OGX Petroleo e Gas Participacoes SA, the oil producer founded by Eike Batista that has lost 82 percent of its market value this year, would be dropped from the Ibovespa under proposed changes to the Brazilian benchmark.
BM&FBovespa SA would exclude any companies whose shares trade for less than 1 real (41 cents) as part of planned changes in the way it determines the relative importance of individual stocks in the index, according to a statement on the exchange operator’s website. OGX, which has tumbled amid production shortfalls and dwindling cash, is currently the only one on the index below that threshold.
While OGX’s plunge this year has made it one of the ten smallest companies on the 71-member Ibovespa, it has been responsible for about a third of the index’s 16 percent decline. Its impact on the gauge has been caused partly by the exchange’s reliance on trading volume for determining the weighting of individual stocks in addition to market value.
“The trading volume feeds on itself,” Roberto Altenhofen, an analyst at equity consulting firm Empiricus Research, said by phone from Sao Paulo. “Some passive funds need to follow the Ibovespa’s composition. The removal of OGX from the index, if it really happens, would mean a total dismantling of positions.”
OGX accounts for 2.2 percent of the Ibovespa’s weighting today, according to data compiled by Bloomberg. Under the current methodology, it would increase to 4.3 percent in September from the current 2.1 percent, according to an Aug. 16 preview of changes.
The final decision on the changes will be announced by September 13, according to BM&FBovespa’s statement. A committee of exchange executives and bank and brokerage-firm officials wrote the proposal.
“The Ibovespa is 45 years old, and the number of companies on the market has increased so much over the years,” BMF&Bovespa’s Chief Executive Officer Edemir Pinto told reporters in Sao Paulo on Aug. 9. “The index should reflect the diversity of sectors of the Brazilian economy that are present on the exchange now.”
Batista, who was the world’s eighth-richest person last year, has fallen out of the ranks of billionaires as his companies’ stock prices plunged. OGX shares ended today’s session in Sao Paulo at 77 centavos.