Eike Batista, Brazil’s richest man, is selling stakes in his holding company to international investors to help bolster confidence after shares of his largest unit slumped to the lowest in seven months.
Batista, who agreed to sell a $300 million stake in his EBX Group Co. to General Electric Co. (GE:US), is looking to offer another $500 million stake by September, he said yesterday. The deal with GE follows the sale of a $2 billion stake in EBX to Mubadala Development Co. last month and shares of units to EON AG and to International Business Machines Corp. earlier this year.
Batista, 55, is raising money to diversify into industries from precious metals to entertainment, while investing in his existing oil, iron-ore, coal, shipping and power-generation companies. OGX Petroleo e Gas Participacoes SA (OGXP3), the billionaire’s oil company, fell last week to the lowest since October after reserve estimates missed investor expectations.
“Having a large, well known investor come in and share the risk would give credibility to the long term outcome of these projects,” said Ed Kuczma, who helps manage $35 billion in assets at Van Eck Associates in New York. “It seems like a very smart strategy on his part.”
GE will take a 0.8 percent stake in Centennial Asset Brazilian Equity LLC and other EBX holding companies as part of the deal, GE said in a statement distributed by Business Wire today.
Abu Dhabi sovereign wealth fund Mubadala bought 5.63 percent of EBX last month. Batista agreed in January to sell 10 percent of his power company MPX Energia SA (MPXE3) to Dusseldorf-based EON for 850 million reais ($414.5 million) and in April he sold 20 percent of technology unit SIX Automacao to Armonk, New York- based IBM.
Selling EBX stakes is about making the group stronger and “has nothing to do” with the fall in OGX’s share price, Batista told reporters late yesterday in Rio de Janeiro.
“We just wanted to have maybe an extra stamp,” Batista said April 30. “We like to have the structure audited and when somebody like Mubadala comes in, the world knows how deeply they go into the auditing process.”
Batista’s main holdings are five publicly traded companies: OGX, MPX, iron-ore producer MMX Mineracao & Metalicos SA, shipbuilder OSX Brasil SA (OSXB3) and LLX Logistica SA. (LLXL3) The letter ‘X’ in the company names symbolizes wealth multiplication, he says.
The billionaire, who is seeking to become the world’s richest person, first said March 26 he was in talks with sovereign-wealth funds to sell an additional $1 billion stake in EBX, saying on April 30 that the buyer may be an industrial partner. Batista said May 11 he was in talks with groups from the U.S. and Asia for the sale.
Batista’s net worth has surged 21 percent in 2012 to $27.3 billion, making him the world’s ninth richest person, according to the Bloomberg Billionaires Index daily ranking. He has increased his net worth the most this year among the top 20 richest people tracked by the list.
“By bringing brand-name investors he adds a certain legitimacy and soundness to the investment and sends a message to the world that his business plan inspires confidence,” said Laurence Balter, who oversees $100 million including OGX shares for Fox Island, Washington-based Oracle Investment Research. “The stocks of the EBX Group of companies are under tremendous pressure given the market volatility.”
OGX slumped to 10.97 reais on May 17, the lowest level since Oct. 5. Before today the stock declined 13 percent this month compared with state oil producer Petroleo Brasileiro SA (PBR:US)’s 9.7 percent decline and a 5.3 percent drop by Colombia’s Ecopetrol SA. OGX fell 2.8 percent to 11.19 reais at 11:10 a.m. in Sao Paulo, while MMX lost 4.9 percent to 6.62 reais.
Analysts covering EBX’s shipbuilding and oil units reduced earnings estimates in the past four weeks by 55 percent and 47 percent, respectively, according to data compiled by Bloomberg. That’s the biggest decrease among major Brazilian stocks after pulp producer Suzano Papel e Celulose SA, the data show.
The son of a former Vale SA chief executive officer, Batista became Brazil’s wealthiest man selling shares in a series of interlinking commodity startups. The five publicly- traded units are leaving the pre-operational stage. OGX, MPX and MMX are expected to start generating dividends for shareholders by 2015, he told reporters May 22.
Batista will have a sixth company listed in Sao Paulo when his coal unit CCX Carvao da Colombia SA starts trading in Sao Paulo tomorrow after being spun off from MPX. He said he will consider floating his gold unit AUX after completing the certification of reserves as early as September.
Selling an EBX stake may also protect Batista from a bear market in Brazilian stocks by increasing his cash position, Auro Rozenbaum, an analyst at Banco Bradesco BBI SA, said. Brazil’s benchmark index entered a bear market on May 17 after tumbling 21 percent from this year’s high on March 13 through that day.
“The crisis we’re seeing may lead to companies needing a bit more financial security,” Rozenbaum said by telephone from Sao Paulo yesterday. “I’d expect him to attract big partners to give more comfort to investors.”
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