http://www.businessweek.com/articles/2013-03-28/eike-batista-the-man-who-lost-25-billion-in-one-year

Markets & Finance

Eike Batista, the Man Who Lost $25 Billion in One Year


Investors betting against him will be “caught with their pants down.” 
—Batista, on Twitter

Photograph by Ueslei Marcelino/Reuters

Investors betting against him will be “caught with their pants down.” —Batista, on Twitter

A year ago, Eike Batista was Brazil’s richest man, and his goal of climbing to No. 1 in the world seemed within reach. After founding five publicly traded natural-resource companies in six years, he’d just sold a stake in his EBX Group conglomerate that valued his holdings at $34.5 billion. His companies had yet to turn a profit, so the deal, struck with an Abu Dhabi sovereign wealth fund, was mainly a testament to Batista’s vision: an integrated empire of companies, shipping oil and iron ore to China from a port he was building near Rio de Janeiro. “I think Eike is a special kind of entrepreneur,” said Brazil’s President Dilma Rousseff during a visit to the port project in April. “He’s a person who comes up with extremely ambitious dreams and then seeks to fulfill them.”

Today, Batista’s empire is under siege. His port, which he said would be the third-largest in the world, is still under construction, just one of many delayed projects and missed production targets. That, together with a 34 percent decline in the price of oil since 2008, has battered his companies’ share prices and knocked $25 billion off his net worth, more than the entire fortune of Amazon.com founder Jeff Bezos. “People were basically investing in a PowerPoint presentation,” says Ed Kuczma, an emerging-markets analyst at Van Eck Associates, which holds shares in Batista’s companies. “He’s very charismatic. I’ve seen him on roadshows and he definitely lightens up a room when he walks in. But he doesn’t have the credibility he used to.”

With a net worth of $9 billion, Batista has fallen off the Bloomberg Billionaires Index’s top 100 and dropped to No. 4 in Brazil. Investors, concerned about his companies’ continued ability to borrow money, have made OGX Petróleo e Gás, his largest holding, into Brazil’s second-most-shorted stock. (Short sellers borrow shares and sell them, hoping to buy them back at lower prices.) On March 22, OSX Brasil, Batista’s shipbuilding and oil services company, plunged 17 percent, to a record-low 4.88 reais a share. OGX fell 9.2 percent. On his Twitter account, Batista wrote that investors betting against him based on “rumors and gossip” would be “caught with their pants down.” In five years, he tweeted, his projects would remake Brazil as a “mega-efficient” country. A person close to EBX, who asked not to be identified because the matter is private, says that Batista’s companies are not facing any short-term financing problems and have $6 billion to $7 billion in cash. Batista declined to comment.

Investors’ loss of faith in Batista comes as the general euphoria over Brazil’s prospects dims. After growing at a China-like pace of 7.5 percent in 2010, the country’s gross domestic product expanded 0.9 percent last year. Batista’s decline has dominated headlines in Brazil in part because of what he had come to represent. In an interview with Bloomberg News last year, he said, “Brazilians have always admired the American dream. What’s happening in Brazil is the Brazilian dream, and I happen to be the example.” He has more than 1.2 million Twitter followers and, in 2011, published a bestselling memoir.

The billionaire has often failed to live up to his own hype. Based on studies by geologists he’d hired away from Petrobras (PBR), Brazil’s state-controlled oil company, Batista predicted that OGX would pump 50,000 barrels a day by the end of 2012, ramping up to 730,000 a day by 2015. He said it was one of a group of “bonanza assets” worth as much as $1.5 trillion that would produce such high profit margins that they were “idiot-proof.” When OGX began pumping oil in January 2012, Batista bragged on Twitter that the two-year interval between discovery and production was a world record. The wells were far less bountiful than he’d hoped, however, and the company is now producing fewer than 17,000 barrels a day.

Batista, 56, started out selling insurance policies while still in college in Germany. Although he often speaks of being a self-made man—he bought his first gold mine at 24—his father, Eliezer Batista, served as Brazil’s mining and energy minister and as president of Vale (VALE), the formerly government-owned mining giant. The younger Batista has acknowledged that his father’s reputation helped him secure his first loans. In recent years, Batista’s startups have benefited from the largesse of Brazil’s state development bank, which has lent more than $5 billion to his companies since 2007.

A tendency to oversell earns Batista frequent comparison to a certain American billionaire. “You can see why people characterize him as the Donald Trump of Brazil,” Kuczma says. As with Trump, Batista’s social life is a source of constant fascination. His ex-wife, Luma de Oliveira, is a former Playboy model and Carnival dancer. In 2010, he made headlines for recommending a $35,000 treatment that restored hair to his balding head. He’s a champion speedboat racer. At his mansion in Rio de Janeiro, he used to keep a $500,000 Mercedes-Benz SLR McLaren parked in the living room. That car figured in a tragic episode last year, when his son Thor hit a man riding a bicycle while driving it. The cyclist died. Amid the uproar, Batista defended his son on Twitter by accusing the cyclist of “imprudence.” Thor, now 21, is facing unintended vehicular manslaughter charges. His lawyers say the charges are baseless.

Over the years, Batista has launched ventures that leave investors scratching their heads. In the 1990s he started a cosmetics business with his ex-wife, and also a jeep factory. Both went under. In 2010 he started IMX, which promotes Ultimate Fighting Championships and Cirque du Soleil performances in Brazil. “We’re always in deal mode,” Batista said in an interview last year.

For now, he’s in damage control mode. On March 6, Batista announced an agreement with Grupo BTG Pactual Chairman André Esteves, a billionaire banker, to jointly run a strategic and financial management committee to help turn around Batista’s companies. Batista on March 28 confirmed plans to sell a stake of as much as $770 million in MPX Energia (MPXE3:BZ), his power-generation unit, to Germany’s E.ON (EOAN:GR). MPX will also offer $590 million in shares to other investors to raise capital. “He used to be the North Star for Brazilian entrepreneurs,” says Eric Conrads, a mutual fund manager at ING (ING) who specializes in Latin American stocks. “Now he’s more of a shooting star—bright at one stage, and then …”

The bottom line: With oil prices down 34 percent since 2008, Batista’s plans for a port near Rio de Janeiro are foundering.

Cuadros is a reporter for Bloomberg News in São Paulo.
Spinetto is a reporter for Bloomberg News in Rio de Janeiro.
Lucchesi is a reporter for Bloomberg News in São Paulo.

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