March 25 (Bloomberg) -- Short sellers have never been so sure that Eike Batista’s OGX Petroleo & Gas Participacoes SA will extend declines even as the Brazilian billionaire says bearish speculators will regret the wagers.
OGX shares on loan rose to 260 million on March 18, the highest level since Bloomberg began compiling the data in October 2010, before slipping to 258 million on March 22. The amount of loaned stock surged more than threefold in the past 12 months and represents 20 percent of estimated free float, or shares available for trading, the data show. In a short sale, traders sell borrowed stock, anticipating the price will drop so they can profit by buying back the shares at a lower price.
The Rio de Janeiro-based exploration company has tumbled 86 percent in the past 12 months and closed at a record low on March 22 amid concern Batista’s businesses are losing access to financing. The 56-year-old, whose personal wealth has fallen about $25 billion in the past year as the market value of his companies sank, said in March 23 posts on his Twitter account that “rumors and gossip are the tools of short sellers,” who will be “caught with their pants down.”
“The picture is much worse than expected,” Aloisio Lemos, an analyst at brokerage Agora Corretora in Rio de Janeiro, said in a phone interview. “It’s very natural for investors to seek alternatives.”
OGX rose 0.9 percent to 2.29 reais at the close in Sao Paulo, the first gain in three days. Volume was 1.58 times its three-month average while 30-day volatility rose to 104 percent, the highest since August, according to Bloomberg data.
Batista has been seeking to sell stakes, scaling back projects and reshuffling executive teams at his six publicly traded energy and commodities companies after rising debt and missed production targets dimmed confidence among investors. The billionaire faces demands from creditors to boost collateral on some debts, people with direct knowledge of the matter told Bloomberg News earlier this month.
The 288 percent jump in OGX’s loaned shares during the past 12 months is the ninth-biggest in the benchmark Bovespa index and compares with a median increase of 85 percent among the gauge’s 69 stocks, data compiled by Bloomberg show. Lending interest in OSX Brasil SA, Batista’s shipbuilding and oil services unit, is about 2.66 million shares, or 3.3 percent of the estimated free float. The amount reached a record 6.2 million last month. OSX shares slumped 14 percent to close at a record low 4.21 reais today.
Traders may borrow shares to conduct a short sale, implement an arbitrage strategy or fulfill an obligation to deliver the securities to settle another transaction, according to the website of BM&FBovespa SA, operator of Brazil’s exchange.
Batista replaced five of six chief executive officers at his publicly traded companies since June and saw his wealth plunge to $8.9 billion today from a high of $34.5 billion last March. He has dropped out of the Bloomberg Billionaires Index of the world’s 100 richest people.
To contact the editor responsible for this story: David Papadopoulos at firstname.lastname@example.org