Eike Batista, the Brazilian billionaire whose oil-company shares fell to a record low last week, is close to selling a stake in MPX Energia SA (MPXE3) as he faces demands from creditors to boost collateral, people with direct knowledge of the matter said.
Among Batista’s biggest creditors is Sao Paulo-based Itau Unibanco Holding SA, with about 5.5 billion reais ($2.8 billion) in loans outstanding, said two of the people, who asked not to be identified because the matter is private. Batista borrowed about 4.8 billion reais from Banco Bradesco SA and 1.6 billion reais from Grupo BTG Pactual, not counting a credit line of $1 billion BTG provided earlier this month, the people said.
Batista, 56, used shares of his publicly traded companies as collateral for loans that helped build his empire of commodities and energy businesses, held as units of his EBX Group Co., the people said. Shares of his oil and gas company, OGX Petroleo e Gas Participacoes SA (OGXP3), plunged about 85 percent in the past year through yesterday, and Batista is trying to reduce collateral requirements by selling assets to pay debt, the people said.
“A big part of investors’ mistrust now comes from the fact that Eike may be forced to cover margin calls on his debts,” Leonardo Brito, an equity analyst at hedge fund Teorica Investimentos, said in a telephone interview from Rio de Janeiro. “Doubts about the group continue.”
Net debt at Batista’s six publicly traded units more than tripled last year to a combined 15.8 billion reais, according to data compiled by Bloomberg based on the latest available figures. The companies posted a combined net loss of 1.68 billion reais in the first nine months of last year amid missed project targets and rising costs.
“Infrastructure projects such as the ones being undertaken by the group are capital intensive, necessarily demanding long-term financing,” EBX said yesterday in an e-mailed statement. “EBX Group’s companies have the necessary funding established for the coming years and are always looking to improve the profile of its indebtedness.”
Batista’s oil business cut production targets in June, fueling share-price declines at his publicly traded companies. As the stocks fell, so did the value of outstanding collateral. Banks asked for more collateral to keep their own exposure to Batista’s holdings under their risk-tolerance levels, the people said, adding that some of the banks are also required to sell the shares they own, contributing to stock-price declines.
Batista, whose personal wealth declined about $25 billion in the past year as the share prices tumbled, can use the short-term liquidity line he received from BTG for any of his companies and for any purpose, including paying debt as a way to reduce collateral needs, one of the people said.
Itau, Bradesco and BTG declined to comment on collateral calls, according to bank officials who asked not to be identified in keeping with company policies.
EON SE, Germany’s biggest utility, is in discussions to boost its stake in MPX, Batista’s power-generating unit, to about 39 percent from 12 percent and gain effective control, a person with direct knowledge of the matter said. EON would buy MPX shares for about 12 reais apiece, and Batista would receive about 1.87 billion reais, the person said.
Then, through a capital increase, Brazil’s development bank, known as BNDES, would increase its holding to 13 percent from 10 percent and BTG Pactual would buy about 200 million reais in shares, said the person, who requested anonymity because the talks are private. The capital increase would dilute EON’s stake below 35 percent, allowing the German company to avoid consolidating MPX’s 6.07 billion reais of debt on its balance sheet.
Batista also would sell MPX shares to the public in the divestiture, which may raise more than $2 billion, the person said. An EON official declined to comment on the talks.
EBX didn’t give specific amounts when it announced a strategic cooperation agreement on March 6 with Sao Paulo-based BTG that includes financial advice, lines of credit and long-term capital investments. Batista and BTG’s billionaire chief executive officer, Andre Esteves, 44, are leading a strategic and financial management committee, EBX said. The agreement doesn’t imply BTG will be the only provider of financial services to EBX, it said. Fees will depend on the performance of EBX companies.
Investors should have confidence in the capacity of Esteves to help Batista turn around the situation, said Luiz Cezar Fernandes, a director at Gradual Investimentos who founded Pactual in 1983.
“Short sellers may get surprised because in the middle term this will start to have an effect,” Fernandes said of Batista’s negotiations to sell assets. “This is not an overnight process. The market as usual wants answers overnight, but I think in the middle term it will be a success.”
Batista sold part of the holding company EBX last year to Abu Dhabi’s Mubadala Development Co. and General Electric Co., slowing an expansion into mining and energy in Brazil, Colombia and Chile to focus on raising cash to boost output at existing projects.
Batista also aimed to sell all of his gold business, AUX, after disclosing plans last year to divest a 49 percent stake, two people familiar with the matter said last month. Vancouver-based Goldcorp Inc., the world’s second-biggest miner of the precious metal by market value, entered the talks for AUX after an agreement to negotiate exclusively with Qatar’s government expired in October, the people said. The pace of negotiations for AUX has slowed and a deal may not happen, one of the people said.
Batista also sought to sell shipbuilder OSX Brasil SA (OSXB3) to Sete Brasil Participacoes SA in exchange for a stake in the oil-rig contractor, according to two people with direct knowledge of the matter. He eventually gave up on the idea, Folha de S. Paulo reported in October, citing an interview with Batista.
OGX share’s price fell 44 percent this year, the biggest drop among 121 companies in the FTSE All World Oil & Gas Producers Index, and investors are betting it will fall more as short-seller positions increase. Shares that have been sold short and not yet repurchased rose to 19.7 percent of the stock’s free float yesterday from 12.9 percent a month ago, close to the Brazilian exchange’s 20 percent limit, data compiled by Bloomberg show.
“He really has to do something to prove he isn’t having any cash problem,” Brito at Teorica said. “Maybe selling an asset, like MPX, or doing a farm-out at OGX; anything that proves that he has assets that he can sell at a good price.”
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