Batista Chides Auditors as GE Writes Down InvestmentJuan Pablo Spinetto and Peter Millard
Eike Batista, the billionaire whose fortune tumbled after his oil explorer missed targets, said auditors are partly to blame for building up shareholder expectations on the same day General Electric Co. said it wrote down a $300 million investment in his holding company.
Part of his decisions were based on a 2011 report by consulting firm DeGolyer & MacNaughton that estimated OGX Petroleo & Gas Participacoes SA had 10.8 billion barrels of oil resources, the Brazilian entrepreneur said in an opinion piece in newspaper Valor Economico. DeGolyer & MacNaughton, which has also assessed reserves for state-run Petroleo Brasileiro SA, said services to clients are confidential in an e-mailed reply to questions.
“I was as surprised as every one of my investors, partners and the market,” Batista, 56, wrote in the article about the reversal for OGX’s outlook. “Maybe I put too much trust in people who didn’t deserve that confidence, but in the end the responsibility is all mine.”
Batista, the world’s eighth-richest person in March 2012, lost more than $30 billion of his fortune after failure to meet output targets led to a selloff of shares in his energy, commodities and logistics companies. GE wrote down its 2012 investment in Batista’s EBX Group Co. in the second quarter, Chief Executive Officer Jeffrey Immelt said on a conference call today. Batista vowed to pay back all his debts.
“I will honor all of my obligations,” Batista said. “I won’t leave a single penny unpaid for each one of my debts.”
Bonds and Shares
“The opinions we provide in our reports are subject to the definitions, assumptions, explanations, conditions, qualifications, and conclusions as specified therein,” DeGolyer & MacNaughton said.
OGX’s $2.56 billion of 2018 bonds gained 1 cent to the dollar at 16 cents to yield 72 percent. Shares of OGX closed unchanged at 50 centavos in Sao Paulo trading.
Batista, whose ventures span from energy to airline catering and a unit that organizes rock concerts, is now renegotiating debt, firing staff and seeking buyers for his assets.
Adjustments to the size of Batista’s businesses are an important step for a recovery, said Rogerio Freitas, a partner at hedge fund Teorica Investimentos.
‘‘He ratified the strategy of diminishing and reassessing his projects,” Freitas said in a telephone interview from Rio. “The prices of the assets are excessively depreciated.”
Brazil’s securities regulator started an investigation into OGX this week after a minority investor lodged a complaint over alleged insider trading.
GE announced the purchase of $300 million stake in EBX in May 2012. The deal followed the sale of 5.63 percent of EBX to Abu Dhabi’s Mubadala Development Company for $2 billion in March that year as the market value of his companies peaked.
Mubadala said earlier this month it reduced its investment in EBX as the company restructures debt. GE wrote down its EBX holdings by about $100 million, Chief Financial Officer Jeff Bornstein said today in telephone interview.
Net debt of Batista’s six publicly traded Rio de Janeiro-based companies almost doubled in the year through March 31 to 18.8 billion reais ($8.4 billion), or 2.1 times their current combined market value, according to data compiled by Bloomberg. EBX declined to comment on the GE writedown in an e-mailed statement.
Expectations for OGX were supported by the “best trained” Brazilian oil executives who he hired to run the company and were respected in the market, Batista said. When he founded OGX in 2007, Batista gained credibility by hiring former managers from Petrobras and then finding signs of oil at every well the explorer drilled during the first year of its exploration campaign.
The success lifted the value of OGX and sister companies that provided it with goods and services, making Batista Brazil’s richest person before the shares started plummeting last year. He is now worth $3.3 billion after seeing his wealth slump 74 percent in 2013, according to the Bloomberg Billionaires Index.
In the opinion piece, Batista said he regrets taking his companies public, adding he “believes” in OGX and continues to invest in the explorer. He also said he’s reorganizing OGX and plans to remain as a relevant shareholder in each of his companies. He invested over $4 billion in his so-called X companies, he said.
“I failed and disappointed a lot of people,” Batista said. “Nobody lost as much as I did and it’s fair that it should be like that.”