Eike Batista gave his biggest private creditors securities linked to port royalties as loan collateral in an attempt to bolster confidence in his commodities empire, said two people with direct knowledge of the agreement.
Banco Bradesco SA and Itau Unibanco Holding SA swapped shares in Batista’s OGX Petroleo & Gas Participacoes SA for the port securities as loan guarantees, said the people, who asked not to be named as terms are private. The securities, called MMXM11, have better prospects than OGX stock, the people said. They didn’t say when the collateral swap was undertaken.
Creditors are seeking to prevent losses after a series of missed targets at OGX, Batista’s flagship oil producer, triggered a selloff of his group’s securities that wiped out more than $30 billion of the 56-year-old entrepreneur’s personal wealth since March of last year. The MMXM11 securities are down 30 percent this year compared with an 87 percent slump by OGX shares. The securities dropped 0.8 percent to 2.45 reais at the close in Sao Paulo today.
“Those notes are linked to future revenue from the port and because of that are better perceived than OGX shares that are pure equity risk of an even riskier company,” Leonardo Brito, an equity analyst at hedge fund Teorica Investimentos, said in a telephone interview from Rio de Janeiro.
Batista’s holding company EBX Group Co., based in Rio de Janeiro, declined to comment in an e-mailed response. Bradesco and Itau also declined to comment.
In an opinion piece for Valor Economico newspaper last month, Batista vowed to pay back those who had lent him money.
After peaking at $34.5 billion in March last year, Batista’s estimated fortune has fallen below $1 billion, according to the Bloomberg Billionaires Index. Abu Dhabi sovereign wealth fund Mubadala Development Co. converted an investment in Batista’s companies into debt, three people with knowledge of the matter said last month.
OGX shares fell 3.3 percent to 58 centavos. The company’s $2.56 billion of bonds due in 2018 are trading at 21 cents on the dollar, tumbling from 98.1 cents in January in the world’s worst corporate bond performance.
The MMXM11 securities are linked to royalties from MMX Mineracao (MMXM3) & Metalicos SA’s Sudeste port in Rio state, based on $5 per ton of iron-ore shipped. Shares of MMX jumped 12 percent today to a two-month high 1.73 reais.
Sudeste is scheduled to open this year with initial capacity of 50 million tons a year. MMX said June 27 it was in talks to sell a stake or assets to Glencore Xstrata Plc and Trafigura Beheer BV, among other companies it didn’t name.
MMX’s total liability with MMXM11 holders was $809.5 million at the end of last year, according to the company’s earnings release.
“MMXM11 notes are also very risky as we don’t know if MMX assets are going to be sold and even if the port will start on time given Batista’s track-record of not fulfilling promises,” Elad Revi, an analyst at Spinelli SA, said by phone today from Sao Paulo. “Sudeste royalties are not a sure thing.”
Itau, based in Sao Paulo, had about 5.5 billion reais in loans outstanding from EBX, while Batista borrowed about 4.8 billion reais from Bradesco and 1.6 billion reais from Grupo BTG Pactual, two people with direct knowledge of the matter said in March. BTG Pactual’s loans to companies linked to Batista total about 650 million reais, a person familiar with the matter said last month.
Batista used shares of OGX as collateral for an undisclosed portion of the loans, according to the people.
At least $250 million of the MMXM11 securities have been used as debt collateral, one of the people said. BTG has no MMXM11 as collateral on its debt, a third person with knowledge of the matter said.
“The market is considering as a possibility that MMX could be sold and the new owner could even pay future royalties or part of them in advance,” Teorica’s Brito said.