October 29, 2013 / 6:30 AM / 5 years ago

Brazil's OGX ends talks with holders of $3.6 billion of bonds

RIO DE JANEIRO/SAO PAULO (Reuters) - Indebted Brazilian oil producer OGX Petróleo e Gas Participações SA (OGXP3.SA) said on Tuesday that talks with holders of $3.6 billion in bonds have ended without agreement, following months of negotiations over a potential debt restructuring.

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

The Rio de Janeiro-based company, controlled by former billionaire Eike Batista, did not explain in a statement why talks collapsed.

Sources familiar with the situation said areas for disagreement between Batista, management and creditors during the talks ranged from the scope for a capital injection to the terms for Batista’s departure from the company, which has total debts of over $5 billion.

OGX’s failure to meet expected oil output targets, coupled with its voracious appetite for funds as it pushed forward with an aggressive exploration campaign, sped up the meltdown of Batista’s Grupo EBX energy, mining and logistics conglomerate. Media and investor relations officials at OGX did not answer requests for comment made by phone and email.

Less than 18 months ago Batista, 56, was ranked as the world’s seventh-richest person.

But talks with a creditors’ committee formed by half a dozen investment funds kicked off in August, as OGX bonds due in 2018 and 2022 slumped in the wake of dwindling confidence in Batista’s ability to shore up the company. Pacific Investment Management Co (Pimco), the world’s largest bond fund manager, and BlackRock Inc (BLK.N) are on the committee whose members own more than half of OGX’s outstanding bonds.

The announcement came just hours after Reuters reported, citing three sources with knowledge of the situation, that OGX was ready to file for bankruptcy protection as early as Tuesday.

The company, which for years was viewed as Brazil’s most promising oil producer, could place the request for creditor protection in a Rio de Janeiro court, one of the sources said.

OGX wants to exclude its OGX Maranhão natural-gas unit, which is currently in talks to sell a stake to Eneva SA (ENEV3.SA), from the bankruptcy protection filing, one of these sources added. Eneva was formerly known as MPX Energia SA and was founded by Batista.

OGX also declined to comment on Monday on the possibility of a bankruptcy protection filing.


Spokespeople at Pimco and BlackRock in Newport Beach, California, and New York, respectively, could not be reached for comment.

A bankruptcy filing would be the largest-ever in Latin America, according to Thomson Reuters data. The decision comes as a 30-day grace period OGX had to pay $44.5 million in interest to investors was about to expire.

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.

The price on the company’s 8.375 percent bond due in April 2022 slid to 9 cents on the dollar on Tuesday, down from about 10 cents on Monday and near an all-time low of 6 cents earlier this month. Bonds in OGX are down 89 percent this year, the worst-performing bonds among emerging market corporate debt, according to Thomson Reuters data.

OGX had buyout and financial advisory firm Angra Partners, Blackstone Group LP (BX.N) and Lazard Ltd (LAZ.N) as advisors in the negotiations with bondholders. The creditors’ committee hired investment-banking firm Rothschild and law firms Cleary Gottlieb Steen & Hamilton LLP and Pinheiro Neto Advogados to advise members on the talks.

During talks, OGX and the bondholders discussed a potential $150 million credit lifeline for the company aimed at funding its exploration campaign for a few more months. But there was disagreement over Batista’s plan to reduce OGX’s debt by offering bondholders a significant stake in the company as well as the terms for his departure from the company, the sources said.

($1=2.18 Brazilian reais)

Additional reporting by Sabrina Lorenzi in Rio de Janeiro; Editing by David Cowell and Greg Mahlich

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