Eike Batista’s Oleo & Gas Participacoes SA jumped after saying creditors agreed to convert $5.8 billion of debt into a 90 percent equity stake in the former Brazilian billionaire’s oil company.
Oleo & Gas, formerly known as OGX Petroleo & Gas Participacoes SA, surged as much as 32 percent in Sao Paulo today and closed 16 percent higher at 22 centavos. The benchmark Ibovespa fell 0.3 percent from the previous trading session on Dec. 23.
The accord, which includes restructuring dollar bonds, may help the Rio de Janeiro-based explorer emerge from bankruptcy two months after defaulting in Latin America’s biggest-ever corporate debt debacle. Batista, once Brazil’s richest man and the eighth-wealthiest on earth with a fortune topping $30 billion, has struggled to save an empire that included a shipbuilder and port developer since mid-2012, when OGX began missing targets.
“This was the most viable solution because, given the size of the debt, the company wouldn’t be able to meet its obligations,” Joao Pedro Brugger, who helps oversee 400 million reais ($170 million) at Leme Investimentos Ltda, said in a phone interview from Florianopolis. “At least the company gets out of bankruptcy protection and there will probably be significant changes in control and management.”
Holders of $3.8 billion of bonds issued by unit OGX Austria GmbH are expected to commit to an investment of $200 million to $215 million in the form of debtor-in-possession financing, which will be converted into a stake of 65 percent, Oleo & Gas said in a Dec. 24 regulatory filing.
Oleo & Gas expects to get a $15 million bridge loan before the end of the week and another $35 million by early next month, Eduardo Munhoz, the company lawyer in charge of the bankruptcy protection case, said by telephone from Sao Paulo. The company plans to emerge from bankruptcy protection by March, he said.
The restructuring plan may also include converting $1.5 billion of debt with OSX Brazil SA, Batista’s oil service unit, into equity as compensation for cancellation of orders and $500 million in payments to other suppliers, Oleo & Gas said.
The proposal still needs to be approved by creditors and by the court in charge of the company’s bankruptcy protection plan. If implemented, the agreement would leave the existing shareholders with a 10 percent stake in the company, according to the statement.
Batista, 57, had raised billions of dollars in equity markets to fund OGX’s drilling program and other commodities startups. He then tapped debt markets, selling bonds to investors including BlackRock Inc. and Pacific Investment Management Co. When some of the oil deposits he had valued at $1 trillion turned out to be duds, OGX lost 98 percent of its value and depleted cash.
The company’s $1.063 billion of 8.375 percent notes due April 2022 and sold to investors at par in March 2012 fell to 8.75 cents on the dollar, from 9 cents yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes were trading at 85.53 cents on the dollar at the start of the year.
The $2.563 billion of 8.5 percent notes due June 2018 and sold to investors at par in May 2011 fell to 7.97 cents, down from 8.3 cents yesterday and 91.55 cents in the beginning of January.
The oil explorer plans to cover costs with revenue from the recently tapped Tubarao Martelo field in a region where it previously missed output targets, Chief Executive Officer Paulo Narcelio said in a presentation to investors on Dec. 17. It expects to end 2014 with a negative cash position of $116 million even with revenue from the Martelo field, according to documents published on its website today.
Oleo & Gas said last week it plans to produce about 32,000 barrels a day from Tubarao Martelo once it has six to seven operating wells. It said it expects to surpass results from its first project in the Campos Basin where production started strong and then faded after compartmentalized geology hindered the flow of oil.
A combined 14,165 barrels a day were pumped at two wells in Martelo on Dec. 23, where output began this month, Oleo & Gas said.
The company is also looking to finance or delay $152 million of payments to its partners at the BS-4 offshore oil block, according to the documents on its website.
Last month, Malaysia’s Petroliam Nasional Bhd. canceled a contract to buy a 40 percent stake in two offshore exploration blocks that include Tubarao Martelo, after estimates were slashed.