each of Batista’s stakes in his publicly traded and closely held companies, and the same percentage of any new ventures.
Batista has the option in 2014 to buy back half of Mubadala’s stake, according to the person, who asked not to be named because details of the transaction are private. The person declined to say how the 5 percent annual return target is measured.
Mubadala extended a 7.35 billion-dirham ($2 billion) loan, secured by “listed securities and guarantees,” to an undisclosed third party, according to its first-half financial report. The deal carries a “minimum assured return,” matures in 2017 and can be extended by Mubadala for an additional two years, the report says.
That transaction is the EBX preferred equity security and is booked as a loan for accounting reasons, according to a person familiar with the fund’s finances, who asked not to be identified because details of the transaction are private. Two banks familiar with the deal consider the investment a hybrid between equity and debt, two additional people said. One of the banks, which lends to EBX, treats it as a loan when gauging the credit quality of Batista’s group, said one of the two people.
The full terms of the deal help preserve Mubadala’s investment if EBX fails to grow or loses value. They also put Batista’s holdings at risk after the market capitalization of his publicly traded companies fell by about half this year. The newly disclosed guarantees mean that the transaction values Batista’s empire at less than the previous $35.5 billion, said Tim Hall at Deltec Asset Management LLC and Eric Conrads at ING Investment Management, both based in New York.
“It’s probably slightly below that given the terms are different,” said Hall, who helps oversee more than $700 million in assets and doesn’t hold shares of Batista’s companies. “You like to see full disclosure when one makes a deal. At the same time, they are putting their money behind him, so they obviously have some confidence in his ability to do what he says he’s going to do.”
“This looks less favorable for Eike than just signing a check,” said Conrads, who manages $750 million in Latin American stocks and declined to say whether he oversees shares of Batista’s companies. “Eike has to share some of the goods on the upside and he suffers more on the downside. It’s asymmetric.”
Batista also sold an additional 0.8 percent preferred equity interest to General Electric Co. for $300 million in May. EBX declined to comment on whether the investment was structured like Mubadala’s.
Batista’s publicly traded interests are worth $9 billion, after accounting for the stakes belonging to Mubadala and GE. His largest asset is his $4.2 billion holding in oil producer OGX Petroleo & Gas Participacoes SA (OGXP3), whose shares are down 66 percent this year after the company cut its initial output targets. His six listed companies had a combined net loss of 1.68 billion reais ($807 million) in the first nine months of 2012, according to data compiled by Bloomberg.
“All of EBX’s publicly traded companies are fulfilling their business plans,” and are well funded for coming years, Batista’s holding company said in an e-mailed statement. The conglomerate has close to $9 billion in cash, and its units will ramp up revenue growth starting in 2013 and 2014, EBX said. Batista’s planned cash injections for OGX, shipbuilder OSX Brasil SA (OSXB3) and iron-ore miner MMX Mineracao & Metalicos SA demonstrate his confidence in the publicly traded companies, according to the statement.
Using the cash from his deals with Mubadala and GE, Batista plans to invest as much as 1.4 billion reais in MMX in coming months. He also agreed to inject $1 billion into OSX and potentially another $1 billion into OGX in the next two years.
MMX rose for a sixth straight day, climbing 1.7 percent to 4.32 reais at the close of trading in Sao Paulo. OGX slid 2.8 percent while OSX fell 1.7 percent.
Batista owns gold deposits in Colombia under the name AUX. In June, he said he’d sold a 49 percent stake to a buyer whose name would be disclosed in September. His remaining position in the closely held company was valued at the time based on the $4.1 billion valuation reported by Bloomberg News. Because the transaction hasn’t closed, Batista is credited with all of AUX.
In May, Batista told Bloomberg News that AUX had the rights to 11 million ounces of gold. Based on reports by two small companies acquired by Batista in October, he will soon control the rights to more than 15.6 million ounces. Batista’s stake in AUX has an equity value of $1.7 billion, according to data compiled by Bloomberg, based on the average price-to-ounce and enterprise-value-to-ounce multiples of Beadell Resources Ltd., Torex Gold Resources Inc., Premier Gold Mines Ltd. and Continental Gold Ltd. The value also reflects debt he took on last year for the acquisition of Ventana Gold Corp., the company that became AUX. EBX disclosed the $1.4 billion liability in a February e-mail and has since paid back $400 million.
Publicly traded LLX Logistica SA (LLXL3) owns 70 percent of the Acu port project in Rio de Janeiro state. Batista’s separate 30 percent stake in the port is valued at about $180 million based on JPMorgan Chase & Co.’s estimate in July 2011 that the project makes up about 60 percent of LLX’s total value. EBX provided the same estimate earlier this year.
Batista probably has at least $1.85 billion in his investment portfolio, according to Bloomberg’s ranking. That total accounts for taxes and spending after the deals with Mubadala and GE, and estimated gains from his purchase of a stake in Burger King Worldwide Inc. (BKW), which was disclosed by EBX last month.
Cirque du Soleil
It also encompasses more than $300 million in commercial properties grouped under the name REX -- including two hotels, a marina and a medical center in Rio de Janeiro -- as well as his smaller startup ventures. One of them, IMX, promotes Cirque du Soleil and Ultimate Fighting Championship events in Brazil; SIX is a technology company investing 245 million reais in a semiconductor factory. Additionally, the total includes his personal properties, planes, boats and cars.
The Bloomberg Billionaires Index takes measure of the world’s wealthiest people based on market and economic changes and Bloomberg News reporting. Each net worth figure is updated every business day at 5:30 p.m. in New York. The valuations are listed in U.S. dollars.
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