Batista's OGX Drops on Financing Outlook
SAO PAULO - Shares in OGX Petroleo e Gas Participacoes SA extended losses Friday after the oil company controlled by Brazilian billionaire Eike Batista had its credit rating cut by Standard & Poor's.
A Thursday report in O Estado de S Paulo newspaper that Brazilian President Dilma Rousseff had refused to aid Mr. Batista's companies added to the poor sentiment.
"The market is seeing ever-increasing risk [at OGX] and they had hoped that talks with Dilma and BTG [Pactual, a Brazilian bank] would bring about an eventual improvement," said Guilherme Sand, a fund manager at Zenith Asset Management. "The stock is highly liquid, so obviously that opens it up to a lot of speculative trading."
OGX shares had dropped as much as 17% to 1.64 reais (81 U.S. cents) Friday before closing 13.6% lower at BRL1.71. Shares dropped more than 10% Thursday after S&P cut its credit rating on the company late Wednesday.
According to Estado columnist Dora Kramer, representatives of national development bank BNDES, together with private lenders Itau Unibanco Holding SA, Banco Bradesco SA and Banco BTG Pactual SA--all of which have lent money to Mr. Batista--met with Ms. Rousseff this week to request help for Mr. Batista's companies, but were rebuffed.
But according to a person familiar with the government's thinking, Brazil's government considers it important for Brazil to have a large port, such as the multibillion-dollar Acu Port currently under construction in the state of Rio de Janeiro by LLX Logistica SA, also controlled by Mr. Batista.
Brazil failed for decades to invest in infrastructure, and is now bumping up against the limits to growth that entails, with transportation bottlenecks eroding the country's competitiveness. To resolve that problem, the government has announced several infrastructure investment programs in recent years, which could see $250 billion of investment in roads, railways, ports and airports.
LLX is currently in talks with government oil company Petroleo Brasileiro SA (Petrobras) and would like to sign up the company for a berth at Acu, people close to talks have said. Petrobras could decide to go ahead if some concessions are made by Mr. Batista's companies, which include OGX and shipbuilding company OSX Brazil SA, one person added. According to Petrobras, Acu is one of the alternatives under analysis for a new base for offshore operations.
OGX's bonds were also falling Friday, as warning lights came on in the market following the reports coming out regarding the company, according to Marco Aurelio de Sa, head of the Latin American trading desk at Credit Agricole Securities in Miami.
OGX's bonds due in 2018 were trading around 77 cents on the dollar Friday, from around 80 cents on the dollar Thursday.
"The level that OGX equity and bonds are at now, it's difficult for the company to raise more money. That's going to make it difficult for them to roll over debt, much less carry out investments," said Paulo Nepomuceno, fixed-income strategist at the Coinvalores brokerage.
A banker close to Mr. Batista noted Friday that his intention is to keep selling stakes in some of the group's more-mature companies to strengthen the group's finances and not to seek refinancing of the group's debt with the private banks.
"He is far from that," the person added.
Mr. Batista has seen his companies' stock suffer since the middle of last year, when disappointing output data at OGX led investors to start questioning whether he could get his startup companies off the ground and generating the promised revenue before heavy investment needs ate through all the capital Mr. Batista had raised in the last five years.
Since the start of this year, Mr. Batista has been selling stakes in his companies and seeking new partners to shore up his business. He recently announced the sale of a stake in electric utility MPX Energia SA (MPXEY, MPXE3.BR) to Germany's E.ON SE (EONGY, EOAN.XE), and that he would partner with Brazilian banker Andre Esteves and his BTG Pactual for financing and management assistance.
Mr. Batista is currently discussing the sale of stakes in some of OGX's exploration blocks and oil fields, according to people familiar with the situation.
OGX declined to comment for this story.
"There seems to be a speculative attack on OGX to force Eike to hand over assets at the cheapest price possible," Mr. Nepomuceno said. "Equity holders are in a better position because they can buy at BRL3 and see the stock fall to BRL2, but bond holders are in a tough place because they're seeing that it's increasingly likely they may not get their money back."
Zenith fund manager Mr. Sand noted that about 260 million shares of the company, representing about 20% of OGX's free-floating stock, is being borrowed by the market, with a majority of that likely borrowed by short sellers, who benefit from the stock's decline in price.
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