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“Creditors Partner With Mr. X”

dilma-e-os-leiloes-do-petroleo

Dilma, Eike and the petroleum concession process. “Sold at the price of a banana.” Cartoon by Latuff.

Fearing bankruptcy, creditors become partners of Eike

Source: R7 Economia

Assets of the businessman reduced to US$ 200 million, according to Bloomberg

By: Willian Volcov

The situation of businessman Eike Batista gets more and more complicated. Bloombergrecently reported that the man considered to the 8th richest in the world just last year has seen his personal fortune fall to US$ 200 million.

In addition, he is said to have accumulated US$ 2 billion in personal debt and currently owes R$ 1.5 billion to the Arab investment fundMubadala, of Abu Dhabi.

Because the books do not balance, with many fewer assets than debts, experts interviewed by R7 say the owner of the EBX group is trying to restructure his finances and transform his creditors into partners.

According to finance professor Gilberto Braga of Ibmec-RJ — the Brazilian Capital Markets Institute — part of the debt to the Arab fund is being transformed into assets. That is, it is being converted into shares in some of the Group X companies.

— Instead of a creditor, the bank becomes a business partner to Eike.

This strategy might be used by the financial institution to forestall a potential bankruptcy.
— This conversion of debt is so that you can ensure enough profits and dividends to repay the loans. If you have not obtained a guarantee of receipt, it is better to enter into a partnership.

The process is being intermediated by Banco BTG Pactual, which, through its press office, said it had no comment on the matter. BTG Pactual has been acting as a financial consultant to the EBX Group since March.

Although the companies of the Batista group are trying to adjust their fnances, the concern of major and minor creditors remains. A minority shareholder of the oil and gas division OGX, Márcio de Melo Lobo, has asked a court to freeze Eike’s assets.

An attorney forBatista, Sérgio Bermudes, called the petition “frivolous” and “uttterly without foundation”. Bermudes said that the objective of the suit was to seek a settlement beneficial to the shareholder, who reportedly holds R$ 40 million in OGX shares.

On July 15, foreign creditors of Eike Batista met in New York to discuss with Braziilian and foreign lawyers what is happening to the companies.

Despite the gloomy perspective and the loss of US$ 34.3 billion of Eike’s personal fortune, Elad Revi of Spinelli brokerage house does not see a bankruptcy on the horizon. In March of last year, Eike had a personal forture worth US$ 34.5 billion.

— This is a little hasty; there are other options. He could raise capital based on his personal wealth combined with foreign and international capital.

In this way, according to Ravi, he can achieve a certain balance and buy time for  payment of  debts.

Failure

EBX found itself in a difficult position when the company announced its operational failure  in four oil fields. From that point on, its shares  fell and credibility was lost. Batista has publicly said that he regrets having entered the market by means of an IPO.

Batista said it would have been better to created a private equity fund with corporate partners, which would permit to start from zero and develop each company over the period of a decade until it was ripe for an IPO.