Batista Said to Try Last Ditch Plan to Avoid Bankruptcy
Stock Chart for OGX Petroleo e Gas Participacoes SA (OGXP3)
Brazilian entrepreneur Eike Batista’s OGX Petroleo & Gas Participacoes SA is asking a group of investors for at least $250 million in fresh capital in an effort to avert bankruptcy, two people with direct knowledge of the matter said.
The capital injection for OGX would be part of a restructuring in which Batista will ask bondholders to convert $3.6 billion of debt into OGX stock, diluting Batista in the company, said the people, asking not to be identified because the discussions are private. Investors including Abu Dhabi’s sovereign-wealth fund, Malaysia’s Petroliam Nasional Bhd. and buyout firms are being asked to participate in the capital increase, which could reach $500 million, the people said.
The former billionaire is seeking to refinance and raise capital after OGX output collapsed at the company’s first project, prompting Deutsche Bank AG to predict the firm would run out of cash by the end of this quarter. Most creditors believe OGX would seek bankruptcy protection without the debt-to-equity swap and fresh capital, the people said.
“If I was a bondholder, the thing I’d most want to see is a strong operator like Petronas taking over OGX,” Michael Roche, an emerging-market strategist at Seaport Group LLC, said in a telephone interview from New York on Sept. 4.
Batista plans to present a formal proposal on the debt restructuring to creditors this week and negotiations are under way, the people said.
OGX, based in Rio de Janeiro, declined to comment on the debt restructuring talks in an emailed response to questions.
A spokesman for the Abu Dhabi fund, Mubadala Development Co., declined to comment on the talks. Azman Ibrahim, a Petronas spokesman, didn’t respond to an e-mail seeking comment.
OGX lost 88 percent of its value this year before today, helping push Batista off the Bloomberg Billionaires Index in July.
A bondholders’ committee led by Pacific Investment Management Co. and other international funds represents investors in more than half of outstanding debt. Many bondholders have indicated they could accept a debt-to-equity swap as long as Batista cedes control of OGX, a third person said.
Petronas said last month that its pending $850 million purchase of a 40 percent stake in an OGX field called Tubarao Martelo hinges on the debt restructuring. OGX said Petronas didn’t have the right to set that condition.
Mubadala is in talks to buy some of Batista’s assets, including OGX, for about $1 billion, two people with direct knowledge of the matter said in August.
$1 Billion Put Option
OGX shares surged a record 73 percent last week to 52 centavos after the company said it exercised a $1 billion put option, calling on Batista to buy up front $100 million of new shares at 6.3 reais apiece -- more than 10 times their market value.
Batista agreed to the put option last year to guarantee the company would have enough cash to expand exploration in Brazil. He notified OGX of a conflict over the put option, saying in a letter to the company dated Sept. 6 that if an agreement isn’t reached in 60 days, the matter will go to arbitration, according to a regulatory filing today.
The businessman isn’t in a position to make good on the pledge, said Michael Wang, an analyst at IHS Herold in Norwalk, Connecticut.
“It’s a bogus announcement unless OGX can take Batista to court,” Wang said by telephone. “Batista doesn’t have a $1 billion to subscribe to the shares.”