Billionaire Helps Billionaire in EBX-BTG Deal: Corporate Brazil
Stock Chart for Banco BTG Pactual SA (BPAC3)
Brazilian billionaire Eike Batista is borrowing credibility from the nation’s most influential businessman to arrest a decline in his commodities and energy companies that wiped out $25 billion of his wealth.
Batista, 56, signed an agreement this week with Grupo BTG Pactual’s Andre Esteves to co-run a strategic and financial management committee for his six publicly traded companies. Batista’s EBX Group Co. said the so-called strategic cooperation agreement includes future investments in projects. BTG provided EBX with a $1 billion line of credit as part of the deal, said a person with direct knowledge of the accord.
Batista’s companies from OGX Petroleo & Gas Participacoes SA (OGXP3) to LLX Logistica SA (LLXL3) surged yesterday as investors bet Esteves, whose BTG is the most profitable Brazilian bank, can shore up confidence in startup businesses that have missed profit and output targets. OGX and OSX Brasil SA (OSXB3) have posted the worst returns this year among 270 energy companies with a market value over $1 billion, data compiled by Bloomberg show. OGX fetches 1.4 times book value, down from 8.2 in October 2010.
“Esteves at the moment is the golden boy -- he can probably help Eike bridge some of his financing gaps and maybe help him run these companies,” Arthur Byrnes, who helps manage about $1 billion including OGX bonds at Deltec Asset Management LLC, said by phone from New York. “Eike is very good at selling ideas, starting companies and getting funding to do that. Where he is unproven is, as time goes on and not everything goes according to the original plan, how well can he manage these companies.”
Esteves, the only Brazilian national on Bloomberg Markets Magazine’s 50 Most Influential list last year, took BTG public in April 2012, raising 3.65 billion reais ($1.86 billion) from investors in the biggest IPO for an investment bank in two years. BTG has gained 12 percent since then, compared with a 10 percent increase for the 14-member MSCI Brazil Financials Index (MXBR0FN).
An official for EBX declined to elaborate on terms of the arrangement with BTG.
Batista is seeking to divest stakes in some of his interlinking commodity startups and raise funds after a share selloff erupted in June when OGX cut oil output targets, creating doubts over the viability of his ventures among investors.
The billionaire replaced five of six CEOs of his publicly traded companies in a seven-month period and saw his wealth plunge to $9.9 billion on March 6 from a $34.5 billion peak a year ago. He dropped out of the Bloomberg Billionaires Index of the world’s 100 richest people last month.
OGX, Batista’s biggest holding, jumped 16 percent to 3.40 reais in Sao Paulo yesterday, the most traded by volume and the biggest gain since September 2008. The stock, which retreated 7.1 percent at 4:54 p.m. in Sao Paulo today, has lost 81 percent in the past 12 months. Batista’s estimated net worth recovered to $10.6 billion yesterday. The yield on OGX’s $2.56 billion of bonds maturing 2018 fell 125 basis points to 10.2 percent yesterday, the most since they were sold in May 2011.
EBX’s agreement with BTG, Brazil’s top generator of investment-banking fees in 2012, comes after Batista was seeking to raise more than $5 billion by selling his AUX gold business and a controlling stake in his power-generating unit MPX Energia SA (MPXE3), a person with direct knowledge of the matter told Bloomberg News last month. The billionaire’s six trading units had a combined total debt of 24.5 billion reais based on their latest available figures for 2012, or about 95 percent of their market value, according to data compiled by Bloomberg.
BTG and its predecessor Banco Pactual SA were among coordinators in Batista’s four initial public offerings since 2006 including OGX, OSX, MPX and iron-ore producer MMX Mineracao & Metalicos SA. The bank also helped OGX to sell $1.06 billion in bonds to international investors last year.
BTG’s press officials in Sao Paulo didn’t return e-mails and telephone calls seeking comment.
The deal between EBX and BTG doesn’t remove all the question marks over Batista’s companies, said Lucas Brendler, who helps manage about 5 billion reais at Geracao Futuro Corretora. While the arrangement gives the company some financial relief, the operating environment “continues to be challenging,” Banco Santander SA analysts Christian Audi and Vicente Falanga Neto wrote in a note to clients today.
“The uncertainty is still big,” Brendler said by telephone from Porto Alegre, Brazil. “We need to wait a bit to see how much of this is noise and how much is actually priced as BTG entering as financial operator of the company.”
Esteves, 44, is worth $4.9 billion, according to the Bloomberg Billionaires Index. His fortune derives mostly from his 22 percent stake in BTG Pactual.
Esteves has a history of zeroing in on out-of-favor companies. In February 2011, BTG paid 450 million reais to take over Banco Panamericano SA, just three months after the bank was sunk by accounting fraud that spurred a bailout from Brazil’s deposit-insurance fund.
The billionaire also has a track record of buying low and selling high. In 2009, he and his partners paid $2.5 billion to buy back their investment bank from UBS AG, three years after selling it to the Swiss lender for $3.5 billion. He struck the repurchase deal a year after he unsuccessfully tried to buy control of UBS outright, teaming up with his compatriot Jorge Paulo Lemann, now Brazil’s richest person, to make the offer.
BTG also joined forces with Roger Agnelli, former CEO of Vale SA, the world’s largest iron-ore producer, to create B&A Mineracao SA, a mining startup that bought controlling stakes in potash and copper companies. B&A, started in July to invest as much as $520 million in metals and fertilizers projects, is controlled by BTG and Agnelli’s AGN Agroindustrial, Projetos & Participacoes Ltda., each holding 50 percent of the venture.
Even if the association with BTG lacks details, bringing Esteves’s resources and energy will help Batista find a way out of the dilemma he finds himself in, said Ian McCall, who manages $107 million in emerging-market assets at Quesnell Capital SA and holds OGX bonds at his First Geneva Global High Yield Fund. The association will help Batista prove his companies can perform, Deltec’s Byrnes said.
“He has so many fires to put out all at once that he can’t do all by himself,” Byrnes said. “Esteves is a proven winner.”
To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at firstname.lastname@example.org