Insight: Delays, clashes hinder attempts to salvage Batista's OGX

Mon Oct 28, 2013 12:22am EDT
 
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By Guillermo Parra-Bernal, Jeb Blount and Nick Brown

SAO PAULO/RIO DE JANEIRO/NEW YORK (Reuters) - Attempts to save Eike Batista's flagship oil company, the business most responsible for the meltdown of his once high-flying industrial empire, have been hampered by internal conflict and unpredictable decisions by the Brazilian tycoon, sources with direct knowledge of the situation told Reuters.

The difficulty of reading Batista, who less than 18 months ago owned the world's seventh-largest fortune, and mixed signals from advisors and managers to his companies, has disrupted attempts to renegotiate about $5 billion of bond and bank debts at OGX Petróleo e Gás Participações SA. Meanwhile, the company is running out of cash to keep its operations going.

Even as new investors sign up to invest in other companies in Batista's Grupo EBX energy, mining and logistics conglomerate, the conflicts and delays at OGX risk turning a bankruptcy filing, that is widely expected by investors, into a messy affair rather than opening the way to a smooth restructuring, the sources said.

At worst, if delays continue, OGX could even face liquidation, which would leave precious little for creditors, one of the sources said, though this is seen as unlikely.

A bankruptcy filing by OGX would be the biggest ever by a Latin American company, according to Thomson Reuters data. Not only would it be a sign of how far Batista's star has fallen, but it would also provide a stiff test of whether Brazil's eight-year-old bankruptcy law provides adequate protection to creditors.

Batista's dramatic decline has become a symbol of Brazil's own economic woes after the end of a decade-long boom that made it one of the world's hottest emerging economies. If foreign investors do not feel they have been treated fairly in the restructuring process they may be less willing to invest in other Brazilian companies.

The delays in restructuring have left OGX out of cash and at risk of having Brazil's government revoke oil leases, the company's main asset. While a bankruptcy would not automatically lead to a cancellation of the leases, OGX needs to find new cash quickly to meet minimum capital spending requirements with the government, Brazil's oil industry watchdog ANP said on October 17.

A 30-day grace period that OGX has to deposit $44.5 million in interest payments to bondholders ends on Thursday. OGX has been trying to convince holders of $3.6 billion in bonds to convert them into shares and pour an additional $150 million into the company so that it does not have to shut down its operations. OGX also faces a $100 million bond interest payment in December.   Continued...

 
Brazilian billionaire Eike Batista, CEO of EBX Group, talks during a ceremony in celebration of the start of oil production of OGX, his oil and gas company, at the Superport Industrial Complex of Acu in Sao Joao da Barra in Rio de Janeiro April 26, 2012. REUTERS/Ricardo Moraes