Negotiations this week with holders of $3.6 billion of dollar bonds are going “very well,” Chief Executive Officer Luiz Carneiro told reporters in Rio de Janeiro late yesterday, predicting OGX will emerge healthy and capitalized.
While filing for bankruptcy protection is a possibility, OGX hopes to avoid the proceedings in a restructuring that may see Batista cede control of his flagship company, Carneiro said. Bondholders last month hired Rothschild to advise on restructuring while OGX is working with Blackstone Group LP.
“A financial restructuring, that’s the path,” Carneiro said after a shareholders meeting at the company’s headquarters in Rio. “In the end, we will have a healthy company, with no debt, capitalized, with enormous potential.”
Batista, 56, is selling pieces of his commodities and logistics empire as the companies run out of cash and debt swells amid an investor confidence crisis triggered after output at OGX’s first project collapsed. OGX is asking a group of investors for at least $250 million in fresh capital as part of a restructuring of its bonds, two people with direct knowledge of the matter told Bloomberg News this month.
OGX fell 2.6 percent to 38 centavos at 2:52 p.m. in Sao Paulo. The shares have declined 91 percent this year. Brazil’s benchmark Bovespa stock index was up 0.4 percent.
“The best possible advice we can give to investors is to stay away from OGX,” Paula Kovarsky and Diego Mendes, analysts for Banco Itau BBA SA, wrote in a research report dated yesterday. “Even assuming a successful corporate restructuring, we see downside for equity holders.”
This week’s negotiations with bondholders are “just a stage” and the restructuring talks will continue, Carneiro said yesterday, declining to say when an agreement may be reached.
OGX has 30 oil and gas concessions in Brazil that may be revoked if it files for the country’s equivalent of Chapter 11, according to contracts it signed with oil regulator ANP. The agency said it will adhere to the concession contract in a Sept. 10 e-mailed response to questions, without elaborating.
The company has abandoned areas off Rio’s coast that it previously declared commercial because the geology is more compartmentalized and has less pressure than the company anticipated, hindering the flow of oil. OGX may halt its first offshore project, Tubarao Azul, next year because of bad economics.
Carneiro said OGX is trying to convince Petroliam Nasional Bhd., the Malaysian company that agreed to buy a 40 percent stake in its Tubarao Martelo field in May, to begin payments on the deal worth $850 million before restructuring is completed. OGX’s concessions are worth $1.9 billion, of which Martelo is worth $1.1 billion, Credit Suisse Group AG said in a Sept. 6 note to clients.
“Petronas is waiting to see the restructuring’s result,” Carneiro said. “We are trying to convince them to put it earlier.”
The company’s dollar-denominated bonds due 2018 slumped to 19 cents on the dollar from 90 cents at the end of last year.
OGX exercised a so-called put option against Batista for $1 billion on Sept. 6. Batista is disputing the terms of the option and plans to take the matter to an arbitration court if an agreement isn’t reached within 60 days, according to a letter from the entrepreneur to OGX that the company disclosed Sept. 9.
Carneiro said the Batista put was one of several “fronts to be able to get funds,” which also include the Petronas funding, restructuring or bankruptcy protection.
“I’m seeing a more bilateral basis, rather than through a bankruptcy court in Brazil,” Daniel Kastholm, head of Latin American corporate credit at Fitch Ratings Ltd. in Chicago, said in a telephone interview. “The question mark is how much money you would need and when Martelo will start producing.”
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