OGX Offshore Units Left Out of Bankruptcy Case by Brazil Judge

OGX Petroleo & Gas Participacoes SA’s request to include offshore units in Brazil’s biggest bankruptcy case was rejected by a Rio de Janeiro court.

Judge Gilberto Matos agreed to begin bankruptcy protection proceedings for Eike Batista’s oil company while refusing to include the Vienna-based unit that sold $3.6 billion of dollar-denominated bonds, according to a decision published today on the Rio State Tribunal’s website. OGX will appeal the foreign units’s exclusion, the company said in a statement.

Matos recommended OGX International GmbH and OGX Austria Gmb file for Chapter 15 under U.S. bankruptcy code that promotes cooperation with appointed representatives and foreign tribunals. OGX is studying seeking protection in the U.S. or Austria, Fabiano Robalinho Cavalcanti, a partner at law firm Sergio Bermudes that represents OGX, said by telephone from Rio.

“For bondholders you’d much rather be dealing with a Chapter 15 in the U.S. if that’s an option,” Gianna Bern, president of the risk-management firm Brookshire Advisory and Research, said by phone from Chicago. “It will be a road that is familiar to all the legal participants”

OGX became the first Brazilian oil producer to seek protection from creditors last month when it filed in a Rio state court for a so-called judicial recovery, declaring total debts of 11.4 billion reais ($5 billion). The company, which expects to run out of cash in the last week of December, needs about $250 million to sustain operations through April, it said in an Oct. 23 presentation to Rothschild, the adviser hired by its bondholders.

Bond Rout

Shares in the company were unchanged at 14 centavos at the close in Sao Paulo today after falling 97 percent in the last 12 months. The company’s $2.56 billion in bonds due in 2018 traded at 8.5 cents on the dollar.

OGX’s initial success finding oil in shallow waters off the coast of Rio sparked a stock market rally that made it more valuable than other established producers, including Repsol SA. The company’s cash fell to about $82 million at the end of September, it said in a separate document dated Oct. 7 and released after talks with bondholders collapsed.

Batista founded OGX in 2007 and it became the pillar of his group of commodities and logistics companies, transforming him into Brazil’s richest man. When OGX moved from exploration to production it encountered more complicated and compartmentalized geology than expected and started abandoning projects it had previously declared commercial.

“The decision respects the sovereignty of foreign countries and the interests of foreign creditors,” Leonardo Theon de Moraes, a bankruptcy lawyer at Sao Paulo-based Mussi, Sandri & Pimenta Advogados, said by telephone. “It was a clever ruling.”

The case number 0377620-56.2013.8.19.0001

Before it's here, it's on the Bloomberg Terminal.