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X-Men: OGX Awaits The Malaysians

 

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The saga of Eike Batista continues as market experts debate the long and short of whether  the Brazilian entrepreneur’s X Group and its flagship OGX oil and gas division will survive, and in what form.

Bloomberg, meanwhile, reports on a regulatory matter may complicate the situation even more:

Brazil’s securities regulator started an investigation into billionaire Eike Batista’s OGX Petroleo & Gas Participacoes SA after a minority investor lodged a complaint over alleged insider trading.

The Brazilian Securities and Exchange Commission, known as CVM, opened the review after a request by OGX individual investor Rafael Ferri, according to a statement on the regulator’s website dated today. The complaint relates to Batista’s sale of 126.7 million OGX shares between May and June before the company scrapped projects and warned it may stop pumping crude next year, Ferri said in an e-mailed statement.

A case to watch.

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The likelihood that OGX bondholders will suffer a default on the interest payment scheduled for October is palpable in the even the $250 million transfer that Petronas is obliged to make is not paid in time, says the executive director of FTI Consulting, Sam Aguirre.

Pronas got a 40% stake in return for its $850 million.

The sum corresponds to the first parcel of a US$ 850 million payment for 40% of Blocs C-39 and BM-C-40 in the Hammerhead – Tubarão Martelo – field, located in the Campos Basin and acquired by the Malay oil and gas company in May. Receipt of the payment  depends on the approval of the ANP — National Petroleum Agency — which is  studying the case. “Without the $250 million, it is highly unlikely that the company will be able to honor this debt, given current estimates of its cash based on numbers from its March 31 quarterly report and its expenditures since then,” Aguirre says.

Aguirre took part yesterday in a meeting with foreign invstors (among them creditors of OGX andOSX) in New York, during which he explained Brazilian bankruptcy law. The meeting had be organized in early June. According to Aguirre, with the pressure placed on “X Group” companies for information, FTI decided to broaden the scope of the meeting in order to clear up the principal concerns of creditors about the liquidity of the group.

“I have worked on the restructuring of companies for years, and OGX has all the elements of a pre-default company,” Aguirre said.  On March 31, OGX had a cash balance of US$ 1.1 billion, of which, discounting the US$ 449 million transferred to OSX and another US$ 120 relating to the coupon of the 2022 bonds aid in June,” leaves the company with US$ 400 million in cash.” “This figure is trivial for a company with a Capex the size of OGX’s, and creditors are keeping na eye on the situation,” he said.

Aguirre also recalls that OGX will have to pay US$ 160 million to the Brazilian ANP if it decides to participate in the eleventh round of oil concessions. OGX owes US$ 3.6 billion to foreign creditors in the form of a bond maturing in 2018 and 2022.

Today, the bonds have reached new levels of devaluation. The bonds maturing in 2018 closed the day at 15.750% of face value, whereas the bond maturing in 2022 closed at 14.50% of face value.

Crise. The situation at OGX worsened after a series of the company’s wells turned out to be unfit for production, frustrating the bold expectations constantly promoted by Eike Batista in the media.

Two weeks ago, Batista threw in the towel: Production at Hammerhead will cease in 2014, two years after extracting the first barrel of oil. Another three fields were suspended in the wake of a declaration of commerciality.  OGX reneged on it prior projections.

In June, Eike Batista also reduced his own participation in the oil and gas subsidiary, which not long before had been the flagship of the X Group. This retreat hurt investor confidence.

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