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Eike | We Won’t Get Fooled Again

The real plebiscite:

The real plebiscite: Do you agree that Brasília should abandon the far-flung galaxy where it is and return to Brazil?

When VEJA magazine arrives unexpectedly at my doorstop this morning — spoiled fruit of a missed delivery — I give it the sort of occasional browse-through I generally give when waiting for a dentist or such like without having brought my own reading material.

This week, publisher Eurípedes Alcântara challenges himself to explain his own publication’s history of hagiographical treatment of the Rio-based oil, gas, logistics and energy magnate Eike Batista, whose ventures peaked at just the same moment that shares in those companies began a steady decline. For a previous note on the subject, see

Like the 500 magazine covers devoted to the “visionary” Steve Jobs during his life and times, this was a high-pressure PR “pump”

In this week’s Letter to the Reader, Alcântara reappears to explain that Veja was just another innocent victim of a superb confidence man.

A report in this issue of VEJA narrates the rise and fall of the businessman who, until not so very long ago, was a symbol of entrepreneurialism and a stronghold of a Brasil that was growing rapidly.

Batista has turned into his opposite. With the value of shares in his companies melting like a popsicle on asphalt, Eike has become the paradigm of a confidence man who gets rich selling maps to gold mines. To make things worse, the fall of Eike is running parallel to the collapse of the Brazilian economy.

Last week, OGX shares gained nearly 40% on news of Eike’s removal as chairman.

A more sustained analysis reveals the reason for this parallel development. Eike took off in great part with the support of government agencies for entrepreneurs. He obtained billion-dollar credits from BNDES. The doors of President Lula and Dilma, his successor, were always open to him. He was a financial golden child, one of those businessmen selected to win the game of Brazilian state-sponsored capitalism. VEJA’s explanation of the collapse of the X Group reveals a series of errors committed by Eike and its partner in this experiment, the Brazilian government.

… Eike and the government are each paying for their mistakes. Eike lost the confidence of the market. The government paid a price in popularity. All this suffering might have been avoided had this ancient and penetrating maxim been observed: “Governments are terrible at choosing winners, but the people are even worse at choosing governors.”

As a side dish, a standard “neoliberalism is the worst system yet except for all the others” argument in the column of veteran central banker Mailson da Nóbrega.

The main article I cannot bring myself to get through, except to note that in the main piece,Veja reporters were, they said, privy to key business discussions of the group.

So how is it, working for a magazine whose strongest defense of its journalistic integrity and critical faculties is essentially “to err is human”? Another authority on Brazilian economic matters, Miriam Leitão, came right out and said that Eike “lied to shareholders.”

How credible are accounts of events like the following?

In recent weeks, as the political and economic risks of throwing Eike a life-buoy, Lula has left the building.  BNDES and Caixa — the two largest creditors of the X Group — have cut previously agreed upon payments and Eike finds himself in need of a restructuring.  Since March, the group has been run by another creditor, BTG Pactual.

Veja follows a higher standard than usual, relying on six (anonymous, always anonymous) senior executives within the company.

A final sidebar, “O Fim da Bolsa Eike” — punning on the federal income redistribution program  “Bolsa-Familia” or “family subsidy” — criticizes the losses to taxpayers suffered by state-owned banks in dealings such as those with the X Group.

Sérgio Lazzarini of Insper is quoted as saying,

Popular demonstrations show that people are more and more aware of the so-called opportunity cost of state-owned capital, because they known the money invested in the winning companies could have been invested better.

To be fair, some of the other accompanying pieces are also quite good, including data scrounged from EXAME magazine’s 2103 Biggest and Best edition.

Lauro Jardim, another professional Eike-watcher, reports:

Eike Batista is preparing for questioning by the securities regulator CVM in relations to unkept promises in interviews and material event releases of the X Group. CVM has already opened a case.

In August 2010, Eike declared word for word that the potential gas reserves discovered in the Parnaíba Basin was 15 million cubic meters per day.

To make it easy for the public to understand, Eike summed up the point as follows: “It is half of Bolivia. It is half of what Bolivia delivers to Brazil through the binational gas conduit.”

At the time, OGX sent CVM a material event announcement stating that it had detected the presence of hydrocarbonates in Well No.  OGX-16 (in the Parnaíba Basin) and that tests indicated  “high pressure and the presence of natural gas.”

Finally, in an interview with Veja, development minister Fernando Pimentel denied last week that the X Group would need federal assistance.

In Pimentel’s view, … the assets of EBX are capable of controlling the crises of confidence that have beset Batista’s companies.“He has many valuable assets. He doesn’t [need our help]”, disse Pimentel.

Among those asserting bad judgment in government loans to the X Group is Reinaldo Azevedo, who claims that “the decline of Batista’s companies is one of the reasons for the million-dollar deficit of the postal service employee pension fund.”