While the state development bank lent more than 10 billion reais ($4.2 billion) to help the former billionaire start businesses in oil, mining and other industries, President Dilma Rousseff so far has avoided contributing taxpayer money to bail him out. She’s standing by as foreign investors from U.S. private equity firm EIG Global Energy Partners LLC to Malaysia’s Petroliam Nasional Bhd pick up the distressed assets.
With Brazil’s economy struggling to recover from its second-worst performance in 13 years ahead of elections next year, Rousseff is seeking to safeguard increasingly scarce public funds, said Joao Augusto de Castro Neves, an analyst at political risk company Eurasia Group. Under her predecessor, Luiz Inacio Lula da Silva, the government sought to create national champions to generate jobs and boost exports. Rousseff is now prioritizing luring investments to new road, rail and port licenses to revive the economy, he said.
“The era of abundant liquidity is over,” Castro Neves, who worked as a political consultant for a decade in Brasilia, said by phone from Washington. “Any bailout would be politically and economically risky.”
EBX Group Co., the holding company for most of Batista’s assets, and Rousseff’s office declined to comment for this story in e-mailed responses.
Batista is selling pieces of his energy, commodities and logistics companies after his estimated fortune plummeted to less than $1 billion from $34.5 billion in March of last year because of missed production and profit targets, according to the Bloomberg Billionaires Index.
EIG, a $12.8 billion private-equity fund based in Washington, agreed Aug. 14 to take control of his LLX Logistica SA (LLXL3), which is building the Acu hub in Rio state, a port the tycoon said would be the biggest in the Americas. Abu Dhabi’s Mubadala Development Co. is negotiating the purchase of some of his assets for about $1 billion, two people with direct knowledge of the matter said this month.
EON SE, Germany’s largest utility, is in the process of changing the name of MPX Energia SA (MPXE3) after taking over control of the electricity generator that Batista listed in 2007. Malaysian state-owned crude producer Petronas agreed in May to pay $850 million for a stake in an oil field owned by Batista’s flagship OGX Petroleo & Gas Participacoes SA. Exxon Mobil Corp. partnered with OGX to bid for two oil fields in May.
EIG, Mubadala and the other bidders for Batista’s assets are seizing the opportunity to enter regulated markets where Brazil traditionally favored local companies, said Rodrigo Zeidan, an economics and finance professor at the Fundacao Dom Cabral business school.
“This is a country notoriously complicated to get in because Brazil doesn’t like competition a lot,” Zeidan said in a telephone interview from Rio. “Starting from zero in Brazil is difficult. International investors are seeing this as a great opportunity.”
Foreigners are coming in at a time when Brazilian firms are refraining from expanding, said Victor Mizusaki, an equity analyst at UBS AG. Brazil’s economy expanded 0.9 percent last year, the second-worst performance in 13 years. Brazil’s benchmark Ibovespa is down 28 percent this year in U.S. dollar terms, the worst performance of any primary stock index after Mongolia’s MSE Top 20 Index.
“There is a bigger appetite for M&A from foreign investors,” he said in a telephone interview from Sao Paulo. “The local investors are already exposed to the industry through their own vehicles.”
While not making further loans to Batista or helping him keep control of his companies, the National Development Bank, known as BNDES, will extend the maturity of loans to LLX and may do the same for other of his units if investors take control, a person with direct knowledge of negotiations said, declining to be named because the talks aren’t public. The bank’s press office declined to comment.
LLX rose 7.5 percent in Sao Paulo yesterday after saying it’s in “advanced talks” to extend debt payments to BNDES, paring a 28 percent loss this year. Negotiations are for a 518 million-real loan from the BNDES. LLX fell 2.9 percent today.
EBX has “high-quality” assets that need to be rebalanced, BNDES President Luciano Coutinho told reporters on Aug. 14. The bank would evaluate extending financing to Batista’s companies once they are sold, newspaper Valor Economic cited Coutinho as saying on Aug. 16. Coutinho declined to comment through the bank’s press office.
Rousseff is redoubling efforts to court private investment. She froze 10 billion reais in spending last month in a bid to reassure investors she wouldn’t let the deficit widen after the biggest street protests in two decades were sparked by a bus fare increase.
This month Rousseff shelved a planned auction of a 36 billion-real high-speed passenger train between Rio and Sao Paulo to focus on more urgent projects. Her government is sweetening bidding terms for upcoming auctions of road, railway and port concessions.
The effort has yet to bear fruit. Unemployment (BZUETOTN) has been steadily rising since December, industrial confidence is near a four-year low and inflation is hovering around the 6.5 percent upper limit of the government’s target range. Prices of imports are being pressured by a 16 percent slide in the real over the past three months, the biggest drop among emerging-market currencies tracked by Bloomberg.
“We’ve seen some incremental improvements in policy that are boosting the government’s credibility with investors but the next 6 to 12 months will remain pretty rocky,” said Castro Neves.
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