Brazilian billionaire Eike Batista, who bond investors say is edging closer to a debt restructuring, used his wealth to personally guarantee 2.3 billion reais ($1 billion) in loans from the nation’s development bank, according to information obtained by Bloomberg News.
The loans are part of the 10.4 billion reais that Batista’s companies contracted with the state-run lender, known as BNDES, since 2007. BNDES provided the tally of the loans and their respective guarantees in response to a request by Bloomberg under Brazil’s freedom of information law. The bank didn’t say how much is outstanding.
Investors are trying to gauge the potential fallout for shareholders and creditors after Batista’s flagship company, OGX Petroleo & Gas Participacoes SA (OGXP3), said July 1 that it may shut down its only producing oil field. His six publicly traded companies lost $1 billion in market value since then while OGX’s bonds due 2018 dropped to a record low 19 cents on the dollar on concern the company won’t have cash to pay creditors. OGX fell 13 percent to 39 centavos at 11:20 a.m. in Sao Paulo today.
“They can go after his personal assets, the car he bought for his children and so on,” said Ray Zucaro, who helps oversee $350 million of emerging-market debt at SW Asset Management in Newport Beach, California. “The nice thing about a corporation is that if the corporation goes away, the assets they can get are contained within that. This is more problematic for him.”
The information provided by BNDES follows a July 1 report from Bank of America Corp. that estimated that the Rio de Janeiro-based lender was the most exposed of Brazil’s banks to Batista’s companies, having lent 4.9 billion reais, or 5.8 percent of the bank’s regulatory capital. Analyst Alessandro Arlant, whose estimate is based on regulatory filings from Batista companies, wrote that such findings may understate risks to the banking system because information and disclosure is poor.
Batista, who is now worth $4.1 billion, has seen his fortune plummet by more than $30 billion since March 2012 after failing repeatedly to meet the targets he had set for his startup companies. Standard & Poor’s cut its rating on OGX to CCC from B- yesterday, citing concern that the company won’t be able to meet its debt commitments should it abandon its only working field.
BNDES, in its written response to Bloomberg’s request, declined to say how much of the loans were disbursed and repaid, citing bank secrecy laws that prohibit the disclosure of such information. BNDES didn’t specify what personal assets Batista used to guarantee debts with the bank. A spokesman for BNDES in Rio contacted after business hours declined to comment further.
None of 19 so-called non-automatic loans originated by BNDES since 2007 went to OGX, while six of the loans totaling 1.4 billion reais were indirect loans involving banks including Banco Bradesco SA, Banco Itau BBA SA and Banco Votorantim SA, according to the information provided by BNDES.
Among the four loans backed by Batista’s personal wealth, the largest was one for 1.3 billion reais to OSX Construcao Naval SA, a subsidiary of OGX’s sister shipbuilding company OSX Brasil SA. (OSXB3) Contracted in June 2012, Batista guaranteed 100 percent of the loan until the project is concluded, and 50 percent for the two years following, according to BNDES’s statement, which didn’t provide details on the project or its progress.
Batista also provided 100 percent guarantees for two loans to MMX Porto Sudeste SA (OPSE3B), a port project that is part of iron-ore miner MMX Mineracao & Metalicos SA. One loan, passed through Banco Bradesco SA, is for 450 million reais while the other, a direct loan, is for 484.8 million reais. He also backed an undisclosed portion of a loan for 12 million reais to private clinic MD.X Barra Medical Center Ltda.
Separately, Batista pledged his 30 percent stake in the Acu port project to back undisclosed loans by Banco Itau BBA SA, according to a regulatory filing last night from his Centennial Asset Participacoes Acu SA holding company. Publicly traded LLX Logistica SA (LLXL3) owns the other 70 percent of the Acu port and is responsible for building it.
Among Batista’s biggest creditors is Sao Paulo-based Itau Unibanco Holding SA, with about 5.5 billion reais in loans outstanding, two people with direct knowledge of the matter said in March, asking not to be identified because the matter is private. Batista borrowed about 4.8 billion reais from Bradesco and 1.6 billion reais from Grupo BTG Pactual, excluding a $1 billion credit line BTG provided that same month, the people said. Batista used shares of his publicly traded companies as collateral for an undisclosed portion of the loans, according to the people.
Bradesco, BTG and Itau BBA press officers declined to comment yesterday in e-mailed responses to questions.
Batista’s EBX Group said on June 13 it had restructured an unspecified amount of debt, leaving it with only long-dated liabilities.