EON-Batista Venture in Brazil Seeks Bankruptcy Protection

Eneva SA, the Brazilian utility controlled by EON SE and Eike Batista, sank after filing for bankruptcy protection, the fourth venture founded by the former billionaire to seek creditor protection in just over a year.

Shares of Eneva slumped 34 percent to 47 centavos at the close in Sao Paulo today, the biggest drop since the company started trading in 2007. The stock has declined 84 percent this year, the worst performer in the 28-member BI Latin American Power Generation index.

Eneva, which Batista set up as MPX Energia SA in 2001, yesterday filed the request to a court in the state of Rio de Janeiro, where the company is based, it said in a statement. The petition, called a judicial recovery in Brazil, comes after failure to renew an accord between the utility and its banks to suspend 2.33 billion reais ($892 million) in debt payments, Eneva said.

“Once the request for judicial recovery is granted, the payment enforceability of all non-priority debts shall be suspended for the company and its subsidiary Eneva Participacoes SA,” the utility said. “The other company’s subsidiaries were not part of the judicial recovery request and the power plants remain in normal operation.”

The demise of Eneva comes less than three years after EON, Germany’s largest utility, bought an initial 10 percent stake in Batista’s startup for 850 million reais and laid out plans for a grand partnership with the German-speaking Brazilian entrepreneur. Project delays that increased expenditures, a growing debt burden and the financial crisis that cost Batista his billionaire status led EON to inject cash in the venture twice in the last two years, boosting its stake to 43 percent. Batista resigned as chairman of Eneva in July 2013 and his stake in the company had fallen to 20 percent.

Write-Offs

Eneva appointed Alexandre Americano and Ricardo Levy as chief executive officer and vice president, respectively, after the resignations of Fabio Bicudo and Frank Possmeier, the company said in the statement. Three board members also resigned.

The utility will suspend debt payments once the petition is approved by a judge, it said.

Such a decision can generally be expected within 15 days, EON said today in an e-mailed statement.

“The filing for judicial recovery was unavoidable after it became clear that certain preconditions for the implementation of a stabilization plan developed by Eneva in May 2014 were not supported by all necessary creditors,” EON said. The company doesn’t expect “any material effect” on its underlying net income.

EON has already written down at least 1 billion euros ($1.24 billion) of the 1.3 billion euros it has invested in Brazil.

Spinoff Company

EON’s holding in Eneva units affected by the bankruptcy filing is valued at less than 100 million euros, while the parts not involved are worth 100 million euros to 200 million euros, Josef Nelles, a spokesman for EON, said by phone from Dusseldorf. Eneva’s move “has no consequences” for the spinoff EON is planning, to which the Brazil holding will belong, he said.

Representatives for Eneva declined to comment.

Eneva’s management has been trying to bolster finances since the appointment in February of Bicudo, a former Goldman Sachs Group Inc. co-head of Brazilian investment banking. The company held 5.05 billion reais in debt as of Sept. 30, with 3.15 billion reais in short-term maturity, including loans from Brazil’s National Development Bank, Grupo BTG Pactual, Itau Unibanco Holding SA and Citigroup Inc., it said on Nov. 14.

The company said in the filing yesterday that its cash position as of Nov. 30 was 78.3 million reais.

Similar Petition

Eneva’s bankruptcy protection request follows a similar petition by Batista’s main mining unit in October and his oil and shipbuilding ventures a year earlier. A failed bet on oil discoveries in Brazil together with project delays and revenue shortfall led to the collapse of the 58-year-old entrepreneur’s empire.

Eneva traces its roots back to 2001, when Brazil last rationed power amid a drought that drained reservoirs. Batista then set up a venture known as MPX to build a thermoelectric plant in the northeastern state of Ceara, he wrote in his 2011 book “O X da Questao.”

As shortages subsided, Batista sold the plant to state-run Petroleo Brasileiro SA, pocketing a $50 million profit, he recalled in the book.

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