Eike Batista’s LLX Logistica SA (LLXL3) ports unit had its biggest six-day rally in almost five years as EIG Global Energy Partners LLC’s $560 million offer to take over control boosts expectation it will complete its main project.
EIG, the $12.8 billion private-equity fund based in Washington, agreed to buy as much as 1.3 billion reais ($560 million) of new shares in LLX for 1.20 reais apiece, 21 percent below yesterday’s closing price. The fund will become the controlling shareholder after the transaction and Batista, while remaining a “relevant shareholder,” will no longer be part of management, LLX said yesterday.
The deal reassures investors that LLX can complete its Acu project, which Batista said would be the biggest port in the Americas, said Joao Pedro Brugger, who helps oversee 330 million reais at Leme Investimentos.
“The moment a big international fund comes in, the chances of things happening are bigger,” Brugger said by telephone from Florianopolis, Brazil. “His companies need a credibility shock.”
Funds raised through the deal, together with existing credit lines, will provide the company with sufficient funding for the construction of the Acu “superport,” LLX said yesterday.
“This fits the strategy of funding the company, even though it dilutes shareholders, and could bring credibility back,” Marcelo Muller, a partner at AEM Capital, a Rio-based private-equity firm, said by phone. “With EIG there’s somebody who can put cash in the company.”
Batista compared the Acu project with Rotterdam, Europe’s busiest port, in a message on his Twitter account March 23. “It will become the tropical Rotterdam,” he said.
The former billionaire is raising cash and selling pieces of his energy, commodities and logistics companies after his estimated fortune plummeted from $34.5 billion in March of last year to less than $1 billion on missed production and profit targets. LLX is developing the Acu project in Rio state.
Batista’s stake in LLX will probably drop to about 21 percent after the deal and minority shareholders’ stake will fall to about 11 percent, JPMorgan Chase & Co. analysts Fernando Abdalla and Carlos Louro said in a note to clients today. He currently controls the company through a 29.7 percent direct stake plus 23.8 percent held by his Centennial Asset Mining Fund LLC, according to data compiled by Bloomberg.
LLX will go through a “transformational period” after the deal, while preserving its current strategy, Chief Executive Officer Marcus Berto said on a call today. The capital increase is expected to be completed in two to three months, Berto said.
“Acu is a world class asset and will be a critical piece of infrastructure in allowing Brazil to realize its energy and resource potential,” EIG Chief Executive Officer R. Blair Thomas said in a statement today. “We are pleased to provide the missing piece of capital necessary to bring this important project to completion.”
The Ontario Teachers’ Pension Plan, Canada’s third-biggest retirement-fund manager, is currently LLX’s largest shareholder after Batista with a 18 percent stake, according to data compiled by Bloomberg. Deborah Allan, a fund spokeswoman, declined to comment on whether it will subscribe to buy new shares.
As part of the deal, Batista relinquished “free of charges” his rights to participate in the capital increase, LLX said. EBX Group Co., the holding company for most of Batista’s assets, declined to comment on the agreement.
Batista has also decided to cut his stake in iron-ore producer MMX Mineracao & Metalicos SA and a new controlling shareholder is expected in the short term, Chief Executive Officer Carlos Gonzalez told investors on a conference call today. MMX is in “advanced” stages of negotiations to sell the company and has received interest from funds, miners and commodities traders, he said, without naming any potential buyer.
The LLX deal will allow Batista to reduce the scope of projects and focus on his money-losing oil unit OGX Petroleo & Gas Participacoes SA, said Adriano Pires, the head of the Brazilian Center for Infrastructure, a consulting firm in Rio.
“This is good news, but now he will have to solve his big problem, which is OGX,” Pires said in a phone interview. “Private-equity firms have more flexibility to get financing. They will have less pressure than Eike to deliver.”
OGX’s cash reserves plunged 72 percent as writedowns drove its second-quarter loss to a record 4.7 billion reais, the Rio-based company said yesterday in a statement. The company had cash of $326 million at the end of the quarter, almost equal to its capital spending of $316 million in the period, the company said.
The oil explorer’s net loss widened from 390 million reais a year earlier after it wrote off 3.6 billion reais from the value of four oil fields in the Campos Basin, three of which it plans to return to Brazil’s oil regulator after unsuccessful exploration, OGX said. The company is selling assets and cutting costs to help pay interest on its $3.6 billion in international bonds and finance projects.
OGX dropped 7.4 percent to 63 centavos, the most in two weeks, and MMX slumped 6.2 percent.
Batista, ranked as the world’s eighth-richest person in early 2012, ceased to be a billionaire last month after Mubadala Development Co. converted an investment in his companies into debt, further eroding the value of his assets. The entrepreneur’s personal wealth now stands at $400 million, according to the Bloomberg Billionaire Index.
Mubadala Development, the Abu Dhabi sovereign-wealth fund, is in talks to buy some of Batista’s assets for about $1 billion, two people with direct knowledge of the matter said earlier this week before the EIG deal announcement.
LLX’s Acu project was originally billed as a $40 billion industrial complex that would become the world’s third-largest port, designed to handle 350 million metric tons a year for clients from iron-ore miners to carmakers.
While LLX has agreements with companies including Anglo American Plc and Batista’s OSX Brasil SA, prospective deals with Nissan Motor Co. and steelmaker Ternium SA to set up plants in the complex failed to materialize.
Separately, Batista’s coal unit CCX Carvao da Colombia SA said late yesterday that it’s in negotiations to sell the Canaverales and Papayal projects. No binding agreement has been signed, according to a CCX regulatory filing.
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