RIO DE JANEIRO, Oct 30 (Reuters) - OGX Petróleo e Gas Participações SA, the Brazilian oil company controlled by former billionaire Eike Batista, sought court protection from creditors on Wednesday in Latin America's largest-ever corporate bankruptcy filing.
The bankruptcy protection request, which was confirmed by the court in Rio de Janeiro, came after OGX failed to reach an agreement with creditors to renegotiate part of its $5.1 billion debt load.
The request marks another chapter in the unraveling of Batista's once high-flying industrial empire, which he has been dismantling in recent months after disappointing output from offshore OGX wells set off a crisis of investor confidence.
If the court approves the request, OGX will have 60 days to come up with a corporate restructuring plan. The company's creditors, which include the California-based bond fund Pacific Investment Management Co (PIMCO), and U.S.-based investment fund BlackRock Inc, will then have 30 days to endorse or reject the plan.
Officials at OGX and EBX, Batista's holding company, did not immediately respond to telephone calls and emails seeking comment.
An OGX bankruptcy is unlikely to have a significant effect on Brazil's economy. The company is barely out of its start-up phase and produces almost no crude oil, and most of its debt is held by foreign bondholders. But the fate of sister company OSX Brasil depends almost entirely on OGX, whose market value has plummeted by nearly $45 billion since its stock peaked in October 2010.
Batista created OSX, which had to scale back efforts to construct the largest shipyard in the Southern Hemisphere, to build and lease oil production and service vessels to OGX.
A renowned dealmaker who once boasted he was on track to become the world's richest man, 56-year-old Batista has seen his personal fortune reduced by over $30 billion in the last 18 months as investors punished the share price of his listed companies.
The downward spiral forced Batista to start breaking up his Grupo EBX conglomerate, which also included a port operator, mining and energy interests, and an entertainment company. (For a FACTBOX on the unraveling of EBX, see )
Batista's rapid decline has become a symbol of Brazil's own economic troubles. After a decade-long boom in which investors poured cash into Brazil and Batista's enterprises, Latin America's largest economy has been in a rut for nearly three years, frustrating predictions that the country was poised to join the ranks of developed nations.
OGX's decision to seek protection from creditors came as no surprise. After missing a $44.5 million interest payment owed to bondholders on Oct. 1, OGX scrambled to restructure its debt before the end of a 30-day grace period or be declared in default on $3.6 billion in bonds.
The process was rocky from the outset, and OGX called off the talks with creditors on Tuesday, leaving a bankruptcy filing as the only viable option to buy more time in its quest to save the company.
Racing to Pump Oil
Brazil's 8-year-old bankruptcy law is similar to Chapter 11 proceedings in the United States, and gives OGX a chance to reduce its liabilities and emerge as a going concern. Bondholders will play a key role in the process, though in recent bankruptcy cases - such as those of power companies Celpa SA and Grupo Rede Energia SA - some creditors complained that judges privileged the claims of state-owned banks over theirs.
Indeed, bankruptcy cases have not always moved smoothly through Brazilian courts and some judges have been sympathetic to pressure from different stakeholder groups like employees, pensioners and shareholders, at times putting their interests above those of creditors, said Paulo Rabello de Castro, head of SR Rating, a Brazilian credit rating agency.
Investors worldwide will be watching as the OGX proceedings unfold. If bondholders feel they are not treated fairly in the restructuring process, foreign investors may think twice before investing in other Brazilian companies, analysts say. (For a FACTBOX on Brazil's bankruptcy law, see
PIMCO and Blackrock declined to comment. PIMCO held nearly $387 million worth of OGX bonds in registered funds at the end of June, according to the latest data provided to Lipper.
OGX is racing to start output at an offshore oil field called Tubarão Martelo by the end of November, its best hope for a source of revenue that could help the restructuring process. Failure to get Tubarão Martelo producing will make it harder to find an investor to buy all or part of the field and could lead to the breaking of contractual obligations to Brazil's oil regulator, the ANP.
While the ANP has said a bankruptcy filing would not automatically cause OGX to lose its production leases and exploration rights, it stressed that any failure to meet the conditions of these contracts would result in their loss. That would strip OGX of any chance of generating future revenue.
The company needs about $250 million of debt or equity financing to keep operating through April 2014, it said in a recent presentation to bondholders. Without new financing, OGX said it would run out of cash in the last week of December.
During talks, OGX and the bondholders discussed a potential $150 million credit line aimed at funding the company's exploration campaign for a few more months. But there was disagreement over Batista's plan to have bondholders convert debt into equity as well as the terms of his potential departure from the company, sources told Reuters last week.
To keep OGX running, a bankruptcy judge will have to decide if output from Tubarão Martelo and other offshore and onshore areas are sufficient to keep the company operational and allow for some repayment to creditors.
OGX holds rights to areas that may no longer be considered commercially viable, not for lack of oil, but because the regulatory definition of viable requires the company to have sufficient cash to develop the resource. Selling all or part of those contracts could help keep the company alive.
"I think there is some value in OGX's offshore assets," an oil executive who has seen geological data about OGX's prospects and fields. "If the price is right I think someone may well buy them and that they could produce pretty well."
Brazil's slow judicial system, though, could prevent an agreement from being reached before OGX loses its oil rights.
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