Eike Batista, who energized Brazilian markets by taking six startups public since 2006, is no longer among the world’s 20 richest people after shares of his commodity empire plunged, wiping $3.8 billion from his fortune.
OGX Petroleo & Gas Participacoes SA, Batista’s biggest company, lost 40 percent of its value in the past two days after cutting production targets at its first two oil wells by as much as 75 percent. The drop dragged down Batista’s mining, logistics and shipbuilding companies on concern the enterprises, some of which rely on OGX for revenue, will scale back targets as well.
“People are not confident any more in the speeches from Eike’s companies,” said Dany Rappaport, who manages 250 million reais ($120 million) at Investport in Sao Paulo. “Investors are avoiding any kinds of surprises.”
Batista, 55, emerged as Brazil’s richest man by building an empire of interlinked oil, mining, shipbuilding and logistics companies to harness the nation’s natural resources. His fortune peaked at $34.5 billion in March, putting him in eighth place on the Bloomberg Billionaires Index after he sold a 5.6 percent stake in his EBX Group Co. holding company. As of today’s close, Batista, who says he aspires to surpass Mexico’s Carlos Slim as the world’s wealthiest person by 2015, ranked 27th with a net worth of $19.6 billion.
OGX’s tumble belied its ranking as the second-most recommended stock by analysts in Brazil. Before yesterday, the company had a consensus analyst rating of 4.5, the highest of any company in Brazil after iron-ore producer Vale SA. The rating, which is the average within a range of one to five, with five being the highest, fell to 4.39. The ratio of borrowed stock in OGX, an indication of short selling, exceeds 7.7 percent of floating equity, the most of any energy company in Latin America, according to data compiled by Bloomberg.
“Analysts who have buy ratings are going to have to rethink,” said Joao Pedro Brugger, who helps manage about $100 million in stocks and bonds at Leme Investment Fund in Florianopolis, Brazil. “There’s more pessimism about production.”
Commodities tumbled into a bear market June 21 as U.S. reports on manufacturing, jobless claims and home sales signaled a faltering economy after the Federal Reserve refrained from announcing another round of stimulus. The Standard & Poor’s GSCI Spot Index of 24 raw materials has dropped 21 percent from this year’s highest close of 715.52 on Feb. 24.
In an e-mailed statement, EBX responded to questions on the outlook for Batista’s empire by saying its companies have enough cash to continue fulfilling their business plans.
OGX fell 2.12 reais to 6.25 reais in Sao Paulo trading yesterday, the biggest decline on the benchmark Bovespa index. Logistics company LLX Logistica SA and mining company MMX Mineracao & Metalicos SA rounded out the top three losers with 7.5 percent and 6.9 percent declines, respectively. Ship builder OSX Brasil SA fell 13 percent to 10.50 reais.
OGX lost a further 19 percent today, while OSX dropped 11 percent, LLX slid 8.1 percent and MMX dropped 17 percent. CCX Carvao da Colombia SA, Batista’s coal unit, slumped 8.8 percent.
OGX’s tumble made the company a bargain even if it only delivers on a third of the 1.38 million barrels a day it has promised to produce in 2019, said Rogerio Freitas, a partner at Rio de Janeiro-based hedge fund Teorica Investimentos.
OGX is focusing on short-term equipment delivery targets, Chief Financial Officer Roberto Monteiro said yesterday on the call, declining to comment on long-term output goals.
“The key word here is trust,” Lucas Brendler, who helps manage about 7 billion reais ($3.4 billion), including OGX shares, at Banco Geracao Futuro de Investimento, said by telephone from Porto Alegre, Brazil. “The market is asking if the numbers for the other businesses are trustworthy.”
“The fall in the market was a little exaggerated,” Freitas said in a telephone interview from Rio de Janeiro. “There’s a large discrepancy between the value of the company and the implicit value of the company.”
Teorica bought OGX shares yesterday, marking its first holdings of the company in “a long time,” he said. The fund doesn’t hold any other Batista companies.
OGX has had over 90 percent success exploring for oil in the Campos Basin where its biggest oil fields are, more than the 59 percent success rate in 2011 trumpeted by Petroleo Brasileiro SA, Brazil’s state-run oil company.
“Eike didn’t really manage to deliver on the promises,” said Brugger, who doesn’t own any OGX shares. “We prefer companies that have in fact been producing for a while with operational results.”