Bloomberg News

Batista Bets Shakeup Stems $15 Billion Stock Slide

November 12, 2012

Billionaire Eike Batista

Eike Batista’s six listed companies, based in Rio de Janeiro, had a combined net loss of 1.68 billion reais in the first nine months of this year, according to data compiled by Bloomberg. Photographer: Patrick Fallon/Bloomberg

Eike Batista is counting on executive changes at his commodities and energy companies to boost shareholder confidence after earnings disappointments and output delays wiped out $15 billion in market value this year.

The 56-year-old billionaire is introducing the management team, including oil producer OGX Petroleo & Gas Participacoes SA (OGXP3) Chief Executive Officer Luiz Carneiro, to investors in New York this week. Carneiro is one of at least five top executives the Brazilian tycoon has named since June. OGX shares fell 64 percent this year before today.

The decline prompted Batista to pledge as much as $2 billion in cash to shore up the finances of OGX and his shipbuilding company, sell stakes to foreign investors and offer to take his port operator private. His four biggest listed companies reported a combined loss of $198 million before interest, taxes, depreciation and amortization in the first nine months of the year, short of Batista’s promise in March that the group would generate $1 billion in earnings in 2012.

“Eike is a wonderful entrepreneur, he is a great salesman and I think he sold earlier gains and profits in a lot of his companies than have in fact materialized,” said Arthur Byrnes, who manages about $800 million at Deltec Asset Management LLC in New York and plans to attend the panel with Batista and his team. “He has over-promised and under-delivered.”

Confidence Undermined

OGX, the biggest of Batista’s six publicly traded companies, tumbled this year after reducing output targets for its first two wells by as much as 75 percent. The shares rose 1 percent to close at 4.90 reais in Sao Paulo today. Brazil’s benchmark Bovespa index fell 0.5 percent, paring its gain this year to 0.6 percent.

His MMX Mineracao & Metalicos SA iron-ore producer lost 40 percent this year after prices for the steel-making material slumped, while port operator LLX Logistica SA (LLXL3) fell 30 percent, power utility MPX Energia SA (MPXE3) slid 14 percent and the OSX Brasil SA (OSXB3) shipbuilding unit dropped 8.7 percent. CCX Carvao da Colombia SA (CCXC3), the coal project that Batista spun off of MPX in May, tumbled 74 percent.

LLX and CCX are pre-operational and didn’t report Ebitda.

Under the revised management team, the group is reducing its drilling fleet to focus on already made discoveries while Batista’s $2 billion pledge gives OGX and OSX additional firepower to compete for new opportunities. The EBX Group Co. holding company has about $9 billion in cash, enough to guarantee development of all projects, the company said Nov. 9 in an e-mailed response to questions.

‘Unparalleled Access’

At this week’s meetings with Batista, Carneiro and the other executives, including CEOs and finance chiefs of his six listed companies and his private gold, real-estate and entertainment ventures, investors will have “unparalleled access to senior management,” according to the event’s website.

Carneiro replaced Paulo Mendonca as CEO of OGX, Batista’s most valuable company, in June after it announced the oil output target cuts. OGX slumped to the lowest in almost four years last month and is the second-worst performer amid the 818 stocks of the MSCI Emerging Markets Index (MXEF) in 2012. Carneiro was previously the CEO of shipbuilder OSX, which replaced him with Carlos Bellot, a 57-year-old chemical engineer with three decades of experience at state-run Petroleo Brasileiro SA. (PETR4)

MMX appointed Ricardo de Souza Assef as chief financial officer on Sept. 3 after the resignation of Guilherme Amado. CCX last month named Jose Gustavo de Souza Costa as CEO after the resignation of Leonardo Moretzsohn. EBX named Otavio Lazcano as CFO on Aug. 6, replacing Nicolau Chacur.

‘Stumbles’

“Given the couple of stumbles the group has had achieving and executing the goals, it has lost all sort of credibility,” said Ed Kuczma, who helps manage about $37 billion at Van Eck Associates Corp. and who doesn’t hold any shares of Batista’s companies at his Van Eck Emerging Markets Fund. “We took a wait-and-see approach and it has worked out for us so far.”

The tycoon’s net worth fell from a peak of $34.5 billion on March 27 to $19.7 billion on Nov. 9, according to Bloomberg Billionaires Index, making him the world’s 28th richest person.

Batista remains unfazed. He’s raising his bet on commodities, buying back shares and adding assets. He acquired a four percent stake in Canadian mining company Ivanplats Ltd. last month, and his AUX gold venture in October bought two Toronto-based mining exploration companies with assets in Colombia, Galway Resources Ltd. and Calvista Gold Corp. The billionaire also boosted his stake in MMX to 46.4 percent from 41.4 percent last month.

‘Quality Assets’

He has pledged to inject $1 billion in OGX and as much in OSX through stock purchases.

“This option underpins my confidence in OGX’s technical expertise and quality assets, as well as the new opportunities that the oil and gas sector offer to OGX,” Batista said in an Oct. 25 statement.

Batista’s six listed companies, based in Rio de Janeiro, had a combined net loss of 1.68 billion reais in the first nine months of this year, according to data compiled by Bloomberg.

Batista making a face-to-face presentation to investors in the U.S. is an important step to restore confidence and show progress is being made, said Laurence Balter, who oversees $100 million including OGX shares at Oracle Investment Research in Fox Island, Washington.

“Unfortunately many investors are impatient and run for the hills the moment a stock drops,” he said in an e-mailed response to questions. “There are untapped billions in his assets. If you have a horizon of five or more years, OGX can grow to the size of a ConocoPhillips one day.”

‘Longer Shots’

Batista’s businesses have also been hurt by slowing economic growth, declining commodity prices and Brazilian President Dilma Rousseff’s measures to tighten the government’s grip on electricity and telecommunication, reducing appetite for the country’s securities, said Deltec’s Byrnes.

Growth in Brazil, the largest emerging economy after China, will average 1.5 percent this year, less than the U.S. or Japan, according to 30 economists’ estimates compiled by Bloomberg. Oil dropped 12 percent in New York trading this year. Iron ore for delivery to China’s Tianjin port also lost 12 percent, according to The Steel Index Ltd.

“When risk becomes questionable in Brazil, the longer shots are the ones that people withdraw from the most,” said Byrnes, who doesn’t hold shares in any of Batista’s companies since selling OGX stock when the oil producer restated targets in June. “I’ve got to wait until OGX begins to restore some credibility.”

To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editors responsible for this story: Adriana Arai at aarai1@bloomberg.net; James Attwood at jattwood3@bloomberg.net


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