Batista's OGX files for bankruptcy protection in Brazil

Wed Oct 30, 2013 6:30pm EDT
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By Sabrina Lorenzi and Jeb Blount

RIO DE JANEIRO (Reuters) - OGX Petróleo e Gas Participações SA (OGXP3.SA: Quote), the Brazilian oil company controlled by former billionaire Eike Batista, sought court protection from creditors on Wednesday in Latin America's largest-ever corporate bankruptcy filing.

The bankruptcy protection request, filed in a Rio de Janeiro court, came after OGX failed to reach an agreement with creditors to renegotiate part of its $5.1 billion debt load. The request marks another chapter in the unraveling of Batista's once high-flying industrial empire, which he has been dismantling in recent months after disappointing output from offshore OGX wells set off a crisis of investor confidence.

If the court approves the request, OGX will have 60 days to come up with a restructuring plan. OGX creditors, which include the California-based bond fund Pacific Investment Management Co (PIMCO), and U.S.-based investment fund BlackRock Inc (BLK.N: Quote), will then have 30 days to endorse or reject the plan.

It is too early to know how long a restructuring could take, but in Brazil's slow-moving judicial system, some bankruptcy proceedings take years. The company's fate could depend on whether OGX, even as it restructures, honors contractual obligations with the government in the oil fields it operates.

An OGX bankruptcy is unlikely to have a significant effect on Brazil's economy. The company is barely out of its start-up phase and produces almost no crude oil, and most of its debt is held by foreign bondholders.

Still, Batista's decline has become a symbol of Brazil's own economic woes. After a decade-long boom in which investors poured cash into Brazil and Batista's enterprises, Latin America's largest economy has been in a rut for three years.

And the fate of sister company OSX Brasil (OSXB3.SA: Quote) depends almost entirely on OGX, whose market value has plummeted by nearly $45 billion since October 2010. Batista created OSX, which had to scale back efforts to construct the largest shipyard in the Southern Hemisphere, to build and lease oil production and service vessels to OGX.

OGX's decision to seek protection from creditors came as no surprise. After missing a $44.5 million interest payment owed to bondholders on October 1, OGX scrambled to restructure its debt before the end of a 30-day grace period or be declared in default on $3.6 billion in bonds.   Continued...

The headquarters of OGX Petroleo e Gas Participacoes SA, the cash-strapped Brazilian oil company controlled by former billionaire Eike Batista, is pictured in downtown Rio de Janeiro October 29, 2013. REUTERS/Sergio Moraes